-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jj97YSkTOUH8zGBUlXtB3hV74hKYP7yOJk9DcBmBY8CylG4CfVGpAiZMykIoBOHo e24gNLlHwf/3OCSQ09iiiQ== 0000950136-01-000627.txt : 20010410 0000950136-01-000627.hdr.sgml : 20010410 ACCESSION NUMBER: 0000950136-01-000627 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 34 FILED AS OF DATE: 20010403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXSAN CORP CENTRAL INDEX KEY: 0001133448 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 13414478 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-58182 FILM NUMBER: 1592776 BUSINESS ADDRESS: STREET 1: 21700 OXNARD ST CITY: WOODLANDS STATE: CA ZIP: 91367 BUSINESS PHONE: 8664639726 MAIL ADDRESS: STREET 1: 21700 OXNARD ST CITY: WOODLANDS STATE: CA ZIP: 91367 SB-2 1 0001.txt FORM SB-2 As filed with the Securities and Exchange Commission on April 2, 2001. Registration NO. ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 NEXSAN CORPORATION (Name of small business issuer as specified in its charter) Delaware 13-4149478 3572 (State or other jurisdiction (IRS Employer (Primary Standard Industrial of incorporation or Identification Number) Code Number) organization) NEXSAN CORPORATION 21700 Oxnard Street Suite 1850 Woodland, California 91367 (866) 463-9726 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Martin Boddy, Chief Executive Officer NEXSAN CORPORATION 21700 Oxnard Street Suite 1850 Woodland, California 9136 Telephone: (866) 463-9726 Facsimile: (805) 375-1340 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies of communications to: William P. Ruffa, Esq. Ruffa & Ruffa, P.C. 150 East 58th Street New York, New York 10155 Approximate dates of proposed sales to the public: From time to time after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuing basis pursuant to Rule 415 under the Securities Act of 1933, check the following box |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 426(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|. If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Title of Each Class of Amount to be Offering Price Aggregate Registration Securities to be Registered Registered Per Security (1) Offering Price (1) Fee - --------------------------- ----------------- ---------------- ------------------ ------------ Common Stock, par value $.001 per share, offered by Selling Shareholders 5,086,886 $0.1679 $854,088.15 $238 Total 5,086,886 $0.1679 $854,088.15 $238(2) ========= ======= =========== ====
(1) There is no current market for the common stock and the price at which the shares being sold by the selling shareholders will be sold is unknown. Pursuant to Rule 457(f)(2), the registration fee is based upon the estimated book value per share of common stock of $0.1679 at December 31, 2000. (2) Paid by electronic transfer. The registrant hereby amends the Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities Exchange Commission, acting pursuant to said Section 8(a), may determine. ii PROSPECTUS Subject to completion: Dated April 2, 2001 The information contained in this Prospectus is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any state in which an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that state. NEXSAN CORPORATION 5,086,886 SHARES OF COMMON STOCK OF NEXSAN CORPORATION TO BE SOLD BY CERTAIN SELLING SHAREHOLDERS This Prospectus relates to the possible resale of shares of our common stock by some of our existing shareholders, including some of our officers and directors. We will not receive any proceeds from the sale of these shares. Prior to the date hereof, our common stock has not traded on any market. We will bear all expenses, other than selling commissions and fees, in connection with the registration and sale of the shares being offered by the selling shareholders in this Prospectus. INVESTING IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS" STARTING ON PAGE 10. Some of the risks you face in investing in our common stock include the following: There is currently no public trading market for our securities. A trading market in our securities may never develop or, if developed, it may not be sustained. We will not receive any proceeds from the sale of the shares being registered in behalf of and sold by the selling shareholders. We have a limited operating history and, consequently, it is difficult for you to evaluate our business and prospects. The industry in which we operate is new, unpredictable and evolving rapidly and if the industry evolves differently than we anticipate or the market for our products does not grow as we expect, our business will suffer. We have never sold our products in the United States and we can not be certain that our products will gain widespread acceptance here. We will need additional capital to implement our expansion and marketing plans and to continue to upgrade and develop new products and we may not be able to obtain it, which could prevent us from carrying out our business strategy. We generate revenues from only a limited number of products and any failure to generate significant revenues from such products would cause our business to suffer. We have only limited product assembly capabilities and we may not be able to satisfy the demand for our products which would materially adversely affect our business. We obtain certain components that comprise our products from a limited number of suppliers and any interruption in the supply of these components would cause our business to suffer. The market for computer data storage products is intensely competitive and new entities are entering the market all the time. We cannot assure you that we will be able to compete effectively against existing and potential future competitors. Our executive officers do not have any experience operating a public company. We are subject to all of the risks of doing business in foreign countries including, unexpected changes in, or impositions of, legislative or regulatory requirements; fluctuating exchange rates, tariffs and other barriers; greater difficulties in accounts receivable collection and longer payment cycles; potentially adverse tax consequences; and potential hostilities and changes in diplomatic and trade relationships. Companies engaged in high tech businesses such as ours have had difficulty identifying and hiring qualified employees. Any failure to engage qualified employees will be detrimental to our business. The shares of common stock offered by the selling shareholders will become freely tradable on the date this registration statement is declared effective by the Securities and Exchange Commission. The selling shareholders will receive all proceeds from the sale of their shares and Nexsan will not receive any proceeds from such sales. The selling shareholders, directly or through agents, dealers or representatives to be designated from time to time, may sell their shares on terms to be determined at the time of sale. See "Plan of Distribution." The selling shareholders reserve the sole right to accept or reject, in whole or in part, any proposed purchase of the shares being offered for sale. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IT'S ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE. 2 Underwriting Discounts Proceeds to Company Price to Public (1) and Commissions (2) or Other Persons - ------------------------------------------------------------------------------- Per Share Unknown $-0- Unknown (3) Total Unknown $-0- Unknown (3) - ------------------------------------------------------------------------------- (1) All of the shares are being sold by the selling shareholders in separate transactions in prices to be negotiated at the time of sale. (2) The shares are being sold by the selling shareholders and Nexsan has no agreements or understandings with any broker or dealer for the sale of the shares. A selling shareholder may determine to use a broker-dealer in the sale of its shares and the commissions paid to that broker-dealer, if any, shall be determined at that time. Prior to the involvement of any broker-dealer, that broker-dealer may have to seek and obtain clearance of the compensation arrangements from the National Association of Securities Dealers, Inc. In that event, Nexsan will file a post-effective amendment identifying the broker-dealer(s). (3) Nexsan will not receive any proceeds from the sale of the shares. One or more broker-dealers may be the principal market makers for the shares being offered. Under these circumstances, the market bid and asked prices for the shares may be significantly influenced by decisions of the market makers to buy or sell the shares for their own account. The market making activities of any market makers, if commenced, may subsequently be discontinued. The date of this Prospectus is April ___, 2001 We have not authorized anyone to provide you with information different from that contained in this Prospectus. This Prospectus is not an offer to sell nor is it an offer to buy these securities in any jurisdiction where such offer or sale is not permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of any sale of the common stock. 3 TABLE OF CONTENTS Heading Page - ------- ---- Prospectus Summary 5 Selected Financial Data 9 Risk Factors 10 Information Regarding Forward-Looking Statements 23 Use of Proceeds 24 Dividend Policy 24 Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Business 32 Management 50 Principal Shareholders 61 Selling Shareholders 63 Certain Relationships and Related Transactions 73 Description of Capital Stock 75 Shares Eligible for Future Sale 77 Market Price and Dividends on Registrant' Common Equity and Related Stockholder Matters 78 Legal Proceedings 78 Plan of Distribution 78 Legal Matters 80 Experts 81 Disclosure of Commission Position on Indemnification for Securities Act Liabilities 81 Where You Can Find Additional Information 81 Index to Financial Statements F-1 4 This Prospectus contains product names, trade names and trademarks that belong to other companies whose mention herein is with due recognition of the rights of these companies and without any intent to misappropriate such names. Preliminary Note Regarding Currency Presentation We publish our financial statements in United States Dollars. Most figures pertaining to numerical information that were not drawn from the financial statements included elsewhere in this Prospectus and which would have been denominated, by contract or otherwise, in British Pounds have been converted into US Dollars. Any figures presented in British Pounds (denoted by the "(pound)" symbol) are followed by the corresponding US Dollar amount converted at the exchange rate of (pound)1 into US$1.415 (so that (pound) .70350 equals US$1) as reported in the Wall Street Journal on March 23, 2001. Any numerical information drawn from the financial statements included in this Prospectus has been converted at the exchange rates referenced therein. PROSPECTUS SUMMARY The following summary contains basic information about Nexsan Corporation and this Prospectus. It likely does not contain all the information that is important to you. For a more complete understanding, we encourage you to read the entire document and the documents referred to in this Prospectus, including the financial statements and related notes. In this Prospectus, the words "Nexsan," the "Company," "we," "our," and "us" refer to Nexsan Corporation and its wholly-owned subsidiaries. Business Nexsan Corporation, a Delaware corporation, and its wholly-owned subsidiaries design, manufacture and market a comprehensive range of high-performance data storage solutions for the mid- to high-end server marketplace. Our current product offerings consist of: o the XRAID line of fault tolerant storage devices designed for server attached storage, or SAS, devices based on RAID ("Redundant Array of Independent Disks") storage technology; and o the InfiniSAN line of storage area networking systems, or SANs, based on RAID technology. RAID technology links together several industry standard disk drives into a single large disk drive using a combination of hardware, firmware and software to achieve extremely fast data transfer rates, high levels of redundancy and large storage capacities. SAS systems attach the storage directly to the server using a SSCI, or storage specific channel interface. SANs are self-contained networks of high-speed storage devices. SAN systems represent the highest performance, most technologically advanced storage products available today. Our SAN product line is based on an open systems, standards-based architecture, that supports many different servers accessing the same data; and multiple users 5 accessing data from different locations. Our SAN products are sophisticated, scalable, fault tolerant systems; they can withstand the failure of virtually any component without the loss of data or system downtime. We began shipping our XRAID line of products in August 1999 and our InfiniSAN product line in February 2001. To date, we have sold products to approximately 400 different end users. Our client base includes organizations in Europe, Canada, South Africa, Australia and New Zealand, including Saatchi & Saatchi, IBM, The Bank of England, the British Broadcasting Company, the Welcome Trust, Ericsson, the Financial Times, the Ford Motor Company, Deutsche Telekom, and the University of Oslo. In the last decade, there has been a dramatic increase in the volume of data created, stored, processed and accessed throughout business organizations. In addition, organizations have recognized the increasing importance and value of their enterprise data as a strategic, competitive and often mission-critical asset. These organizations are demanding rapid and reliable access to this data 24 hours a day, seven days a week. The continued deployment of mission-critical, client-server applications, combined with the growth of enterprise data, the rapid growth in the number of e-commerce and other companies whose businesses completely rely on such data, and the emergence of data-intensive applications such as web-serving, digital video and other multimedia applications and enterprise resource planning has placed significant strain on current storage architectures. Furthermore, the increased use of open-system computing environments, which link multiple applications, files and databases to networked computers, makes this task increasingly difficult. As a result of these factors, expenditures for data storage are growing rapidly and consuming an increasing percentage of total information technology expenditures. Our enterprise storage solutions are designed to provide our customers with continuous access to their mission-critical data, while enhancing performance of their applications and reducing their information technology ("IT") staff's management and support tasks. We provide these benefits to customers through the delivery of advanced technology, extensive services and broad support. Our marketing strategy utilizes value added resellers ("VARs"), specialized systems integrators and original equipment manufacturers, or OEMs (who as a group we refer to as our "Sales Channel Partners") to service the worldwide market. We currently maintain contact with our Sales Channel Partners worldwide through our ten-person marketing team. Our marketing team is comprised of experienced professionals who have a proven track record of sales success working with independent resellers of computer hardware and who have developed an opportunity exclusivity model called "LeadGuard SM ." LeadGuard provides a vehicle for our Sales Channel Partners to work within a managed program that benefits both the partners and Nexsan by encouraging and generating profit based sales for both parties. Presently, we have relationships with 38 Sales Channel Partners and we estimate that half of them sell our products exclusively or recommend our products as a first alternative. We also expect that as our marketing team intensifies its activities, the number of Sales Channel Partners that offer our products will increase significantly. 6 Our LeadGuard marketing strategy is unlike that employed by the preponderance of manufacturers, or OEMs, and resellers of storage devices that market their products through a wide array of sales channels, a marketing technique known as broad line distribution. Broad line distribution utilizes, among other methods, an OEM's internal sales staff, the OEM's web site, resellers, and independent VARs. Under this scenario, each of the elements of the broad line distribution network competes against each other. The OEMs and multiple groups of VARs compete to offer the best price for a product. The OEM is required to lower the price of the product to make the sale which reduces the profit margin for the OEM and VAR that makes the sale. From a practical standpoint, this scenario creates a disincentive to VARs and disenfranchises them from the OEM. In contrast, we market our products through a diversified and well-balanced sales channel of committed and loyal partnerships forged on the profit protected opportunity exclusivity feature of LeadGuard. Our Sales Channel Partners will take advantage of capturing their opportunities within LeadGuard because from the time a Sales Channel Partner enters its opportunity in LeadGuard, it enjoys a position of profit protection through the entire sales process. Our Sales Channel Partners register sales leads with us and provide purchase information such as product and project pricing requirements for a client. LeadGuard rewards those Sales Channel Partners who resell Nexsan storage exclusively and who register a lead within our system by receiving our best price for products sold to that lead. This feature of LeadGuard's pricing structure also serves as an incentive to our Sales Channel Partners because it rewards resellers who identify, register, and make sales to, new leads. We manufacture our products at our facility in Derby, England. We expect to require a larger assembly facility to meet anticipated demand for our products and we are seeking to identify a suitable space near our current UK location. Corporate History. Nexsan Corporation was incorporated under the laws of the State of Delaware in November 2000. We own all of the outstanding shares of capital stock of each of a United Kingdom corporation, Nexsan Technologies Limited ("Nexsan-UK"), that is responsible for manufacturing operations and marketing our products in Europe, and a Delaware corporation, Nexsan Technologies Incorporated ("Nexsan-US"), that serves as our US marketing subsidiary. Nexsan Technologies Limited, was incorporated in January 1999 and commenced shipping products in August 1999. In January 2001, Nexsan Corporation acquired all of the outstanding shares of capital stock of Nexsan Technologies Limited in exchange for an aggregate of 9,050,000 shares of our common stock. Nexsan Technologies Incorporated was incorporated in January 2001 for the purpose of marketing our products worldwide. Corporate Information. Our corporate headquarters are located at 21700 Oxnard Street, Suite 1850, Woodland Hills, California 91367, our telephone number is (866) 463-9726 and our facsimile number is (805) 375-1340. Our subsidiary, Nexsan-UK, maintains an office and manufacturing and 7 assembly facility at Imperial House, East Service Road, Raynesway, Derby DE21 7BF, United Kingdom. Our web address is www.nexsan.com The Offering. Common Stock Offered by the Selling Shareholders.... 5,086,886 shares of common stock. Use of Proceeds............. We will not receive any proceeds from the sale of any of these shares. Risk Factors................ The common stock offered by this Prospectus is speculative and very risky. You should carefully consider the risk factors contained in this Prospectus before investing. See the Risk Factors section starting on page 10 for a more complete discussion of the risks associated with an investment in our stock. Selected Financial Data The selected financial data for the Company at and for the year ended March 31, 2000 is derived from and should be read in conjunction with our audited financial statements and notes hereto included elsewhere in the Prospectus. The selected financial data for the nine months ended December 31, 2000 are derived from and should be read in conjunction with our unaudited condensed consolidated financial statements included elsewhere in the Prospectus. In the opinion of the management, the unaudited condensed consolidated financial statements include all material adjustments, consisting of only normal, recurring adjustments, necessary for the fair presentation of the financial position and results of operations for the period. The data presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", and the financial statements and accompanying notes, which are included elsewhere in this Prospectus. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK TABLE APPEARS ON FOLLOWING PAGE 8
Year ended Nine months ended Nine months ended March 31, 2000 December 31, 2000 December 31, 1999 -------------- ----------------- ----------------- In $ thousands, except shares and per share data STATEMENT OF OPERATIONS DATA Total revenue 1,202 1,650 634 Operating costs and expenses Cost of goods sold 1,045 1,227 482 Selling, general and 394 441 353 administrative ----- ----- --- Total operating costs and expenses 1,439 1,668 835 ----- ----- --- Operating loss (237) (18) (201) Interest income -- 2 -- Interest expense (17) (15) (10) ----- ----- --- Net loss (254) (31) (211) ----- ----- --- Preferred stock dividends (7) (6) (5) ----- ----- --- Net loss applicable to common (261) (37) (216) ----- ----- --- Net loss per common share (8.96) (.88) (5.85) ----- ----- --- Weighted average number of common shares outstanding 29,214 42,467 37,000 ====== ====== ====== OTHER DATA Net cash (used in)/provided by operating activities (238) (204) (315) BALANCE SHEET DATA At March 31, 2000 At December 31, 2000 At December 31, 1999 Cash and cash equivalents 107 129 58 Working capital 52 215 81 Total Assets 641 1,046 633 Shareholders' equity (197) 152 (155) Long Term Debt 219 101 227 Redeemable Preferred Stock 89 96 77
9 RISK FACTORS You should carefully consider the risks described below, together with all of the other information included in this Prospectus, before deciding whether to invest in our common stock. These are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business. If any of the events described in the following risk factors actually occurs, our business, operating results or financial condition could be materially adversely affected, the trading price of our common stock could decline, and you may lose all or part of your investment. RISKS RELATING TO OUR INDUSTRY THE MARKET FOR SANS IS NEW AND UNPREDICTABLE, AND IF THIS MARKET DOES NOT DEVELOP AND GROW AS WE ANTICIPATE, OUR BUSINESS WILL SUFFER. With the development of our new SAN product line, we will re-focus our marketing and sales efforts from SAS devices to SANs. We expect that sales of SAN systems and related products as a percentage of our total sales will increase steadily and become our primary source of revenue within the next several years. The market for SANs has only recently begun to develop and is rapidly evolving; consequently, it is difficult to predict its potential size or future growth rate. Accordingly, widespread adoption of SANs as an integral part of data-intensive enterprise computing environments is critical to our future success. Potential end-user customers who have invested substantial resources in their existing data storage and management systems may be reluctant or slow to adopt a new approach, like SANs. We cannot predict the speed at which customers will adopt current and new products for SANs. Our success in generating net revenues in this emerging market will depend on, among other things, our ability to: o educate potential end users about the benefits of SANs; o predict and base our products on standards which ultimately become industry standards; and o predict and deliver new and innovative products demanded by the storage area marketplace. In addition, SANs are often implemented in connection with the deployment of new computer systems and servers. Accordingly, our future success is also substantially dependent on the market for new computer systems and servers. RISKS RELATING TO OUR BUSINESS YOU ARE UNABLE TO EVALUATE OUR BUSINESS AND PROSPECTS BECAUSE OF OUR LIMITED OPERATING HISTORY. Our United States marketing subsidiary commenced operations in January 2001 and has booked orders accounting for insignificant revenues to date. Our United Kingdom subsidiary, Nexsan Technologies Limited ("Nexsan-UK"), through which we have generated the material 10 portion of our revenues to date, was organized in January 1999 and commenced shipping products in August 1999. Because we have a limited operating history, there is little historical information regarding our company and, therefore, you will have difficulty evaluating our business and prospects. Moreover, we introduced a new SAN product line in February 2001 and have realized only insignificant revenues from such family of products to date. The revenue and income potential of our new SAN products are unproven. As a young company, we face risks and uncertainties relating to our ability to successfully implement our business plan. Investors should consider the risks, expenses and difficulties encountered by companies in their early stages of development, particularly companies, such as us, which are doing business in the new and rapidly evolving and changing market for SAN systems, including, but not limited to, our ability to: o successfully market our SAN products; o build brand recognition of the new InfiniSAN family of products; o build a corporate infrastructure capable of successfully developing and operating our business; o secure additional capital as necessary to fund our expansion and develop new products; and o promptly address the challenges faced by early stage companies which do not have any experience or performance base upon which to draw. If we do not successfully address these risks and uncertainties, our business, operating results and financial condition will be materially adversely affected. DUE TO OUR LIMITED OPERATING HISTORY, WE MAY HAVE DIFFICULTY ACCURATELY PREDICTING REVENUES FOR FUTURE PERIODS AND APPROPRIATELY BUDGETING FOR EXPENSES. We have been in existence for less than two years and, thus, we have only a short history from which to predict future net revenues. This limited operating experience, combined with the rapidly evolving nature of the SAN market in which we sell some of our products, reduces our ability to accurately forecast our quarterly and annual revenue. Further, we plan our operating expenses based primarily on these revenue projections. Because most of our expenses are fixed in the short-term, we may not be able to decrease our expenses in a timely manner to offset any unexpected shortfall in revenue. UNCERTAINTY AS TO ACCEPTANCE OF OUR PRODUCTS IN THE UNITED STATES. We recently organized a US marketing subsidiary to work with our Sales Channel Partners that will market our products worldwide. Our marketing subsidiary initially will focus on developing an extensive network of Sales Channel Partners in the US. Our business model assumes significant sales of our products in the United States through these Sales Channel Partners. We cannot be certain that end-users of our XRAID and InfiniSAN products in the United States will accept our current and future product offerings. Any failure to establish our product line in the United States and generate significant revenues from our US operations would materially adversely affect our business and results of operations. 11 IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS, OR IF OUR PRODUCTS FAIL TO KEEP PACE WITH TECHNOLOGICAL CHANGES IN THE MARKETS WE SERVE, OUR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. Our future growth will depend in large part upon our ability to successfully develop and introduce new hardware and software for the SAN market. Because our products are complex, and it is difficult to estimate the engineering effort required to produce new products, we face significant challenges in developing and introducing new products. Moreover, our limited personnel and financial resources, compared to those of many of our competitors, may impede our ability to develop and introduce new products. We may be unable to introduce new products on a timely basis or at all. If we are unable to introduce new products in a timely manner, our operating results could be harmed. Even if we are successful in introducing new products, we may be unable to keep pace with technological changes in our markets and our products may not gain any meaningful market acceptance. The market we serve is characterized by rapid technological change, evolving industry standards, and frequent new product introductions and enhancements that could render our products obsolete and less competitive. As a result, our position in this market could erode rapidly due to changes in features and functions of competing products or price reductions by our competitors. In order to avoid product obsolescence, we will have to keep pace with rapid technological developments and emerging industry standards. We may not be successful in doing so, and if we fail in this regard, our operating results could be harmed. IF WE ARE UNABLE TO COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS WE MAY BE UNABLE TO SELL OUR SYSTEMS OR BE COMPETITIVE IN THE MARKETPLACE. Our systems must comply with current industry standards and government regulations in the United States and internationally. Any new products and product enhancements that we introduce in the future must also meet industry standards and government regulations at the time they are introduced. Failure to comply with existing or evolving industry standards could materially harm our business. In addition, such compliance may be time consuming and costly. Further, components of the SAN must comply with evolving industry standards. We depend on companies that provide components for our SAN products to also meet these standards. If our vendors or customers do not support the same industry standards that we do, or if competing standards emerge that we do not support, market acceptance of our products could suffer. WE WILL NEED ADDITIONAL CAPITAL TO IMPLEMENT OUR EXPANSION AND MARKETING PLANS AND CONTINUE TO UPGRADE AND DEVELOP NEW PRODUCTS AND WE MAY NOT BE ABLE TO OBTAIN IT, WHICH COULD PREVENT US FROM EXECUTING OUR BUSINESS STRATEGY. Our business model assumes that we will have substantial funds to expand our operations, develop new products and implement the full range of our marketing program and plans for future growth. We require funds for the following purposes: 12 o to expand our manufacturing operations; o to implement our marketing strategy; o to respond to unanticipated developments or competitive pressures; o to increase inventory; o to develop new products; and o to take advantage of unanticipated opportunities, such as major strategic alliances or other special marketing opportunities. We currently anticipate that our available cash resources will be sufficient to fund our operating needs for at least the next four months, including the expansion of our sales and marketing program, assuming the continued generation and growth of revenues at anticipated levels. Thereafter, we expect to require additional financing. We do not have any bank credit facility or other working capital credit line under which we may borrow funds for working capital or general corporate purposes other than a line of credit which permits us to draw down up to (pound)50,000 (approximately $71,075), all of which amount is available to us at the date hereof. If our plans or assumptions change or prove inaccurate, we may be required to seek capital sooner than anticipated. We may need to raise funds through public or private debt or equity financings. We cannot be certain that financing will be available or if it is available that it will be on terms favorable or acceptable to us and any future offering of securities may not be successful. If additional funds are raised through the issuance of equity securities, there may be a significant dilution in the value of our outstanding common stock. If we are unable to identify satisfactory financing, we will not be able to grow our business as quickly as we have anticipated which would have a material adverse effect on our results of operations. WE ARE DEPENDENT ON LIMITED SOURCE SUPPLIERS FOR PRINCIPAL COMPONENTS USED IN OUR PRODUCTS, AND DISRUPTIONS IN SUPPLY OR SIGNIFICANT INCREASES IN COMPONENT COSTS COULD MATERIALLY HARM OUR BUSINESS. We rely on a limited number of suppliers of several key components utilized in the assembly of our products. Our reliance on our suppliers involves certain risks, including a potential inability to obtain an adequate supply of required components, price increases, timely delivery and component quality. This risk is particularly significant with respect to suppliers of circuit boards and disk drives because in order to meet product performance requirements, we must obtain circuit boards and disk drives of extremely high quality. In addition, there is currently a significant market demand for disk drives and for semiconductor memory components, which could result in component shortages, selective supply allocations and increased prices of such components. Although to date we have been able to purchase our requirements of such components, there is no assurance that we will be able to obtain our full requirements of such components in the future or that prices of such components will not increase. In addition, there can be no assurance that problems with respect to yield and quality of such components and timeliness of deliveries will not occur. Disruption or termination of the 13 supply of these components could delay shipments of our products and could have a material adverse affect on our business, operating results and financial condition. OUR LIMITED MANUFACTURING CAPACITY MAY REQUIRE US TO DECLINE ORDERS OR SHIP PRODUCTS IN AN UNTIMELY FASHION, WHICH COULD CAUSE US TO LOSE POTENTIAL REVENUES AND ADVERSELY AFFECT OUR REPUTATION. We manufacture our products at our facility in Derby, England from components purchased from various suppliers. Our manufacturing facility currently has an annual capacity of approximately 3,000 units. If the market for SANs continues to grow as we expect and our business grows correspondingly, the demand for our products could exceed our ability to manufacture products on a timely basis. Presently, we do not have sufficient financial resources to expand our manufacturing facility. Consequently, we may have to decline orders for products, which would cause us to lose potential revenues. Alternatively, we could accept orders and manufacture and ship them late, which would adversely effect our reputation. In either case, our business and results of operations would be adversely affected. OUR INABILITY TO EFFECTIVELY INTEGRATE OUR NEWLY ENGAGED MARKETING GROUP IN THE UNITED STATES WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. Our growth model depends in large part upon our ability to obtain substantial sales of our products in the United States. In January 2001, we hired a marketing group to engage and interface with and develop additional Sales Channel Partners worldwide. This marketing group has limited experience working with our management or marketing our products. Given our limited history of working together, we may have difficulty integrating our marketing group into our corporate culture and we cannot be certain that they will efficiently or effectively market our products. If we do not effectively integrate our new marketing group into our corporate culture, or this group does not market our products as effectively as we anticipate, our business and results of operations will be adversely affected. WE RELY ON INDEPENDENT RESELLERS TO MARKET AND SELL OUR PRODUCTS AND ANY FAILURE OF THESE INDEPENDENT RESELLERS TO EFFECTIVELY MARKET OUR PRODUCTS COULD NEGATIVELY IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. We distribute and sell our products through value added resellers ("VARs"), specialized systems integrators and original equipment manufacturers, or OEMs (who as a group we refer to as our "Sales Channel Partners"), and intend to continue this strategy for the foreseeable future. We currently devote, and intend to continue to devote, significant resources to develop and maintain these relationships. A failure to initiate, manage and expand our relationships with our Sales Channel Partners could limit our ability to grow our current level of revenues. Our focus on the distribution of our products through Sales Channel Partners poses the following risks: o we may reach fewer customers because we depend on Sales Channel Partners to market to end users and these Sales Channel Partners may fail to market our 14 products effectively or to devote sufficient or effective technical support to end users of our products; and o we may lose sales because many of our Sales Channel Partners sell products that compete with our products. These Sales Channel Partners may reduce their marketing efforts for our products in favor of products manufactured by our competitors. Currently, we have exclusive agreements with two of our Sales Channel Partners who purchase our products on an individual purchase order basis. If we lose important Sales Channel Partners, if they reduce their focus on our products or if we are unable to enroll additional Sales Channel Partners, our business could suffer significant harm. WE HAVE LIMITED PRODUCT OFFERINGS AND OUR BUSINESS MAY SUFFER IF DEMAND FOR ANY OF THESE PRODUCTS DECLINES OR FAILS TO DEVELOP AS WE EXPECT. As of the date of this Prospectus, we are offering four XRAID SAS systems and have derived all of our revenues from sales of such products. We recently introduced our InfiniSAN product line and have derived only minimal revenues from sales of such product line to date. We expect that net revenues from our XRAID SAS product line will continue to account for a substantial portion of our total net revenues for the foreseeable future. We cannot assure you that our InfiniSAN products will gain wide end-user acceptance or that significant net revenues ever will be derived from such products. As a result, for the foreseeable future, we will continue to be subject to the risk of a significant decrease in net revenues if demand for our XRAID products declines. Therefore, continued market acceptance of our XRAID products is critical to our future success. Factors that may affect the market acceptance of our new InfiniSAN products, some of which are beyond our control, include the following: o growth and changing requirements of the SAN product markets; o availability, price, quality and performance of competing products and technologies; o performance, quality, price and total cost of ownership of our products; and o successful development of our relationships with our newly engaged marketing group. UNDETECTED DEFECTS OR ERRORS FOUND IN OUR PRODUCTS, OR THE FAILURE OF OUR PRODUCTS TO PROPERLY INTERFACE WITH THE PRODUCTS OF OTHER VENDORS MAY RESULT IN DELAYS, INCREASED COSTS OR FAILURE TO ACHIEVE MARKET ACCEPTANCE, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS. Complex products such as those we develop and offer may contain defects or errors, or may fail to properly interface with the products of other vendors, when first introduced or as new versions are released. Despite internal testing and testing by our customers or potential 15 customers, we do, from time to time, and may in the future encounter these problems in our existing or future products. Any of these problems may: o cause delays in product introductions and shipments; o result in increased costs and diversion of development resources; o require design modifications; or o decrease market acceptance or customer satisfaction with these products, which could result in product returns. In addition, we may not find errors or failures in our products until after commencement of commercial shipments, resulting in loss of, or delay in, market acceptance, which could significantly harm our operating results. Our current or potential customers might seek or succeed in recovering from us any losses resulting from errors or failures in our products. WE RELY ON ROLLING FORECASTS WHEN WE ORDER COMPONENTS AND MATERIALS FROM WHICH WE MANUFACTURE OUR PRODUCTS WHICH COULD CAUSE US TO OVERESTIMATE OR UNDERESTIMATE OUR ACTUAL REQUIREMENTS. THIS COULD CAUSE US TO INCREASE OUR COSTS OR PREVENT US FROM MEETING CUSTOMER DEMAND. We use rolling forecasts based on anticipated product orders to determine our component requirements. Lead times for materials and components that we order vary significantly and depend on factors such as specific supplier requirements, contract terms and current market demand for such components. As a result, our component requirement forecasts may not be accurate. If we overestimate our component requirements, we may have excess inventory, which would increase our costs. If we underestimate our component requirements, we may have inadequate inventory, which could interrupt our manufacturing and delay delivery of our products to our customers. Any of these occurrences would negatively impact our business and results of operations. IF WE DO NOT HIRE, RETAIN AND INTEGRATE HIGHLY SKILLED MANAGERIAL, ENGINEERING, SALES, MARKETING AND OPERATIONS PERSONNEL, OUR BUSINESS MAY SUFFER. Our success depends to a significant degree upon the continued contributions of our key personnel in engineering, sales, marketing and operations, many of whom would be difficult to replace. The loss of the services of any of our key personnel could have a negative impact on our business. We also believe that our success depends to a significant extent on the ability of our key personnel to operate effectively, both individually and as a group. Many of our employees, particularly our marketing group in the United States, have only recently joined us. If we are unable to integrate new employees in a timely and cost-effective manner, our operating results may suffer. We believe our future success will also depend in large part upon our ability to attract and retain highly skilled managerial, engineering, sales, marketing, finance and operations personnel. Competition for these people is intense. Our expansion and growth plans will require us to add 16 several key employees, including managerial and engineering and customer support support engineers and we may not be successful in attracting and retaining individuals to fill these positions. If we are unable to attract or retain qualified personnel in the future, or if we experience delays in hiring required personnel, particularly qualified engineers, our ability to develop, introduce and sell our products could be harmed. In addition, companies in our industry whose employees accept positions with competitors frequently claim that their competitors have engaged in unfair hiring practices. We may be subject to such claims in the future as we seek to hire qualified personnel. Any claim of this nature could result in material litigation. We could incur substantial costs in defending ourselves against these claims, regardless of their merits. BECAUSE OUR INTELLECTUAL PROPERTY IS CRITICAL TO THE SUCCESS OF OUR BUSINESS, OUR OPERATING RESULTS WOULD SUFFER IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY. Because our products rely on proprietary technology and will likely continue to rely on technological advancements for market acceptance, we believe that the protection of our intellectual property rights will be critical to the success of our business. To protect our intellectual property rights, we currently rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure. We also enter into confidentiality agreements with our employees, consultants and corporate partners, and control access to and distribution of our documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may copy or otherwise obtain and use our products or technology. It is difficult to monitor unauthorized use of our products and the steps we have taken may not prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. If we are unable to protect our intellectual property from infringement, other companies may be able to use our intellectual property to offer competitive products at lower prices. We may not be able to effectively compete against these companies. WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL PROPERTY RIGHTS. The computer industry is characterized by uncertain and conflicting intellectual property claims and frequent intellectual property litigation, especially regarding copyright and patent rights. From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies that are important to our business. We may receive notices of claims that our products infringe or may infringe these rights. Any litigation to determine the validity of these claims, regardless of their merit or resolution, would likely be costly and time consuming and divert the efforts and attention of our management and technical personnel. We cannot provide any assurances that we would prevail in any such litigation given the complex technical issues and inherent uncertainties in intellectual property litigation. If this litigation resulted in an adverse ruling, we could be required to: o pay substantial damages; o cease the manufacture, use or sale of infringing products; 17 o discontinue the use of certain technology; or o obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available on reasonable terms, or at all. OUR MARKETS ARE INTENSELY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, WE MAY LOSE MARKET SHARE OR BE REQUIRED TO REDUCE PRICES. The market in which we operate is intensely competitive, highly fragmented and characterized by rapidly changing technology. Increased competition from existing competitors and new entries into the market could result in price reductions, reduced gross margins or loss of market share, any of which could harm our operating results. We compete with other SAS, SAN and network attached storage, or NAS, companies, direct-selling storage providers and smaller vendors that provide storage solutions to end-users. Many of our current and potential competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion, sale and support of their products, and reduce prices to increase market share. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We may not be able to compete successfully against future competitors. In addition, new technologies may increase competitive pressures. WE ARE SUBJECT TO FINANCIAL AND OPERATING RISKS ASSOCIATED WITH INTERNATIONAL SALES. Since our inception, international sales have accounted for nearly all of our revenue. If we are unable to maintain international market demand for our products, our results of operations could be materially harmed. Our international business is subject to the financial and operating risks of conducting business internationally, including: o unexpected changes in, or impositions of, legislative or regulatory requirements; o fluctuating exchange rates, tariffs and other barriers; o greater difficulties in accounts receivable collection and longer payment cycles; o potentially adverse tax consequences; and o potential hostilities and changes in diplomatic and trade relationships. We prepare our financial statements in US Dollars and all of our sales in international markets are priced in either US Dollars or British Pounds. Consequently, any decline in the value of Pounds to Dollars would have a negative impact on our results of operations. If we are faced with significant changes in the regulatory and business climate in our international markets, our business and results of operations could suffer. In addition, 18 fluctuations in currency exchange rates will bear on the accuracy of our internal projections and may cause us to underestimate capital requirements, which could negatively impact our business. OUR NET SALES AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY. Given our limited operating history as well as the continued development and evolution of the SAN market, we have no information upon which to base our projected net sales and operating results. Our net sales and quarterly operating results are likely to fluctuate significantly in the future due to a number of factors. These factors include: o market acceptance of our new products and product enhancements or those of our competitors; o the level of competition in our target product markets; o delays in our introduction of new products; o changes in sales volumes through our distribution channels, which have varying sales discount structures; o changing technological needs within our target product markets; o the impact of price competition on the selling prices for our SAN products, which continue to represent a majority of our net sales; o the availability and pricing of our product components; o the effect of product returns and any warranty obligations in that quarter; o our expenditures on research and development and the cost to expand our sales and marketing programs; and o the volume, mix and timing of orders received. Due to these factors, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. If we fail to meet the expectations of investors or securities analysts, as well as our internal operating goals, as a result of any fluctuations in our future quarterly operating results, the market price of our common stock, if and when our common stock is ever publicly traded, could decline significantly. NONE OF OUR EXECUTIVE OFFICERS HAS EXPERIENCE OPERATING A PUBLIC COMPANY. None of our executive officers has ever operated a public company. We must engage additional personnel who have experience operating public companies and must develop the skills and knowledge required to operate effectively as a public company. No assurance can be given that we will be able to retain any such persons in an executive capacity. If we are not successful in developing these skills or do not retain individuals who have significant experience operating a public company, we may never be able to implement all or any portion of our business plan and our business could be materially and adversely affected. 19 IF WE FAIL TO EFFECTIVELY MANAGE GROWTH, OUR BUSINESS WILL SUFFER. If the market for data storage equipment, particularly SANs, continues to grow as we expect and our business grows correspondingly, this rapid growth will place a significant strain on our managerial, operational, financial and information systems resources. To accommodate any significant increase in our size and manage our growth, we must implement and improve these systems and attract, train, manage and retain qualified employees. These demands will require us to add new management personnel and develop new expertise. If we fail to successfully manage our growth, our ability to increase sales will be impaired and our business will suffer. WE HAVE NO INTENTION OF PAYING DIVIDENDS ON OUR COMMON STOCK IN THE NEAR FUTURE. We have never paid any cash dividends on our common stock. We currently intend to retain all future earnings, if any, for investment in our business and do not expect to pay any dividends in the foreseeable future. THERE IS NO CURRENT TRADING MARKET FOR OUR SECURITIES AND, IF A TRADING MARKET DOES NOT DEVELOP, PURCHASERS OF OUR SECURITIES MAY HAVE DIFFICULTY SELLING THEIR SHARES. There is currently no public trading market for our securities. A trading market in our securities may never develop or, if developed, it may not be able to be sustained. We intend to apply for admission to quotation of our securities on the Over the Counter Electronic Bulletin Board ("OTCBB") and, if and when qualified, we intend to apply for admission to quotation on the Nasdaq SmallCap Market. If for any reason our common stock is not listed on the OTCBB or a public trading market does not otherwise develop, purchasers of the shares may have difficulty selling their common stock should they desire to do so. WE MAY ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD REDUCE INVESTORS' PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE. Our Certificate of Incorporation authorizes the issuance of 90,000,000 shares of common stock. The future issuance of all or part of our remaining authorized common stock may result in substantial dilution in the percentage of our common stock held by our then existing shareholders. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock should a trading market develop for our securities. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 20 OUR CERTIFICATE OF INCORPORATION AUTHORIZES 10,000,000 SHARES OF NON-DESIGNATED PREFERRED STOCK WHICH IT MAY ISSUE FROM TIME TO TIME BY ACTION OF THE BOARD OF DIRECTORS. Our Certificate of Incorporation authorizes the issuance of 10,000,000 shares of preferred stock. As of the date of this Prospectus, none of said shares of preferred stock have been designated or issued. However, the board of directors has the authority, without further approval of our stockholders, to issue preferred stock, having such rights, preferences and privileges as the board of directors may determine. The board of directors may designate any or all of these shares without shareholder consent and may afford such voting and other preferences which designations may give the holders of the preferred stock voting control and other preferred rights such as to liquidation and dividends. The authority of the board of directors to issue stock without shareholder consent may have a depressive effect on the market price of our common stock even prior to any designation or issuance of the preferred stock. The terms of any series of preferred stock, which may include priority claims to assets and dividends and special voting rights, could adversely affect the rights of holders of the common stock and thereby reduce the value of the common stock. The designation and issuance of preferred stock favorable to current management or shareholders could make the possible takeover of us or the removal of our management more difficult and discharge hostile bids for control of us which bids might have provided shareholders with premiums for their shares. SHARES ELIGIBLE FOR FUTURE SALE. As of March 23, 2001, we had an aggregate of 17,998,886 shares of our common stock issued and outstanding. Of the shares outstanding and not registered for sale in this Prospectus (12,912,000 shares), all of said shares are "restricted securities," which may be sold only in compliance with Rule 144 under the Securities Act of 1933, as amended. Rule 144 provides, in essence, that a person holding restricted securities for a period of one year after payment therefor may sell, in brokers' transactions or to market makers, a number of shares not exceeding 1% of the outstanding class of securities being sold, or the average weekly reported volume of trading of the class of securities being sold over a four-week period, whichever is greater, during any three-month period. The sale of a significant number of these shares in the public market may adversely affect prevailing market prices of our securities. Affiliates of the Company will be subject to the limitations of Rule 144, including its volume limitations in the sale of their shares. An aggregate of 10,237,915 (56.88%) of the outstanding shares of the Company are held by officers, directors, affiliates and entities controlled by them and are subject to the limitations of Rule 144 including the shares held by affiliates which are registered in this Prospectus. See "Plan of Distribution-Sales by Affiliates." Sales of such restricted securities under Rule 144, in the future, may have a depressive effect on the price of the Company's Common Stock in any market which may develop for such stock. Except for shares of Common Stock being registered hereby, the balance of the 21 outstanding shares of common stock (12,912,000 shares) are restricted securities as such term is defined in the Securities Act and may not be resold until January 4, 2002, at the earliest. ADDITIONAL SHARES ENTERING MARKET PURSUANT TO RULE 144 WITHOUT ADDITIONAL CAPITAL CONTRIBUTION COULD DECREASE THE PUBLIC TRADING PRICE OF OUR STOCK. An increase in the number of shares of common stock available for public sale without any increase to our capitalization could decrease the market price of the Company's shares. After a one-year holding period restricted shares of common stock will become eligible for trading pursuant to Rule 144 of the General Rules and Regulations of the Securities and Exchange Commission without any additional payment to the Company or any increase to our capitalization. SELLING SECURITYHOLDERS MAY SELL SECURITIES AT ANY PRICE OR TIME. After effectiveness of this registration statement, the non-affiliated selling shareholders may offer and sell their shares at a price and time determined by them without subject to Rule 144. The timing of sales and the price at which the shares are sold by the selling shareholders could have an adverse effect upon the public market for the common stock, should one develop. See "Plan of Distribution-Sales by Selling Shareholders. THE APPLICATION OF THE "PENNY STOCK REGULATION" COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. If trading in our stock begins, our common stock may be deemed a penny stock. Penny stocks generally are equity securities with a price of less than $5.00 per share other than securities registered on certain national securities exchanges. Penny stocks are subject to "penny stock rules" that impose additional sales practice requirements on broker-dealers who sell the securities to persons other than established customers and accredited investors and these additional requirements may restrict the ability of broker-dealers to sell a penny stock. For transactions covered by these rules that do not represent sales to established customers or accredited investors, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the "penny stock rules" require the delivery, prior to the transaction, of a disclosure schedule prescribed by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. Consequently, the "penny stock rules" may restrict the ability of broker-dealers to sell our securities and may have the effect of reducing the level of trading activity of our common stock in the secondary market. The foregoing required penny stock restrictions will not apply to our securities if such securities maintain a market price of $5.00 or 22 greater. We can give no assurance that the price of our securities will reach or maintain such a level. See "Description of Securities-Penny Stock Regulation." MANAGEMENT AND AFFILIATES OWN ENOUGH SHARES TO CONTROL SHAREHOLDER VOTE. Our directors, officers, affiliates and certain entities controlled by them own approximately 56.88% of the outstanding shares of common stock. As a result, these persons will control all matters that require stockholder approval, such as the election of directors, approval of a corporate merger, increasing or decreasing the number of outstanding shares, amending our certificate of incorporation and effecting stock splits. OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AND HAVE INDEMNITY RIGHTS. Our Certificate of Incorporation and By-Laws provide that we shall indemnify our officers and directors against losses sustained or liabilities incurred which arise from any transaction in that officer's or director's respective managerial capacity unless that officer or director violates a duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend, or derived an improper benefit from the transaction. Our Certificate of Incorporation and By-Laws also provide for the indemnification by us of our officers and directors against any losses or liabilities incurred as a result of the manner in which the officers and directors operate the Company's business or conduct its internal affairs, provided that in connection with these activities they act in good faith and in a manner which they reasonably believe to be in, or not opposed to, the best interests of the Company and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations. OUR STOCK PRICE LIKELY WILL BE HIGHLY VOLATILE. If our common stock commences public trading, management believes that the market prices of our common stock will be subject to significant fluctuations due to various factors and events that may or may not be related to our performance. The stock market has from time to time experienced significant price and volume fluctuations, which have particularly affected the market prices of high-tech company stocks which may be unrelated to the operating performance of such companies. Furthermore, our operating results and prospects from time to time may be below the expectations of public market analysts and investors. FORWARD LOOKING INFORMATION You should rely only on the information contained in this Prospectus. We have not authorized anyone to provide you with information different from that contained in this Prospectus. This Prospectus is not an offer to sell or a solicitation of an offer to buy our common stock in any jurisdiction where it is unlawful. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this 23 Prospectus or of any sale of common stock. This preliminary Prospectus is subject to completion prior to this offering. Some of the statements under the captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere in this Prospectus are forward-looking statements. These statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in the Prospectus that are not historical facts. When used in this Prospectus, the words "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "seeks," "should," "will" or "would" or the negative of these terms or similar expressions are generally intended to identify forward-looking statements. Because these statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under "Risk Factors." USE OF PROCEEDS The selling shareholders are offering the shares covered by this Prospectus for their own accounts. We will not receive any proceeds from the sale by them of their shares of common stock. DIVIDEND POLICY To date we have not declared or paid any dividends on our common stock and do not anticipate doing so in the foreseeable future. We currently intend to retain all future earnings, if any, for investment in our business and do not expect to pay any dividends in the foreseeable future. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read with "Selected financial data" and our financial statements and notes included elsewhere in this Prospectus. The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as applying to all related forward-looking statements wherever they appear in this Prospectus. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed in "Risk Factors," as well as those discussed elsewhere in this Prospectus. 24 OVERVIEW Nexsan Corporation was organized pursuant to the laws of the State of Delaware in December 2000 for the purpose of acquiring all of the outstanding shares of capital stock of Nexsan Technologies Limited, a United Kingdom company incorporated on January 25,1999 ("Nexsan-UK"), and organizing a wholly-owned subsidiary through which the combined companies' products would be marketed. Except as otherwise herein explicitly indicated or where the context requires otherwise, the discussion herein relates to the financial condition, results of operations and other information relating to Nexsan-UK. Use of the terms "Nexsan," "we," or "us" refer to the combined operations of Nexsan and its subsidiaries. We design, manufacture, sell and support fault tolerant enterprise storage solutions that protect and ensure access to an organization's critical data. Our products include high performance, fault tolerant storage subsystems that meet a wide range of customer applications for Open Systems-based networks and operating systems. Our fault tolerant enterprise storage solutions address the direct attached, or DAS, storage market, in which the storage device is connected directly to a server, and the storage area network, or SAN, storage market in which the storage device is used in a specialized network. These connectivity options provide our customers the flexibility to choose and deploy a particular storage solution to meet their needs. As data requirements change, customers can migrate their existing storage investments to different connectivity options. For the fiscal year ended March 31, 2000, our first year of operations, we directed our sales and marketing focus to the development of European sales. During that year, we had revenues of $1,201,570 and showed an operating loss of $237,434. During this period we incurred approximately $125,000 of product development costs and one-time start-up costs. In the nine-month period ending December 31, 2000, we generated a gross margin percentage of 25.6% on sales of $1,649,691, resulting in an operating loss of $17,879, as compared with a gross margin of 24% on sales of $634,555 for the nine-month period ended December 31, 1999. This increase in sales of 160% over the equivalent period in 1999 began to justify the investment in staff and products that we expended in the previous year. This turnaround was achieved without any penetration into the United States market. In order to take full advantage of the established and newly developing product lines, the company's management identified the need for a US sales network in order to meet the ever-increasing demand in America for mid-range storage products. In January 2001, we undertook a reorganization of the company whereby we established a United States corporation, Nexsan Corporation, to acquire all of the outstanding shares of capital stock of each of the United Kingdom operating entity and a newly organized US corporation through which we would conduct worldwide sales and marketing. In connection with the reorganization, the holders of the outstanding shares of capital stock of Nexsan Technologies Limited ("Nexsan-UK") exchanged all of their shares for an aggregate of 9,050,000 shares of common stock in the US parent. 25 In January and February 2001, we closed two private offerings of our securities whereby we sold an aggregate of 4,673,886 shares of common stock at an offering price of $0.66 per share and derived net offering proceeds of $2,869,670 after the payment of commissions and offering expenses amounting to $215,095. The net offering proceeds will allow us to fund the organization of our worldwide marketing subsidiary, Nexsan Technologies Inc ("Nexsan-US"), including leasing office space in California, hiring our California based marketing staff who will oversee worldwide sales and marketing operations, and establishing a distribution and technical services facility. The proceeds will also be used for working capital required by the United Kingdom manufacturing division. Concurrent with the receipt of offering proceeds, we entered into employment agreements with our senior management and several key consultants. During February 2001, we released our InfiniSAN family of products. We expect, based upon expressions of interest and inquiries from resellers, and from existing and potential customers of our products, that sales of the InfiniSAN product line will drive our growth for the foreseeable future and overtake our XRAID line of products as our most significant revenue generating product offering. We believe that the InfiniSAN product line will become our most profitable product offering by the third quarter of fiscal 2002 because: o the product represents a significant technological step up from our SAS XRAID product line and offers a substantial increase in performance at a more economical price; o our new sales team will have enrolled new resellers worldwide, and particularly in the United States, to market our products to end users; and o we will have initiated a marketing and advertising campaign that focuses on our InfiniSAN product line. We anticipate that sales in the United States will represent our fastest growing channel and be responsible for a material portion of our total revenues by the conclusion of fiscal 2002. We expect to ramp up production to meet increased demand for our products in the United States and worldwide by relocating to a new, upgraded and larger manufacturing facility in Derby, England during the second or third quarter of fiscal 2002. We will continue to develop new, innovative products and believe that several of the products now under development could attract broad interest and drive sales for the next several years. Our future plans, including relocating to a new manufacturing and assembly facility, expanding manufacturing output and inventory to meet the expected increase in demand in our products and developing and releasing new products, are contingent upon our ability to raise substantial additional capital. We cannot be certain that this capital will be available to us at all or, if it is available, that it will be on favorable terms. 26 NEXSAN-UK OPERATIONS FOR THE YEAR ENDED MARCH 31, 2000. During the year ended March 31, 2000, our first year of operations, we saw sales, revenues and the cost of sales increase as we expended substantial funds to accelerate our marketing efforts. The following table sets forth in the period indicated, certain financial data expressed as a percentage of total revenue: - -------------------------------------------------------------------------------- Year Ended March 31,2000 Cost of Sales 77.9% Research & Development 9.1% Gross Profit 13.0% Selling, General & Administrative Expenses 32.8% Operating Loss (19.8)% Net Interest Expense 1.4% Net Loss (21.2)% - -------------------------------------------------------------------------------- Set forth below is an analysis of some of the key elements comprising our income statement for the year ended March 31, 2000: Sales Our product sales revenue is recognized upon shipment to our Sales Channel Partners. Provisions for discounts and rebates to our Sales Channel Partners and other adjustments are provided for in the same period the related sales are recorded. Cost of Sales The cost of sales relating to our product sales consists primarily of the costs of purchased components, production labor, packaging and transport. Research & Development Expenses Research and development expenses consist primarily of salaries and related overhead expenses paid to software and hardware engineers and are expensed as incurred. Research and development costs are expected to increase as we continue to update and expand our product lines. Selling, General & Administrative Expenses Selling, general and administrative expenses consist of: o Salaries, commissions and travel costs for sales and marketing staff. 27 o Establishment expenses associated with premises, management, accounting, contract and administrative functions. o Amortization of all capitalized costs. We expect selling, general and administrative expenses to increase significantly in connection with the expansion of our sales and marketing operations, and the establishment of new UK production and US marketing facilities. NEXSAN-UK-PERIOD ENDED DECEMBER 31, 2000 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 1999. RESULTS OF OPERATIONS The following table sets forth in the periods indicated, certain financial data expressed as a percentage of total revenue:
Nine months Ended Nine months Ended December 31, 2000 December 31, 1999 Cost of Sales 74.4% 76.0% Gross Profit 25.6% 24.0% Research & Development 1.2% 15.5% Selling, General & Administrative Expenses 26.7% 55.7% Operating loss (1.1)% (31.7)% Net Interest Expense 0.9% 1.6% Net loss (1.9)% (33.2)%
Revenues Sales increased from $634,555 for the nine-month period to December 31, 1999 to $1,649,691 for the nine-month period ending December 31, 2000 as we established our credibility and product lines in the storage marketplace. Gross Margins The added experience we have gained purchasing supplies to assemble our products since our inception has positively effected our margin rates which have improved from 24% for the period ending December 31, 1999 to 25.7% of sales for the equivalent period ended December 31, 2000. We believe that continued savings resulting from larger production runs and a corresponding reduction in the cost of parts as a result of purchasing product components in bulk, together with the anticipated higher selling prices on our new product lines, suggest that we can achieve additional gross profit margins in the future. Expenses Salaries increased by 145% between December 31, 1999 and December 31, 2000 as we added employees to meet increased demand for our products and the future development of our 28 business. In the nine-month period ended December 31, 1999, selling, general and administrative expenses were $353,157, representing 55.7% of sales, and included research and development costs of $98,316, legal fees in the amount of $9,682 incurred in connection with the formation of the company and depreciation on tooling set-ups in the amount of $7,417. In the equivalent period ended December 31, 2000, selling, general and administrative expenses, including research and development costs of $19,840, were $440,431, representing 26.7% of sales, a decrease of over 14%. This was despite the increase in depreciation for the nine month period to $33,914 compared to $14,229 for the period ended December 31, 1999, as a result of continued investment in plant and machinery, and a substantial rise in travel costs to $60,815 due in part to the sales and marketing operations in Europe. Product research and development expenses in the nine-month period ended December 31, 1999 totalled $98,316 as we incurred significant costs on the first stage development of our product lines. Research and development costs in the equivalent period ended December 31, 2000 fell to $19,840. Interest expenses in the period ended December 31, 1999 totalled $10,075 as our bank borrowing rose to partly fund the business losses and the increase in inventory. Net interest in the equivalent period ended December 31, 2000 was in line with the previous year's figures at $13,231. Dividends accrued on our outstanding class of 9% Redeemable Preferred Stock (all of which were retired upon the reorganization of the corporation) at December 31, 2000 and December 31, 1999 were $13,123 and $5,344, respectively, but could not be paid due to a lack of distributable reserves. We do not plan to pay dividends on our outstanding common stock in the foreseeable future and will retain earnings for investment in our business. No UK corporation tax is payable on the results for either period. Losses are available to be carried forward to future periods of account. Net Income Our net loss for the nine-month period ended December 31, 1999, after accounting for interest and an accrual of dividends on our outstanding shares of preferred stock, was $216,332 as compared to a net loss for the nine-month period ended December 31, 2000 of $37,177. The decline in net loss is attributable to both a substantial increase in sales and a significant decline in research and development costs. The decline in net loss occurred despite the addition of staff required to meet anticipated growth in business activity and the internal costs of development of the InfiniSAN product range. LIQUIDITY AND CAPITAL RESOURCES Cash on hand at December 31, 2000 was $128,816. Since our inception, we have financed our operations from internally generated funds, loans from shareholders, a bank line of credit and the sale of stock to certain investors. Presently, we conduct our operations exclusively in the UK and the US and we invoice our clients only in UK sterling and US dollars. We 29 regularly review our balance sheet to ensure that where possible, the value of assets and liabilities in either of the currencies are approximately equal. Since both countries have been experiencing low levels of inflation, exposure to the vagaries of foreign currency movements and inflation has been minimal. Cash flows from Operating Activities Net cash used in operating activities in the period ended December 31, 1999 was $314,669. This primarily represented the net loss from operations after adjusting for depreciation, together with the increase in inventory to $183,816. This was offset in part by the fact that the growth in accounts payable consequent of the growth in business activity exceeded the equivalent increase in accounts receivable by $68,331. Net cash used in operating activities in the nine months ended December 31, 2000 amounted to $203,898. While the net loss was narrowed to $31,110, there was a continued increase in the working capital requirement resulting from revenue growth. Cash flows from investment activities For the nine-month periods ended December 31, 1999 and December 31, 2000, we invested $81,783 and $106,516, respectively, in plant and equipment. The similar levels of investment in plant and equipment in both periods reflects the steady growth in the capital needed for increased production capacity and design capability to meet our current and future needs. We have no other material commitments for capital expenditures currently outstanding. Cash flows from financing activities Net cash from financing activities amounted to $317,466 in the period ended December 31, 1999 and $328,321 in the period ended December 31, 2000. The former was financed by a bank loan, which had a balance of $122,037 at December 31, 2000, and shareholder loans aggregating $90,450. During the nine months ended December 31, 2000, cash for operations was provided through the sale of common stock which generated proceeds of $375,857. RECENT EVENTS AND FUTURE GROWTH Since December 31, 2000, we have completed the reorganization of the company into the United States and have raised $2,869,670, net, in equity funding, as more fully described in the Overview hereto. These activities have allowed us to (i) enter into employment agreements with management; (ii) engage a new marketing team that is refocusing our sales efforts into the United States, the largest single market for storage products, and (iii) engage certain key consultants to assist us in the early development of our business and provide guidance to our newly organized United States company. The employment and consulting agreements with our executive officers and key consultants extend for a period of five years, which will provide near term operating stability and continuity of corporate direction. As a means of retaining our senior management, inducing 30 qualified sales and marketing staff to join our company, and obtaining the services of key consultants, these agreements provide for both cash payments and significant stock based compensation. In connection with the various agreements, we have sold an aggregate of 4,275,000 shares of common stock and granted options to purchase up to an additional 2,297,222 shares of common stock. We believe this incentive based compensation will be critical in driving our sales and revenues. We will account for the stock-based employee compensation arrangements under the provisions of the Financial Accounting Standards Board Statement 123, "Accounting for Stock-Based Compensation" ("FASB 123"). Under FASB 123, companies may elect to account for stock-based compensation using a fair value based method where compensation cost, measured by an option-pricing model at the grant date, is based on the value of the award and recognized over the service period. The new marketing team engaged in January already has begun to yield dividends both by implementing the LeadGuard marketing program and expanding our base of resellers to 38. We expect that the marketing team will continue to enroll resellers worldwide and that sales and revenues will grow correspondingly. The funds generated from the sale of equity during January and February have been, or will be, applied as follows: o to lease and develop corporate offices in California; o to engage the marketing team; o to engage new support personnel; o for short-term expansion and improvements to our existing UK premises including the acquisition of additional assembly and testing equipment; and o to fund the anticipated necessary increase in working capital to meet increased demand for our products. We believe that, given the industry in which we operate, the strength of our sales staff and the quality of our products, these efforts represent the first step towards generating sustainable annual growth over the next several years. In order to achieve the annual growth levels we believe are possible, we will require additional capital of approximately $5 million over the next twelve months. We will use this capital to increase working capital to meet anticipated consumer demand for our products and relocate our UK offices and assembly facilities to larger and more technologically appropriate space. These funds also will allow us to continue to develop and release innovative products that will be exciting for our resellers to sell and that will meet the needs of end users. If we are unable to raise additional funds, we will rely on revenues generated from operations to fund our future plans, which would require us to moderate the speed at which would implement our expansion plans. If our actual revenues are insufficient to satisfy our future 31 needs, we will not be able grow our business as quickly as we would desire. In such a scenario, we would seek to diminish capital expenditures by delaying our move into new office and assembly facilities until such time as sales and demand warrant such a move. RECENT ACCOUNTING PRONOUNCEMENTS We are required to adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 138, effective April 1, 2001. The pronouncement presents accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all such derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We have determined that the adoption of SFAS No. 133 will not have a significant effect on our results of operations and financial position. This statement is not required to be applied retroactively to financial statements of prior periods. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101") which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. We are required to adopt the accounting provisions of SAB No. 101 no later than the fourth quarter of fiscal year ended March 31, 2001. We do not believe that the implementation of SAB No. 101 will have any significant effect on our results of operations. BUSINESS INTRODUCTION Nexsan Corporation, a Delaware corporation, and its wholly-owned subsidiaries (collectively, "we," "us," Nexsan or the "Company") design, manufacture, sell and support a comprehensive range of fault tolerant enterprise class, storage subsystems for the mid- to high-end server marketplace that protect and ensure access to an organization's critical data. Our products include high performance storage subsystems that meet a wide range of customer applications for open systems-based networks. Our enterprise storage solutions address the server attached, or SAS, storage market, in which the storage device is connected directly to a server, and the storage area network, or SAN, market, in which the storage device is used in a specialized network. These connectivity options provide storage users the flexibility to choose and deploy a particular storage solution to meet their needs. As data requirements change, we enable customers to migrate their existing storage investments to different connectivity options. We provide our customers fault tolerant, modular, scalable and reconfigurable products to manage and meet their changing business and computing needs. We believe our products reduce the total cost of ownership of data storage by allowing end users to use the products across various operating systems. Nexsan Corporation was incorporated under the laws of the State of Delaware in November 2000. Our wholly-owned United Kingdom subsidiary, Nexsan Technologies Limited ("Nexsan-UK"), which is responsible for manufacturing our products, was incorporated in 32 January 1999 and commenced shipping products in August 1999. Nexsan Technologies Incorporated ("Nexsan-US"), our wholly-owned Delaware subsidiary incorporated in January 2001 for the purpose of marketing our products worldwide. In January 2001, Nexsan Corporation acquired all of the outstanding shares of capital stock of Nexsan Technologies Limited, including 44,444 ordinary shares, each having a par value of (pound)1 per share, and 60,000 9% Redeemable Preferred Shares, each having a par value of (pound)1 per share, in exchange for an aggregate of 9,050,000 shares of our common stock. Each Ordinary Share of Nexsan Technologies Limited was exchanged for 201.45 shares of our common stock and each 9% Redeemable Preferred Share was exchanged for 1.6116 shares of our common stock. INDUSTRY ANALYSIS Over the last decade, there has been a dramatic increase in the volume of data created, stored, processed and accessed throughout business organizations. Moreover, companies increasingly view data as a strategic asset that creates a competitive advantage. Continuous and rapid access to this data is critical to managing a business effectively. The growth of the amount of enterprise data and its characterization as a strategic asset have resulted in a need to manage, share, back-up and make data widely accessible. This growth has been driven by a number of factors, including: o the emergence of data-intensive applications such as web-serving, e-commerce, digital video and other multimedia applications and enterprise resource planning; o the increasing demand for disaster recovery tools which can be deployed across greater distances; o advances in data storage technology and the resulting decline in the cost of storage capacity; and o a movement toward distributing data in the enterprise client-server environment. As a result of these factors, expenditures for data storage are growing rapidly and consuming an increasing percentage of total information technology expenditures. Enterprises using networked computing environments face challenges in managing rapidly growing volumes of distributed data, including: o Slow Data Transfer Speeds. With improvements in the performance of storage devices, processors, and workstations, along with the move to distributed architectures such as client/server, users have moved to increasingly data-intensive and high-speed networking applications. Users are seeking ways to leverage these performance improvements without sacrificing reliability of their data storage systems. 33 o Poor Data Access. Data access performance across networks has historically been improved by increasing processor performance or by increasing network bandwidth. However, data access remains bottlenecked by the file server's operating system, which must also perform any additional tasks unrelated to data access. These unrelated tasks slow the server's ability to respond to file input/output, or I/O, requests. o Difficulties Accessing Shared Data. The use of diverse software applications and incompatible computing operating systems can create difficulties or prevent the sharing of data created or stored on other systems without the assistance of additional software. o Unavailable Data. Unavailable data can result in costly business interruptions. The availability of data is dependent upon network data storage devices that have low failure rates, rapid recovery times and the ability to provide uninterrupted data service. o Data Administration Challenges. Network data administration, including the backup and expansion of data storage capacity, requires the management of both hardware and software systems. This task becomes more complex with large volumes of data, increasing numbers of users accessing data and wide distribution of data stored across the network. Storage devices that cannot be managed remotely place an added burden on technical personnel and resources. o Solutions That Are Not Easily Scalable. Given the continuing increase in data storage needs, effective storage solutions will provide a simple and economical means to increase capacity over time. Preferred solutions allow enterprises to modify their existing infrastructure and incur only incremental costs as they grow rather than to make extensive and expensive modifications to their computing networks. As data storage requirements have increased and new challenges have arisen, new data storage technologies have been developed to meet users' needs and address these challenges. Currently, the most common approaches to providing network data storage capacity include: o Server Attached Storage Devices (SAS). Corporations can increase their data storage capacity by adding general-purpose computers as data file servers or by attaching external storage devices directly to existing servers. These storage devices are dedicated to and accessed through the host server/computer. General purpose servers are designed to execute computer applications and perform a wide variety of functions, including providing database, electronic mail, network management, file management and application services. o Network Attached Storage Devices. NAS appliances have been developed to offload basic file I/O tasks from general-purpose servers. These appliances are designed to store and retrieve larger amounts of data more quickly than general-purpose servers. NAS devices incorporate their own processing power in order to store and retrieve data. NAS devices allow more than one host server and users of different operating systems to access data. 34 o Storage Area Network Devices. A storage area network, or SAN, is a self-contained network of high-speed storage devices. SANs are storage devices that are connected to an additional, specialized, high-speed network, dedicated to providing I/O. The use of a SAN offloads a significant amount of data traffic and overhead from the local or wide area network, resulting in improved overall network performance. SAN storage devices enable users on one operating system to access data stored on a different type of operating system. SANs are comprised of "fabric ready" devices meaning that all of the servers and storage devices comprising the network environment are interconnected in a manner similar to the way in which threads are woven together in a fabric. This fabric environment creates a matrix wherein all devices that are connected to the SAN have access to all enterprise data at any time. A notable technological development that is having a significant impact on the data storage industry is the implementation of Fibre Channel interface among hardware devices. Fibre Channel is a new generation of interface technology based on industry standards for the connection of storage devices to networks. Interface is the term used to describe the electronics, cabling and software used to facilitate communications between devices. Fibre Channel is the fastest interface currently available. Fibre Channel is a highly-reliable, gigabit interconnect technology that allows concurrent communications among workstations, mainframes, servers, data storage systems, and other peripherals using small computer systems interface, or SCSI (pronounced "scuzzy") and IP, or networking protocols. Fibre Channel products have defined a new standard of performance, delivering a sustained bandwidth of over 97 MB/second for large file transfers and tens of thousands I/Os per second. Typically, many Fibre Channel links are used in parallel in a SAN to achieve the desired performance. This new capability for open systems storage is the reason Fibre Channel is becoming the connectivity standard for storage access. Fibre Channel was developed by the computer industry for IT applications. Its development focused on removing the performance barriers of legacy local area networks, or LANs. Performance improvements in storage, processors, and workstations, along with the move to distributed architectures such as client/server, have spawned increasingly data-intensive and high-speed networking applications. The interconnect between these systems and their I/O devices requires higher performance characteristics with respect to reliability, speed, and distance. In a Fibre Channel network, legacy storage systems are interfaced using a Fibre Channel to SCSI bridge. Networking protocols are used for server to server and client/server communications. Storage networks operate with both SCSI and networking (IP) protocols. Servers and workstations use the Fibre Channel network for shared access to the same storage device or system. The evolution of Fibre Channel connectivity and interface is driving the next revolution in storage management which, we believe, eventually will have a tremendous impact on SAN sales. We believe that Fibre Channel technology will become the preferred implementation technology for SAN storage. We believe that as Fibre Channel port (the device attached to a 35 server that links the server to the SAN) prices decline and companies equip their facilities to accommodate fiber optic cable, SANs will become the preferred storage solution in large computing environments. We believe an important reason for the migration toward larger, faster and more reliable storage solutions such as the solutions offered by SANs is the expense associated with maintaining large technical staffs to operate storage systems and the difficulty many companies are experiencing hiring qualified personnel. The explosion of the data storage industry has exerted pressure on the pool of available qualified talent capable of making decisions regarding storage requirements, product procurement, and product installation and maintenance. Consequently, it is difficult to locate and hire appropriate personnel. Moreover, as the pool of such available qualified persons diminishes, compensation for such talent has increased. By employing larger, more reliable storage devices, companies are reducing their reliance on an increasingly contracting talent base and decreasing the overall cost of storage solutions. We believe that our high-performance, data storage subsystem solutions address many of the challenges faced by end-users across the entire range of storage requirements from the mid- to high-end server marketplace. As the industry continues to evolve, we believe that we will be able to develop and offer innovative enterprise wide storage solutions that keep pace with the rapidly changing data storage landscape. OUR PRODUCTS The requirements for storage solutions vary depending on the size of an enterprise, the type of data generated and the amount of data to be stored. Accordingly, we believe that we offer a wide range of products for nearly every potential end user of data storage products employing mid- to high-end servers. Our product lines incorporate RAID technology (described below) that: o provides data-intensive environments with protection against the loss of critical data; o scalable storage capacity; o fault tolerance; o fast data transfer rates; and o ease of storage system management. Our product lines provide the highest levels of performance while maintaining connectivity consistent with industry standards. They are compatible with industry standard architectures enabling users to interface with the primary open architecture computing platforms. We design, develop and manufacture all of our disk array products to operate within industry standards and at peak performance levels. The controller board, internal packaging, component integration and cabinet design are all results of our engineering expertise gained from years of experience in the industry. 36 RAID Technology RAID is an acronym for "redundant array of independent disks." RAID technology links together several industry standard disk drives into a single large disk drive using a combination of hardware, firmware and software to achieve extremely fast data transfer rates, high levels of redundancy and large storage capacities at a lower cost than embedded storage solutions. RAID devices generally encompass eight industry standard storage disk drives configured laterally in the product cabinet. The disk drives generally are pluggable, obviating cabling problems that might otherwise make installation and maintenance difficult. Once a disk is plugged into its slot, whether in a new installation or replacement situation, the device's software activates and integrates the disk into the system. Given the explosion of enterprise data growth resulting from the emergence of new technologies (e.g., web-serving, e-commerce, digital video and other multimedia applications and enterprise resource planning), RAID technology has become the industry standard for data storage because RAID devices: o are fault tolerant and are capable of protecting enterprise data more effectively than other currently available storage systems; o afford availability of data to a wide range of users in an enterprise at any given time; o are capable of storing massive amounts of data which can be retrieved quickly and easily; and o are easy for trained technicians to operate, integrate, install and maintain. The most important task of a RAID device is its ability to reconstruct lost data in the event of a catastrophe. This task is accomplished by specialized electronics within the RAID controllers. RAID controllers are embedded with software that monitor all data stored on the disk drives at any given time and, in the event of a loss of any data, calculate what specific data has been lost and reconstruct that data. RAID device intelligence is accomplished through RAID boards that are either installed directly into the server or within the RAID device itself. Given the ultimate purpose of data storage, i.e., the preservation of mission critical enterprise data, redundancy of key parts is essential so that the failure of any single component will not impair the device's ability to accomplish this task. Features that may be incorporated into RAID based devices that enhance their ability to preserve data under any circumstances include: o two power supplies so that in the event one power supply fails, the other power supply is capable of handling the work of both power supplies; o hot-pluggable boards and other components that permit technicians to replace or perform maintenance services on a failed component without shutting down the system after which the replaced or repaired component resumes its duty without further intervention from the operator o an active/active failover feature that enables two RAID controllers to function simultaneously, sharing the workload, until one device fails, at which point the 37 remaining functioning device takes over all I/O requests until the defective unit is replaced; and o redundant components such as device cooling fans. Of course, RAID-based arrays are complex technical devices that incorporate numerous other highly sophisticated components, a description of which is not essential to understanding their basic functionality. Features Common to Our Product Range We offer a range of products at price points that accommodate a wide range of end users. Our higher end models incorporate a wide range of standard and optional features that allow a user to tailor a particular device to its specific needs at the time of purchase and that permit the user to add features as required. We also offer an array of standard and optional features that appeal to technicians responsible for installing and maintaining our products. Other than our entry-level products, most of the products within our InfiniSAN and XRAID lines incorporate the following common features or options: o Dual-redundant 300W power supply units with a power factor correction feature that provides an even power supply and eliminates potentially dangerous power surges. o High pressure cooling blowers. o Disk drives are hot pluggable. o Tower, rack, and stacker configuration. o A mechanism that eliminates blanking trays so that the failure or non-use of any one drive will not affect the operation of the other drives. o Rack slides included as standard with rack versions. o Disk drives and power supplies are mounted on easily removable shuttles, which makes replacements simple. o Low-cost customization available for our Sales Channel Partners. o Hot pluggability of many key components, such as power supplies, that obviate having to shut down the device which could result in a loss or interruption in the availability of data. o An automatic termination feature that obviates recalibrating the entire SAN system to account for the new electronic characteristics of the system each time a new device is added. InfiniSAN Product Line In February 2001, we introduced our InfiniSAN product line, an enterprise storage solution for SAN architecture. In some cases these new products combine Fibre Channel switched fabric and SAN management with the fault tolerant features found in all of our products. We believe that companies' growing storage demands will lead them increasingly to consider SAN products. The name of this new model line reflects the infinitely scalable 38 potential of new fabric-aware SAN products, and our commitment to integrate InfiniBand(TM) technology when we expect it to become available in 2002. InfiniBand(TM) technology represents a hardware and software architecture to link servers and peripheral devices within a switched fabric environment. It offers very high data transfer rates between devices, up to 6 gigabytes per second, that will deliver scalable performance to meet the growing demands of data centers; flexibility to provide connectivity that scales with a business's demands, independent of the microprocessor or operating system complex; and, flexibility to inter-operate from the entry level to the enterprise. In our estimation, InfiniBand(TM) represents the next generation of interconnectivity between computers. We believe that adopting and incorporating InfiniBand(TM) technology is important both because it is the future of interconnectivity between the devices comprising SAN systems and it evidences our commitment to offer products that offer the most cutting edge technology. The two basic InfiniSAN models are the Fibre Channel models 8F and 8FFx, and the Ultra160 SCSI models 8G63 and 8G73. Our 8F and 8FFx InfiniSAN devices incorporate Fibre Channel interface, the fastest interface currently available within storage environments. We believe that the incorporation of Fibre Channel interface into our highest end products makes them among the most technologically advanced storage devices available and allows us to compete against today's largest and most well known storage device manufacturers. Key Features of Our InfiniSAN(TM) 8F and 8FFx Products A customer can select from three products within this model line, each of which can be configured with a number of options. The 8F is a Fibre Channel JBOD ("Just a Bunch of Disks") shelf for 8 FC-AL drives, and the 8FFx is either a single or a dual controller Fibre-to-Fibre RAID subsystem. Noteworthy features of the InfiniSAN products include: o The JBOD (8F), which essentially is used to expand storage capacity, may be converted to a 8FFx simply by plugging in one or two RAID controller modules. The internal logic automatically switches from JBOD to RAID configuration when it detects a RAID controller being inserted into either of the two available slots. o Fully redundant enclosure management, including, two SES managers (modules that report the device's operating status), two sets of fan tachometer monitors, two thermal monitors and two voltage monitors. o Standard configuration uses copper connectors, with a low-cost upgrade to fiber optic connectors available. This feature allows for increased distances between the nodes/devices comprising the SAN. Key Features of the InfiniSAN(TM) 8G63 and 8G73 The InfiniSAN 8G63 and 8G73 are based on the new Chaparral GII controllers, among the highest performance RAID controllers available. Some key features of these products include: 39 o Supports one or two controllers, which provides active/active failover, so that if one controller fails, the other assumes the workload of both controllers until the defective unit is replaced. o The 8G63 has two Ultra160 SCSI host ports and two Ultra160 disk channels, with four drives on each. The subsystem offers sustained data transfer rates of 150 megabytes per second. o The 8G73 has two FC-AL host ports and four Ultra160 disk channels. Two channels are used internally with 4 drives each, and the other two are available for expansion. o The 8G73 employs two hot-pluggable Port Bypass Component (PBC) boards which act as a hub for the two controllers and the various connectors designated for each PBC board. Thus, there are four Fiber host connectors and as with the Fibre Channel 8F and 8FFx models there is an option for fiber optic or copper interconnect. o NexScan web browsable GUI is included to manage both controllers. XRAID Product Line Our XRAID product line has been designed as a data storage solution for the Server Attached Storage, or SAS, market. Our XRAID products have been designed for entry- to mid-range server users. SAS solutions attach external storage devices directly to existing servers. The general purpose servers to which SAS devices are attached are designed to execute computer applications and perform a wide variety of functions, including providing database, electronic mail, network management, file management and application services. Though we designed our XRAID family of products for the SAS market, they can be used as an entry level device within the developing SAN market. Standard features common in the XRAID family include dual-redundant, power supplies, high performance blowers with true revolutions per minute monitoring, automatic small computer systems interface, or SCSI, bus termination to reduce costs and simplify installation, and an innovative pedestal configuration which also may be turned on its side and stacked up to eight units high using an optional set of guide spigots. We believe that the units possess clean and durable ergonomics. The XRAID models are differentiated by the contents of our proprietary "personality cube," a pluggable sub-chassis in the rear of the unit. Contained within the personality cube are all of the electronics that are unique to a given model, along with all other active electronic components. Our personality cube innovation allows greater flexibility and commonality during manufacture and facilitates field repairs and upgrades. The "pluggability" of most components comprising the system greatly reduces the need for internal cabling, thereby increasing system reliability. XRAID 8V44 The XRAID 8V44 is an extremely reliable device for mission-critical applications. Most important components are duplicated and automatic mechanisms are in place so that any defects are transparent to the user. Users are offered the option of equipping this device with two RAID 40 controllers that are capable of operating in active/active failover mode. Virtually any failed component may be replaced without shutting down the system and the replaced component resumes its duty without further intervention from the operator, i.e., the devices are hot pluggable. The subsystem has a sustained data transfer rate of 27 megabytes per second. XRAID 8K73 Our highest performance SAS RAID device designed for the most demanding, high-throughput applications that require RAID protection against disc drive failure. The XRAID 8K73 offers sustained transfer rates of up to 75 megabytes per second in RAID 5 mode. A receptacle has been designed into the chassis to accommodate a Fibre Channel managed hub allowing the XRAID 8K73 to become a SAN "building block" and allowing our low cost Fibre Channel hub to take advantage of the redundant power and cooling in the enclosure, along with the network interface for monitoring and control. We believe that the incorporation of a hub into a disc enclosure is a completely new innovation. XRAID 8K53 An entry-level RAID subsystem with extremely high performance for computers with an Ultra2 SCSI host port. The unit has a sustained transfer rate of 65 megabytes per second in RAID 5 mode and may be upgraded to the 8K73 configuration if Fibre Channel capability is desired. XRAID 8J The XRAID 8J is offered as an expansion cabinet for RAID subsystems, or by itself in conjunction with RAID controllers built into the host computer, or simply as a convenient and flexible external drive chassis. Storage Management Software We equip our InfiniSAN 8G63 and 8G73 and all of our XRAID devices with our proprietary management software, called NexScan. Mission-critical applications requiring uninterrupted access to data on the disk arrays are protected by operational controls within NexScan. Nexscan enables early detection and automatic alert as to any problem that requires attention. NexScan is built onto the subsystem I/O board and is based on an Am186 processor, the sole functions of which is to monitor and control the enclosure and service web inquiries from the system administrator. NexScan simulates an Internet web site embedded within the XRAID or InfiniSAN data storage unit. By using a web browser, the user is presented with simple graphical icons that represent common device management tasks. In contrast, most competitive storage subsystems use a text-based command structure or a custom application program for configuration and maintenance, which is often difficult to install, complex to use, and prone to compatibility problems. With a Nexsan subsystem, the user is not required to learn how to use a specialized management tool in order to install or maintain the product. The system allows a user to configure the storage system from a remote PC via the Web. It affords users notification when any user-defined alarm thresholds are reached. NexScan 41 provides an e-mail alert service whereby the software will send an e-mail alarm message to a designated administrator in the event of a fault being detected. A secondary contact may be designated in the event that the problem is not resolved in a timely manner, since it is important in any fault-tolerant system that defective components are replaced promptly to minimize risk of a second component failure causing system downtime. Larger Sales Channel Partners accounts are given the option to customize the NexScan web interface to mirror their own corporate home page, including providing appropriate links to their service or sales departments. We are able to customize this web interface for our Sales Channel Partners to create a seamless user experience that visually matches the Sales Channel Partner's corporate web site. We plan to refine this interface to support commerce hooks such as automatically ordering appropriate spares and upgrades, as well as seamless integration with the Sales Channel Partner's maintenance department. This meaningful, value-added customization of the product is generated by us with minimal effort or expense. The true elegance of the NexScan software management system lies in the fact that it is operating system, platform and application independent. NexScan can run on virtually any operating system and obviates interoperability standards between different pieces of hardware. Consequently, users do not have to purchase additional software that integrates the software management program with the user's operating system, thereby avoiding the purchase of later version up-dates and installation and programming costs. SALES AND MARKETING. Our marketing team has developed and employed what it designates the "LeadGuard SM". LeadGuard relies on value added reseller ("VARs"), specialized high-end system integrators and vertical market manufacturers (entities that package a Nexsan product as part of a system sold by them but which do not sell Nexsan products individually), or OEMs, who together encompass our "Sales Channel Partners." We currently maintain contact with our worldwide Sales Channel Partners through our ten person marketing team located at our principal offices in California. Our marketing team is comprised of experienced professionals who have a proven track record of sales success working with an established worldwide sales channel balanced over diversified markets and industries. The marketing team has developed an opportunity exclusivity sales model called LeadGuard which provides our sales partners a vehicle where they operate within a profit protected sales model. In addition to the profit advantage for our Sales Channel Partners, LeadGuard has a co-inclusive component that ensures a pre-defined profit per sale for us as well. Presently, we have relationships with 38 Sales Channel Partners and we estimate that half of them sell our products exclusively or recommend our products as a first alternative. We expect that as our marketing team intensifies its activities, the number of Sales Channel Partners that offer our products will increase significantly worldwide. We select the VARs and specialized high-end system integrators who become Sales Channel Partners based upon numerous criteria. These entities must, among other factors: o have a strong market presence; 42 o have demonstrated the ability to work directly with end users; o maintain relationships with major vendors of storage management software and other peripheral hardware and software required in the deployment of a data storage system; o have strong technical skills; and o have the ability to service our products effectively and efficiently. The feature component of LeadGuard that differentiates us from the preponderance of OEMs and other resellers of storage devices that market their products through a wide array of sales channels, a marketing program known as "broad line distribution," is the position of profit protection enjoyed by our Sales Channel Partners through the entire sales process. We market our products through a diversified and well-balanced sales channel of committed and loyal partnerships forged on the profit protected opportunity exclusivity feature of LeadGuard. Our Sales Channel Partners will take advantage of capturing their opportunities within LeadGuard because from the time a Sales Channel Partner enters its opportunity in LeadGuard, it enjoys a position of profit protection through the entire sales process. Our Sales Channel Partners register sales leads with us and provide purchase information such as product and project pricing requirements for a client. LeadGuard rewards those Sales Channel Partners who resell Nexsan storage exclusively and who register a lead within our system by receiving our best price for products sold to that lead. This feature of LeadGuard's pricing structure also serves as an incentive to our Sales Channel Partners because it rewards resellers who identify, register, and make sales to, new leads. Once a partner has registered a lead it retains its profit advantage as long as it continues to work the opportunity. LeadGuard can be contrasted with marketing programs utilized by the large OEMs. Typically, manufacturers employ a wide array of sales channels to market their products, including their internal sales staff, their web site, resellers, and independent VARs. This marketing technique is known as "broad line distribution." Under this scenario, each of the elements of the broad line distribution network competes against each other, not from a position of service or support but also based on prices which ultimately result in reduced profit margins. Profit margins are reduced for each element of the marketing channel because the end user pits the various members of the broad line distribution channel against each other while seeking to obtain the best price for products. From a practical standpoint, this scenario creates a disincentive to resellers and disenfranchises them from the OEM. Independent resellers, and ultimately OEMs, must lower prices to respond to other competitors within this model who are willing to suffer reduced margins in order to make a sale. For example, in the context of the broad line distribution model as utilized in our industry, after a VAR has concluded a sale that results in an extremely low profit created by the pressure inherent in a broad line sales model, that VAR will return to the OEM with a request for what is called "price relief". Price relief is the practice of "after the sale compensation" to the VAR to allow the VAR to realize at least an acceptable profit. In an effort to retain the relationship with the VAR the OEM will reduce the sales price of its equipment to the VAR at the same time reducing the profit for the OEM. However, the end user frequently experiences lower service and support levels because the lower 43 profit margin affords no financial incentive to the vendor to provide the service and support end users require. We have instituted other programs that make our products attractive to our Sales Channel Partners. For example, we are able to offer products; customized documentation, such as product manuals and other written materials that accompany our products; and badged software which has been private labeled specifically per their request. We believe that by selling directly to our Sales Channel Partners, we have an advantage over competitors who require that independent resellers of storage products purchase through a distributor and at the same time sell directly to end users, thereby competing with the independent reseller. Some of the advantages of this strategy include the following: o Eliminate Sales Force Overhead-Increase Profit Margins. By using independent Sales Channel Partners, we avoid having to employ an extensive and costly sales force that drains valuable capital resources and the distribution mark-up resulting therefrom. o Channel conflicts avoided. We refer all end-user inquiries to our Sales Channel Partners. Because they know that we will not sell directly to the end user, there is an attitude of cooperation between our Sales Channel Partners and us. o Custom configurations. By circumventing the distribution step, we are able to offer custom configurations of our products, such as private branding, on very short notice. We provide our Sales Channel Partners with a full range of marketing materials, including product specifications, sales literature, software connectivity information and product application notes. We train our resellers how to sell our products and how to answer customers' questions. We intend to advertise in key network systems publications. We plan to participate in trade shows. We display our products under the Nexsan brand name at various trade shows including the COMDEX trade show in Las Vegas, Nevada, and the CeBit trade show in Germany, and plan to participate in other trade shows in partnership with our principal suppliers and Sales Channel Partners. TECHNICAL SUPPORT AND SERVICE We believe that product reliability reduces an end user's reliance on our support and service teams and strive to manufacture products of the highest quality. We also believe that strong technical support and service are integral elements of our product offerings. Support Currently, we provide support through offices located in the United States and Europe. We provide 24x7 technical support services to our sales partners and their end users. Our operations in the United States and Europe allow us to make available first level factory level technical support at any hour of the day by a staff that is able not only to diagnose and solve technical problems, but also assist customers with systems integration and use. Users have 44 access to our regular support staff as well as to the engineers who actually design and develop the different aspects of the product about which they are calling. US customers call our European office for support during off hours and European customers call our US based support staff for support during their off hours, thereby giving them access to a factory team of individuals 24 hours a day. First tier factory support 24 hours a day is uncommon in our industry and provides a distinct support advantage for the end users of our product and a distinct feature advantage for our sales partners when offering our product. We have developed and offer to our sales partners and customers a Company sponsored technical training program. Our partners and their end users are invited to participate at no charge. We educate our customers about the more sophisticated and challenging aspects of the operation and repair of our products. Upon successfully completing the training, they will receive individual certificates of completion. This program not only helps to provide a direct reduction in our overall technical support costs by increasing the competency level of the actual users, but provides to the participants receiving the certification an increased individual value and worth in the professional community. Warranty We offer a standard three-year warranty on our products which mirrors the warranty afforded us by our suppliers on key components used in the manufacture of our products. "OnGuard (sm)" Our Services Program Within "OnGuard", we have established four service programs that supplement our standard no charge warranty. These additional packages allow our customers the option of targeting specific levels of service for specific purchases. By providing the different service levels as options, customers can reduce or eliminate the associated cost for additional service. This allows us to provide the customer with a more cost competitive product without reducing our profits. These include: o In Warranty Pre-Exchange Program. Customers currently are entitled to receive directly from our manufacturing facility at no charge replacement units or parts that are under warranty prior to receipt by us of the faulty unit. o Extended Pre-Exchange Program. Customers can elect to purchase continued Pre-Exchange service to cover additional years extending beyond their standard warranty. o On Premise Support. Customers have the option when needed to acquire on premise support of their equipment. This service provides the availability of a technician to perform service and support at the customer's facility. o On Premise Pre-Exchange. We provide customers the opportunity to acquire redundant units for retention on site for a reduced cost. By maintaining back-up units on site, customers will experience very limited downtime associated with having to wait for service technicians to reach their facility and repair faulty devices. 45 At this time we have established three regional support operations in the United States. It is our plan, as demand warrants, to establish an additional three support centers in the United States. In addition, our Channel Sales Partners generally position themselves with the end-users as being responsible for installation, technical support and servicing our products to establish their value in the relationship. Based on our sales model, our partners usually represent the first line of service sought by an end-user when difficulties or problems are encountered with our products. MANUFACTURING We conduct our manufacturing activities at our 2,500 square foot facility located in Derby, England. These activities consist of procurement of materials, product assembly and component integration, product assurance, quality control and final testing. We rely on a limited number of suppliers of several key components utilized in the assembly of our products. These outside suppliers contract with us to produce and manufacture products in accordance with our specifications. Our manufacturing strategy has been to develop close relationships with our suppliers and subcontractors and to exchange critical information, in order to minimize capital investment and overhead expenditures and to control inventories. All production lines are based around the flexible manufacturing cell ("FMC") concept. Consequently, each line is highly flexible and capable of handling a production batch size of one, if necessary. All lines are mixed model, and raw materials will be called off, delivered and stored at point of use. Lines are operated by a small, motivated team of five operators and one supervisor, supported by two materials personnel per line. Each line will produce approximately 10 units per day, 3,000 units per annum. Production lines will operate on a two-shift basis when volumes reach sufficient levels. A third shift has not been yet been adopted but ultimately could provide an additional 35% capacity. This "turnkey" approach to product manufacturing reduces our capital and employee requirements and allows us to adopt manufacturing technologies as they emerge. Our manufacturing facility currently has an annual capacity of approximately 3,000 units. We believe that this facility is adequate only for immediate production needs. If the market for computer storage devices such as those we offer continues to grow as we expect and our business grows correspondingly, the demand for our products could exceed our ability to manufacture products on a timely basis. It is our intention to lease or construct a new facility by the end of 2001 that will house our European executive offices and our assembly facility. We anticipate that this facility will encompass approximately 4,000 square feet of office space and approximately 14,000 square feet of assembly space. Ideally, the new premises will be situated in the same vicinity in order to take advantage of the local skill base and supplier network. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 46 SOURCES AND AVAILABILITY OF RAW MATERIALS We depend heavily on our suppliers to provide high quality materials on a timely basis and at reasonable prices. Although many of the components used in our products are available from numerous sources at competitive prices, certain of the printed circuit boards and other components used in our products are presently purchased by us from a single source. Furthermore, because of increased industry demand for many of those components, their manufacturers may, from time to time, not be able to make delivery on orders on a timely basis. In addition, manufacturers of components on which we rely may choose, for numerous reasons, not to continue to make those components, or the next generation of those components, available to the Company. The principal components used in our products include circuit boards, disk drives and chassis. Many of the components are industry standard parts and readily available from many suppliers at competitive prices. The board assemblies are purchased from an independent board assembly firm that manufactures the assemblies to our specifications. Alternative boards are available from a number of different sources, though significant re-engineering of our products would be required to accommodate these new components. The unavailability of certain other components would subject us to similar re-engineering requirements. The Company has strategic partners with which it works closely to fill these needs. The principal suppliers are Mylex Corporation, a subsidiary of IBM Corporation, Chaparral Networks, Inc. and CMD Technologies Inc. We obtain nondisclosure agreements from suppliers of our components that incorporate proprietary technology. We have not entered into any long-term contracts for the purchase of components but rather rely on rolling forecasts to determine the number of units we will sell and the components required therefore. To date, we have been able to obtain supplies of these components and we believe that adequate quantities are available to meet our needs. RESEARCH AND DEVELOPMENT Our industry is subject to rapid technological change and our ability to remain competitive depends on, among other things, our ability to maintain a technological edge. We take pride in developing products that incorporate innovative and useful technology. Our research and development expenditures were $108,887 for the year ended March 31, 2000. Our future research and development expenditures will be allocated to the development of a RAID array that encompasses more than eight disks, the current industry standard, and new switching technologies that will provide access to the full Fiber Channel bandwidth. BACKLOG At February 28, 2001, the backlog for our products was approximately $200,000. This backlog represents orders that are scheduled for delivery to customers during the quarter ending March 2001. There was no equivalent backlog at February 31, 2000. All orders are subject to 47 cancellation or delay by the customers with limited or no penalty. Therefore, our backlog is not necessarily indicative of actual sales for any succeeding period. COMPETITION The market for RAID based data storage systems is intensely competitive, highly fragmented and characterized by rapidly changing technology and evolving standards. Companies such as Compaq, EMC Corporation, IBM Corporation, Hewlett-Packard, NCR Corporation, Storage Technology, Sun Microsystems, and more than 100 other public and private companies provide disk arrays for a wide variety of computer systems, workstations and PCs. Because of growth in the marketplace, we anticipate increased competition from other sources, ranging from emerging to established companies, including large OEMs to foreign competition. While we believe that the price-performance characteristics of our products are currently competitive, and that our product distribution model, i.e., through independent resellers exclusively, increases our competitive position vis a vis larger more established competitors that rely on broad line distribution techniques, increased competition including the introduction of new products by our competitors, could result in price reductions, reduced gross margin and loss of market share, any of which could materially adversely affect the Company's business, operating results and financial condition. Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion, sale and support of their products than we can. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS Proprietary protection for our technological know-how, products and product candidates is important to our business. Currently we rely upon trade secrets, know-how and continuing technological innovation to develop and maintain our competitive position. We also rely on a combination of trade secret protection and non-disclosure agreements to establish and protect our proprietary rights. Our success is dependent to a great extent on our proprietary knowledge, innovative skills, technical expertise and marketing ability. Because of rapidly changing technology, our present intention is not to rely primarily on patents or other intellectual property rights to protect or establish our market position. We have applied for trademark registration in the United States for the terms "InfiniSAN" and "RAID Mart Dot Com." We cannot be certain that trademarks will be issued for such applications. 48 We require all employees, consultants and contractors to execute non-disclosure agreements as a condition of employment or engagement by us. We cannot be certain, however, that we can limit unauthorized or wrongful disclosures of unpatented trade secret information. Although we continue to implement protective measures and intend to defend our proprietary rights, policing unauthorized use of our technology or products is difficult and we cannot be certain that these measures will be successful. MAJOR CUSTOMERS During the fiscal year ended March 31, 2000, four customers each accounted for 10% or more of our total revenues and, together, these customers accounted for approximately 66% of our total revenues. During the fiscal year ended March 31, 2000, United Digital Limited accounted for approximately 24% of our gross revenues, Open Storage Solutions accounted for approximately 19% of our gross revenues, Top Media accounted for approximately 12% of our gross revenues; and Microtronica Sweden AB accounted for approximately 10% of our gross. Given the recent expansion of our marketing team and the expected increase in sales which will result from its efforts, we do not anticipate that any of the customers that accounted for a significant portion of our sales prior to March 31, 2000 will account for 10% or more of sales after fiscal 2002, nor will we rely on such customers to make purchases accounting for a significant portion of our sales in any future years after 2002. EMPLOYEES As of January 31, 2001, we had 22 full-time employees, of whom four were engaged in research and development, one was in engineering services, seven were in sales and marketing, five were in manufacturing and five were in finance, administration and information services. None of our employees is represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel, all of whom are bound by employment agreements which provide for terms of five years. The loss of the services of one or more of our key employees for any reason could have a material adverse effect on our business, financial condition and results of operations. Our future success also depends on our continuing ability to attract, train and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and we may not be able to retain our key personnel in the future. FACILITIES Our principal executive offices are located at 21700 Oxnard Street, Suite 1850, Woodland, California, 91367. This facility consists of approximately 4,000 square feet of office space. Our United Kingdom subsidiary, Nexsan-UK, maintains approximately 4,500 square feet of space, including 2,000 square feet of office space and 2,500 square feet of manufacturing space, at Imperial House, East Service Road, Raynesway, Derby DE21 7BF, United Kingdom. 49 We have leased our United States offices for a three-year period through April 14, 2004 at a monthly rent of $3,825 for the first year increasing to $4,137 per month in the last year of the lease. We believe these facilities are sufficient for our current and future needs. We have leased our UK facilities through March 25, 2005, with the right to cancel the lease after March 25, 2001 upon six months written notice to our landlord, at an annual rent of $23,920. Commencing in March 2001, the landlord has the right to raise the annual rent to an amount equal to the fair market value of the space. If the market for SANs continues to grow as we expect and our business grows correspondingly, the demand for our products could exceed our ability to manufacture products on a timely basis. Consequently, we believe that we will require additional space for our manufacturing facility in the near future. Presently, we do not have sufficient financial resources to expand our manufacturing facility. We believe that such space is available in the Derby, England area if and when we require such additional space. We anticipate remaining in this area to avail ourselves of the talented and relatively inexpensive labor pool (as compared with salaries commanded by high-tech labor in the United States and the major cities in Europe) residing in proximity to this city. MANAGEMENT The following table lists, as of March 23, 2001, our directors, executive officers and key employees, as well as promoters and control persons of our company: Name Age Title - ---- --- ----- Martin Boddy 44 President and Chief Executive Officer and Director Gary Watson 37 Chief Technical Officer and Director Paul Coxon 43 Chief Financial Officer Diamond Lauffin 43 Executive Vice President and Director James R. Molenda 46 Vice President-Sales and Director Lee Hickling 35 Operations Director-Nexsan Technologies Limited Mohan Vachani 58 Director and Consultant E. Corprew Reed 59 Director Cary Aminoff 57 Secretary, Treasurer and Director 50 Our board of directors currently is comprised of seven members, the number of which may be changed as determined by resolution of the sitting board of directors. All directors hold office until the next annual meeting of stockholders and until their successors have been elected and qualified. The Board of Directors elects the officers annually. Martin Boddy has served as our President and has been a member of the board of directors since the inception of the Company. He also serves as the Managing Director of Nexsan Technologies Limited and has acted in that capacity since the corporation's organization in January 1999. Prior to joining Nexsan, he served as the Managing Director for the European operations of Trimm Technologies, Ltd., a United States data storage company, from 1986 through 1998. During his tenure at Trimm, Mr. Boddy was directly responsible for all profits and losses and transformed the subsidiary from a low-technology enterprise to a high technology, integrated organization with 80 staff and sales personnel throughout Europe. Mr. Boddy has particular expertise in developing market opportunities and managing distribution networks through Europe and the U.S. Mr. Boddy received a degree in business studies from Kedleston College, Derby, United Kingdom (the equivalent of a bachelor's degree) and received an advanced degree in business studies from Wilmorton University in Derby, England. Mr. Boddy may be deemed to be a founder of the Company. Gary Watson has served as our Chief Technical Officer and has been a member of the board of directors since the inception of the Company. He also serves as the Technical Director of Nexsan Technologies Limited and has acted in that capacity since the corporation's organization in January 1999. Prior to joining Nexsan, he served as the Engineering Manager for Trimm Technologies, Ltd.'s European subsidiary for three years (1996-1999) and as Senior Engineer at Trimm in the U.S. for four years (1992-1996) where he was the principal architect and project manager of the first RAID family at Trimm and later at Trimm US and the European UltraRAID family. During his employment at Trimm US, Mr. Watson served as Trimm's principal voting member on the SCSI Committee (ANSI X3T10) and the RAID Advisory Board. Mr. Watson is the primary architect of the InfiniSAN and XRAID families, designed the electronics, completed the electronic CAD board layout, and wrote parts of the NexScan web based graphical user interface software. He is a specialist in SCSI, RAID, and Fibre Channel protocols and electronics. Mr. Watson may be deemed to be a founder of the Company. Paul Coxon has served as our Chief Financial Officer since our inception and also serves as the Financial Director of Nexsan Technologies Limited, a position he has held since January 1, 2001. From April 2000 through December 2000, Mr. Coxon operated his own private consulting firm. Prior to April 2000, he served as the Group Chief Executive of a $30 million turnover company in the travel incentives industry. His primary responsibility was company restructuring and funding. From 1985 through 1999, Mr. Coxon was engaged in the private practice of accounting at Cooper Parry as a Chartered Accountant, qualifying in 1985 and becoming a partner in 1990. While in private practice, he handled a variety of organizational structures of varying size and nature, typically providing a level of commercial knowledge to the proprietors or reporting to the board. His particular expertise is resolving the problems of developing businesses. Mr. Coxon achieved a bachelor of arts with Honors in Economics from Warwick University in 1978 before qualifying as a secondary school teacher at Worcester 51 College in the following year. In 1990 he completed an M.A. in Economics at the University of British Columbia, Canada. Diamond Lauffin joined the Company in January 2001 as our Executive Vice President and a member of the board of directors. Mr. Lauffin is responsible for worldwide sales of our products. From August 1994 through December 2000, he served as the General Manager for Worldwide Sales of Qualstar Corporation, a publicly traded computer hardware manufacturing company. During his tenure at Qualstar, he conceptualized, developed and executed what became known as the "lead registration marketing program" now adopted by the Company. He was responsible for developing sales and marketing programs and coordinated new product introductions. Mr. Lauffin was responsible for training the entire marketing staff, establishing all sales policies, and managing directly and indirectly all key customer relationships. In addition, Mr. Lauffin has held positions as Sales and Marketing Director at Linear Engineering, a computer based design and manufacturing company; Sales Manager/Engineer at Saki Magnetics, a design and manufacturing division of TDK Electronics; General Manager of Sales at Novation Corporation; Director of Worldwide Sales and Marketing at Hybrid Arts, a computer hardware and software design and manufacturing company; and General Sales Manager, Haba Systems Inc., a computer software design and manufacturing company. James Molenda has been our Vice President-Sales since January 4, 2001. Mr. Molenda manages and oversees our direct sales force and personally develops and maintains relationships with key customer accounts and negotiates strategic relationships with Sales Channel Partners. During 1999, Mr. Molenda had been working with Mr. Lauffin directing all North American sales and customer related operations of Qualstar Corporation. From 1983 through 1999, he was employed by the Pacific Data Group where he oversaw all operational and sales aspects of a $6 million privately held computer systems. In that capacity, he was responsible for strengthening key vendor relationships, key customer accounts and banking relationships; developing and implementing the plans for capital development resulting in acquisitions; hiring and training all staff, and opening four offices in Southern California. Cary Aminoff has been the Secretary, Treasurer and a member of the board of directors since January, 2001. Mr. Aminoff is Beechtree Capital Ltd.'s appointee to the Board pursuant to the terms of a Stock Purchase Agreement among the Company and certain investors, to which Beechtree was a party. He has been an investment banker and corporate strategy advisor in private practice since 1986 with a concentration in venture capital and corporate finance, information technology and biotechnology, telecommunications and media, and international business issues. In addition, Mr. Aminoff is currently serving as a financial advisor to two developmental biotechnology companies; he recently participated in a consulting consortium organized by the U.S. Government on the privatization of the national utility in Moldova; and he has performed various advisory assignments for several prominent Internet companies. Mr. Aminoff has been associated since 1988 with Arthur Taylor & Co., the private investment company owned by the former President of CBS, Inc. In addition, he has served as an investment banker and consultant in the real estate industry, and for various corporations on both domestic and international projects. Mr. Aminoff has served as a consultant and participant at the Hudson Institute in a number of studies for various agencies of the U.S. Government and major private corporations on Russian, Far Eastern and Middle Eastern Affairs. For three years 52 prior to that, Mr. Aminoff was based in Hong Kong as a reporter and bureau manager for CBS News. He has been published in The New Republic and The Far Eastern Economic Review. Mr. Aminoff is a consultant to Beechtree Capital Ltd. Lee Hickling has been the Operations Officer of Nexsan Technologies Limited since August 1, 2000 and is responsible for day to day operations of our manufacturing facility. Prior to joining the Company, from 1998 through 1999, he served as Operations Director of Ancon CCL Ltd., a manufacturer of fabricated products for the construction industry, where he was assigned the task of relocating the company's Leeds operation into new premises and conducting a business process re-engineering program to reduce the site's operating losses. From 1996 through 1998, he was the General Manager of Harmon Professional Audio Corporation, a manufacturer of audio equipment, where he was responsible for organizing a UK manufacturing plant to service the European marketplace. From 1994 through 1998, he was the Operations Manager of Trimm Technologies Ltd.'s European subsidiary. While at Trimm, he managed a multi-site operation, participated in the introduction of two new manufacturing processes, and was instrumental in helping that company achieve ISO 9001 accreditation. E. Corprew Reed has been a member of the board of directors since January, 2001. Mr. Reed is Direct Brokerage Inc.'s appointee to the Board pursuant to the terms of a Stock Purchase Agreement among the Company and certain investors. He is currently the Managing Director of Corporate Finance for Direct Brokerage Corp., the placement agent for a portion of the funds raised in our private offering completed in February 2001, with which he has been affiliated since November 1998. He is a member of the New York and American Stock Exchanges. He serves as a director of Show Business, Ltd., of London, England. Mr. Reed is also the President and a Director of Franzioni Associated, a business consulting company with offices in Paris, Milan, and New York. Prior to joining Direct, Mr. Reed was a Manager of International Sales and Arbitrage at Vectormex, and served as an advisor to Securos Americana, an affiliated company that was the largest insurance company in Mexico. Mr. Reed managed the fixed income marketing effort for Daiwa Europe in Europe and the Middle East, and ran the proprietary swaps and derivative trading portfolio. He managed a $1 billion swaps and derivates portfolio for CIBC, and was employed by Paine Webber as a liaison to the Federal Home Loan Bank, Fannie Mae, the Farm Credit Association, and the FOMC. Mr. Reed worked for White Weld as a Director of the government securities and money market securities departments. He holds a Bachelor of Science degree from the Citadel. Mohan Vachani has served as a member of board of directors and as a consultant to the Company since January 4, 2001. His primary responsibilities include overseeing and assisting in directing the Company's operations and financial performance in the U.S. and providing guidance to the Company's executives in respect thereof, including the furnishing of written reports upon the request of the Company; advising the Company with regard to compliance with regulations of the Securities Exchange Commission ("SEC"), and assisting it with all filings required by the SEC and in all dealings with SEC officials; assisting in the negotiation of contracts with suppliers and major customers when so requested by the Company. Mr. Vachani has over thirty years of experience in strategic planning, finance and mergers, acquisitions, and divestitures. Since 1993, he has served as a Senior Vice President, Chief Financial Officer, and a member of the Board of Directors of Amrep Corporation, a New York Stock Exchange listed 53 company. From 1987 to 1992, he served as Chief Financial Officer of Bedford Properties, and Director of Corporate Development at Kaiser Aluminum and Chemical Corporation. Mr. Vachani holds a B.S. degree from the Indian Institute of Technology, an M.S. from the California Institute of Technology, and a Ph.D. from Stanford University. CERTAIN AGREEMENTS RELATING TO BOARD AND COMMITTEE REPRESENTATION In connection with the private placement of shares of our common stock to certain investors during January and February 2001, we agreed to permit both the lead investor and the placement agent in such offerings to nominate persons to our board of directors and to serve on certain committees of our board. Specifically, we agreed to use our best efforts to cause and maintain the election to the Board of Directors of one representative selected by Beechtree Capital, Ltd. ("Beechtree") and one representative of Direct Brokerage Corp. ("Direct"), should Direct so desire, for a period of five years commencing on January 4, 2001. Martin Boddy, our President and Chief Executive Officer, has agreed, to the extent permitted by law and the applicable exchange on which our common stock is trading, to vote any and all shares of common stock and other voting securities registered in his name in favor of Beechtree's and Direct's respective nominees for election to the board of directors. In addition, we also agreed to use our best efforts to (i) appoint each of Beechtree's and Direct's respective nominees to the board to serve on the executive committee of the board of directors, which committee is to consist of up to five persons, for a period of five years and (ii) appoint each of Beechtree's and Direct's respective nominees to the board to serve on its Audit Committee, which committee is to consist of up to five persons, for a period of five years. AGREEMENTS WITH MANAGEMENT On January 4, 2001, we entered into employment agreements with several of our key employees, as described below. Moreover, some of our executives entered into employment agreements with our wholly owned subsidiary, Nexsan-UK. In addition to those terms specific to each agreement described below, each of the executives has agreed not to disclose confidential information or use such information for personal benefit, either during or after employment with us, nor to solicit any of our customers or employees for a one-year period after their employment. The agreements give us full rights to any inventions of the executives made during their employment with us. Martin Boddy has agreed to serve as our President and Chief Executive Officer. Mr. Boddy's agreement with us provides that he will serve for a period of five years, subject to earlier termination upon the occurrence of certain events, such as the commission by Mr. Boddy of a crime or an act of dishonesty. We will pay Mr. Boddy compensation at the rate of $25,000 per annum which shall increase by an amount equal to 5% of the base salary then in effect in each successive year of the agreement. Mr. Boddy also has entered into an agreement with our subsidiary, Nexsan-UK, to serve as its Managing Director for a period of five years. Mr. Boddy will receive a salary of $143,000 during the first year of the term of the agreement and $218,000 during the second year of the agreement increasing by an amount equal to 5% of the base salary then in effect in each successive year of the agreement. 54 Gary Watson has agreed to serve as our Chief Technical Officer for a period of five years, subject to earlier termination upon the occurrence of certain events, such as the commission by Mr. Watson of a crime or an act of dishonesty. We have agreed to pay to Mr. Watson a salary of $25,000 during the first year of his agreement increasing by 5% of the base salary then in effect in each successive year thereafter. Mr. Watson also has entered into an agreement with our subsidiary, Nexsan-UK, to serve as its Technical Director for a period of five years. Nexsan-UK will pay Mr. Watson compensation at the rate of $103,000 during the first year of the term of the agreement and $178,000 during the second year of the agreement which shall increase by an amount equal to 5% of the base salary then in effect in each successive year of the agreement. We have engaged Paul Coxon to serve as Chief Financial Officer until January 2006, a period of five years, subject to earlier termination upon the occurrence of certain events, such as the commission by Mr. Coxon of a crime or an act of dishonesty. We have agreed to pay to Mr. Coxon a salary of $25,000 during the first year of his agreement increasing by 5% of the base salary then in effect in each successive year thereafter. Mr. Coxon also has entered into an agreement with our subsidiary, Nexsan-UK, to serve as its Financial Director for a period of five years. Nexsan-UK will pay Mr. Coxon compensation at the rate of $85,000 during the first year of the term of the agreement and $160,000 during the second year of the agreement which shall increase by an amount equal to 5% of the base salary then in effect in each successive year of the agreement. Diamond Lauffin has agreed to serve as our Executive Vice President for a period of five years, subject to earlier termination upon the occurrence of certain events, such as the commission by Mr. Lauffin of a crime or an act of dishonesty. We also have retained the right to terminate Mr. Lauffin's employment in the event that we have not met target sales of $5 million per month after the 31st month of the agreement and $8 million in sales after the 42nd month of the agreement. We will pay Mr. Lauffin compensation at the rate of $250,000 during the first year of the term of the agreement which shall increase by an amount equal to 5% of the base salary then in effect in each successive year of the agreement. In addition, we sold to Mr. Lauffin 2,000,000 shares of our common stock, subject to the certain terms and conditions described below. James Molenda has agreed to serve as our Vice President of Sales for a period of five years, subject to earlier termination upon the occurrence of certain events, such as the commission by Mr. Molenda of a crime or an act of dishonesty. We also have retained the right to terminate Mr. Molenda's employment in the event that we have not met target sales of $5 million per month after the 31st month of the agreement and $8 million in sales after the 42nd month of the agreement. We will pay Mr. Molenda compensation at the rate of $225,000 during the first year of the term of the agreement which shall increase by an amount equal to 5% of the base salary then in effect in each successive year of the agreement. In addition, we sold to Mr. Molenda 1,200,000 shares of our common stock, subject to the certain terms and conditions described below. 55 Stock Sold to Certain Executives On January 4, 2001, we sold 2,000,000 shares of our common stock to Diamond Lauffin, our Executive Vice President, and 1,200,000 shares of common stock to James Molenda, our Vice President of Sales, pursuant to the 2001 Stock Plan (described below), at a purchase price of $0.66 per share. In consideration of the sale of the shares to Mr. Lauffin and Mr. Molenda, each of them executed a partial recourse promissory note equal to the purchase price of the shares that is payable on January 4, 2006 and bears interest at the rate of 5.61% per annum. Nexsan has recourse under the note for the accrued and unpaid interest and up to 33 1/3% of the original principal amount of the note. The principal amount of the note executed by Mr. Lauffin in favor of the Company equals $1,320,000 and the principal amount of the note executed by Mr. Molenda in favor of the Company equals $792,000. Each of these persons pledged their respective shares purchased to the Company to secure the promissory note. These executives will continue to enjoy voting and dividend rights during the time when shares are pledged. In the event that either Mr. Lauffin and Mr. Molenda ceases to be employed by us for any or no reason whatsoever, we shall have the irrevocable and exclusive option to repurchase any shares that have not yet vested in these individuals. We have the right to repurchase unvested shares within sixty days after the end of such person's employment by the Company. We may repurchase the unvested shares at a price of $0.66 per share plus the amount of any interest, by tendering cash, canceling the outstanding principal amount of the promissory note originally executed by the purchasers to pay for the shares, or a combination of both. We may assign all or any portion of our repurchase right with respect to these shares to any one or more of our officers, directors, employees, shareholders, or other persons or organizations as our board of directors may determine. Any such assignees of this right shall agree to pay to the Company the difference between the fair market value of the shares on the date of the assignment and the price paid by them for the shares. None of the shares acquired by each of Mr. Lauffin and Mr. Molenda shall vest until after the second anniversary date of the issuance of the right itself, and then, only if the Company has achieved certain total sales targets, net of returns and discounts. Shares shall be released from the repurchase right held by the Company and vest in the purchasers in tranches based upon certain total sales targets having been met, as described in the agreements. The total number of shares of common stock sold to each of Mr. Lauffin and Mr. Molenda will vest only after the Company has achieved total sales of $300,000,000 for a twelve month period. Shares not vested prior to December 31, 2005 shall never vest and shall, except under certain circumstances (the owner's death or disability) remain subject to repurchase by the Company on the terms described above. In the event of Mr. Lauffin's or Mr. Molenda's demise or disability, the Company shall have right to repurchase a certain number of the shares or to pay their respective heirs a certain fee, as described in the agreements. We have irrevocably granted to Mr. Lauffin and Mr. Molenda the right to require the Company to repurchase all vested and unvested shares upon any change in control of the Company prior to January 4, 2006. A change of control is defined as either a sale of all or substantially all of the Company's assets or an exchange of shares where subsequent to the exchange the shareholders immediately prior to the exchange own less than 50% of the voting 56 securities of the acquiring entity. The price to be paid by the Company for all shares to be repurchased as a result of a change in control during the first two years after acquisition of the shares, shall equal 5% of the Excess Value (defined below), if the change of control occurs after the 2nd anniversary and prior to the 3rd anniversary of the date of the grant of the stock purchase right, equal 10% of the Excess Value; and if the change of control occurs subsequent to the to the 3rd anniversary, 16% of the Excess Value. For purposes of this calculation, "Excess Value" means the excess of the fair market value over $30,000,000 of all equity interests. Each of Mr. Lauffin and Mr. Molenda has agreed that, if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act of 1933, that he (or any of his respective transferees of the shares) shall not sell or otherwise transfer any of the shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the underwriters' representative and agreed to in writing by the Company) following the effective date of the registration statement of the Company filed under the Securities Act of 1933. Such restriction shall apply only to the first registration statement of the Company to become effective that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act of 1933. KEY CONSULTING AGREEMENTS We have entered into a consulting agreement with Beechtree Capital, LLC to render certain services, including evaluating our managerial, marketing and sales performance; consulting with us concerning ongoing strategic corporate planning and long term investment policies; assisting in the negotiation of contracts with our suppliers and major customers; consulting with and advising us with regard to potential mergers and acquisitions; and reviewing press releases. Our agreement with Beechtree extends through January 3, 2006, a term of five years unless the parties agree in writing to extend the consultation for an additional one year term; provided, however, that the agreement may be terminated at any time after four years for any reason, by either party giving at least thirty (30) days written notice to the other party. In consideration of the services to be rendered by Beechtree, we have agreed to pay to Beechtree a monthly cash retainer of $8,333 for the entire term of the agreement and have sold to Beechtree 500,000 shares of our common stock subject to the 2001 Stock Plan at the price and on the other terms and conditions described below. We also have entered into a services agreement with Direct Investors, LLC to advise us with respect to investment banking matters including assisting us in locating, analyzing and negotiating in connection with evaluating our managerial, marketing and sales performance; consulting with us concerning ongoing strategic corporate planning and long term investment policies; assisting in the negotiation of contracts with our suppliers and major customers; consulting with and advising us with regard to potential mergers and acquisitions; and reviewing press releases. Direct also will furnish to us advice relating to financial public relations. This agreement extends through December 2005, subject to termination at any time after four years for any reason, by either party giving at least 30 days written notice to the other party. In consideration of the services to be rendered by Direct, we have agreed to pay to Direct a monthly cash retainer of $8,333 for the entire term of the agreement and we sold to Direct 500,000 shares 57 of our common stock subject to the 2001 Stock Plan at the price and on the other terms and conditions described below. On January 4, 2001, we entered into a consulting agreement with Mohan Vachani who agreed to (i) oversee and assist in directing the Company's operations and financial performance in the U.S. and provide guidance to the Company's executives in respect thereof, including the furnishing of written reports upon the request of the Company; (ii) advise the Company with regard to compliance with regulations of the Securities Exchange Commission ("SEC"), and assist it with all filings required by the SEC and in all dealings with SEC officials; (iii) assist in the negotiation of contracts with suppliers and major customers when so requested by the Company; (iv) render other services to the Company, or its affiliates, as our board of directors may reasonably request; and (v) report periodically to the Company's President, CFO, and the Company's consultant, Beechtree Capital, LLC, and confer regularly with the Company's Treasurer, with respect to the foregoing matters. Our agreement with Mr. Vachani extends for a term of one year, though either party has the right to terminate the agreement as of June 30, 2001 by giving thirty days written notice. Mr. Vachani has agreed to devote such time to the Company's affairs as may be required to render the services, provided that he shall not be required to devote, during the first six (6) months of the term of the agreement, more than twenty five percent (25%) of his business time and attention, and thereafter, for the remainder of the Term, more than fifty percent (50%) of his business time and attention. The Company will pay Mr. Vachani a monthly cash retainer of $4,000 per month during the first six months of the term of the agreement and $8,000 per month thereafter. We also granted to Mr. Vachani the right to purchase 75,000 Shares of common stock subject to the 2001 Stock Plan and upon the other terms described below. Stock Sold to Consultants On January 4, 2001, we sold 500,000 shares of our common stock to Beechtree Capital, LLC; 500,000 shares of common stock to Direct Investors LLC and 75,000 shares of common stock to Mohan Vachani, all consultants to the Company, pursuant to the 2001 Stock Plan (described below), at a price of $0.66 per share. In consideration of the sale of the shares to the foregoing, each of Beechtree and Direct executed a partial recourse promissory note equal to the purchase price of the shares that is payable on January 4, 2006 and bears interest at the rate of 5.61% per annum. In consideration of the sale of the shares to Mr. Vachani, he executed a partial recourse promissory note equal to the purchase price of the shares that is payable on January 4, 2004 and bears interest at the rate of 5.61% per annum. Nexsan has recourse under each of the above described notes for the accrued and unpaid interest and up to 33 1/3% of the original principal amount of the note. Each of the consultants pledged their respective purchased shares to the Company to secure the promissory note. The consultants will continue to enjoy voting and dividend rights during the time when shares are held in escrow. The shares sold to these consultants shall vest on January 1, 2002, except that, with respect to Mr. Vachani's shares, if his consulting agreement is terminated as of June 30, 2001, then 37,500 shares shall vest at that time and the balance of the shares will be returned to the Company. 58 In the event that any of the consultants ceases to be affiliated with us for any or no reason whatsoever, we shall have the irrevocable and exclusive option to repurchase any shares that have not yet vested in these individuals. We have the right to repurchase unvested shares within sixty days after the end of such person's affiliation with the Company. We may repurchase the unvested shares at a price of $0.66 per share plus interest, by tendering cash, canceling the outstanding principal amount of the promissory note originally executed by the purchasers to pay for the shares, or a combination of both. We may assign all or any portion of our repurchase right with respect to these shares to any one or more of our officers, directors, employees, shareholders, or other persons or organizations as our board of directors may determine. Any such assignees of this right shall agree to pay to the Company the difference between the fair market value of the shares on the date of the assignment and the price paid by them for the shares. Each of the consultants referred to above has agreed that, if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act of 1933, that it (or any of its respective transferees of the shares) shall not sell or otherwise transfer any of the shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the underwriters' representative and agreed to in writing by the Company) following the effective date of the registration statement of the Company filed under the Securities Act of 1933. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act 1933 that includes securities to be sold on behalf of the Company to the public in an underwritten public offering. LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS Our certificate of incorporation and our bylaws provide that our directors and officers shall be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with their service for or on our behalf. In addition, the certificate of incorporation provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or to our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper personal benefit from their action as directors. We may seek to obtain insurance which insures our directors and officers against specified losses and which insures us against specific obligations to indemnify our directors and officers. EXECUTIVE COMPENSATION. The following table summarizes all compensation earned by or paid to our chief executive officer for services rendered to us in all capacities during the fiscal year ended March 31, 2000. None of our other executive officers or employees received compensation in excess of $100,000 for the fiscal year ended March 31, 2000. 59 SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------- Annual Compensation All other Name and Principal Position Year Salary Bonus Compensation - --------------------------- ---- ------ ----- ------------ Martin Boddy, 2000 $65,730 -0- -0- Managing Director (1) - ------------------------------------------------------------------------------
1. Compensation was paid to Mr. Boddy in his capacity as Managing Director of our wholly owned United Kingdom subsidiary, Nexsan-UK, prior to our reorganization. Mr. Boddy was paid in British Pounds Sterling and received compensation, expressed in Pounds Sterling, of (pound)46,239.99. Director Compensation Directors are elected each year for one-year terms and do not currently receive any cash compensation for their service as directors, but are reimbursed for reasonable expenses incurred in attending meetings. 2001 Stock Plan In January 2001, the board of directors and shareholders adopted the 2001 Stock Plan. The 2001 Stock Plan is designed to enhance our long-term profitability and stockholder value by aligning the interests of selected directors, officers, employees and consultants with our performance targets. The 2001 Stock Plan is administered by our board of directors or a committee that may be appointed by our board, which has exclusive authority to grant awards under the 2001 Stock Plan and to make all interpretations and determinations affecting the 2001 Stock Plan. The board of directors has the sole discretion, for example, to determine the individuals to be granted awards, the type of award granted, the number of shares of common stock to be subject to each award granted, the exercise price of each award, the conditions with respect to vesting and exercisability of awards and all other conditions of any award under the 2001 Stock Plan. Participation in the 2001 Stock Plan is limited to our directors, officers, employees and consultants who are selected from time to time by the board of directors or by a committee appointed by the board of directors. Awards under the 2001 Stock Plan may be in the form of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, non-qualified stock options which are not intended to meet the requirements of Section 422 of the Internal Revenue Code, or stock purchase rights. Stock purchase rights are subject to repurchase by us on terms and conditions determined by the board of directors. We have reserved an aggregate of 7,572,222 shares of our common stock for issuance under the 2001 Stock Plan. As of March 23, 2001, awards for 6,572,222 shares have been granted under such plan, including 4,275,000 shares of common stock which we sold to certain executives and consultants and 2,297,222 options to purchase up to shares of common stock granted to certain of our executive officers. Of the options granted to date, Martin Boddy, our President and a Director, and Gary Watson, our Chief Technical Officer and a Director, each have been granted the right to purchase 60 up to 1,111,111 shares of common stock at a purchase price equal to the price at which shares of common stock are sold to investors in the next offering of common stock by the Company in which at least $5 million of common stock is sold. Mr. Boddy or Mr. Watson will have the right to exercise 555,555 of their options if the Company achieves a defined net income level (as defined below) of at least $15,000,000 during any twelve month period ending on the last day of any month from January 2002 to December 2005. They shall be entitled to exercise the remaining 555,556 options if the Company achieves a defined net income level of $27,000,000 during any twelve month period ending on the last day of any month from January 2002 to December 2005. For purposes of the options granted to each of Mr. Boddy and Mr. Watson, the options may be exercised if the Company and its subsidiaries achieve net income, defined as, the sum, without duplication of (i) net income generated by the Company and its subsidiaries for a particular period plus (ii) the amount deducted in determining net income for a particular period for the provision of taxes based upon the income or profits of the Company and its subsidiaries; and interest expenses; and amortization and depreciation of assets during the period in question. In addition, on January 4, 2001, the Company granted an option to Paul Coxon, its Chief Financial Officer, to purchase up to 75,000 shares of common stock under the 2001 Stock Plan. Mr. Coxon may exercise options to purchase 15,000 shares of common stock on each anniversary of the grant at an exercise price of $0.66 per share. The 4,350,000 shares of common stock sold to certain employees and consultants under the 2001 Stock Plan are subject to the terms and other conditions described under the headings "MANAGEMENT-Executive Compensation-Stock Sold to Certain Executives" and "Stock Sold to Certain Consultants." PRINCIPAL SHAREHOLDERS The following table sets forth certain information known to us regarding beneficial ownership of our common stock at March 23, 2001 by (i) each person known by us to own beneficially more than 5% of our common stock, (ii) each of our directors, (iii) each of our executive officers, (iv) all officers and directors as a group.
Name and Address No. of Shares Percentage of of Beneficial Owner Beneficially Owned Class Beneficially Owned - ------------------- ------------------ ------------------------ Martin Boddy (1)(2) 4,261,099 23.67% Gary Watson (1)(3) 2,014,513 11.19% Paul Coxon (1) -0-(4) -0- Diamond Lauffin (1)(5) 2,000,000 11.11% Mohan Vachani (1) 82,500 0.43% 61 James R. Molenda (1)(6) 1,200,000 6.67% Lee Hickling (1) -0- -0- E. Corprew Reed (1)(7) 295,455 1.64% Cary Aminoff (1) 38,000 0.21% Beechtree Capital Ltd.(8) 1,038,428 5.77% One Rockefeller Plaza New York, New York 10020 Direct Brokerage Inc. (9) 250,000 1.39% 39 Broadway 32nd Floor New York, New York 10006 All officers and directors as a group (9 persons)___ 9,884,067 54.92%
1. The address for each such officer or director of the Company is c/o Nexsan Technologies Incorporated, 21700 Oxnard Street, Suite 1850, Woodland, California 91367. 2 Includes (i) 230,000 shares of common stock being registered in this Prospectus and (ii) 200 shares of Common Stock registered in the name of Mr. Boddy's spouse. Does not include up to 1,111,111 shares of common stock which may be issuable to Mr. Boddy upon the exercise of options granted pursuant to the 2001 Stock Plan, and which may be exercised, if at all, only if the Company achieves certain income levels for any twelve month period ending on the last of January 2002 through December 2005, as specified in the option grant. See "Management-Executive Compensation-2001 Stock Plan." 3. Includes up to 183,000 shares of Common Stock being registered hereby. Does not include up to 1,111,111 shares of common stock which may be issuable to Mr. Watson upon the exercise of options granted pursuant to the 2001 Stock Plan, and which may be exercisable, if at all, only if the Company achieves certain income levels for any twelve month period ending on the last day of January 2002 through December 2005, as specified in the option grant. See "Management-Executive Compensation-2001 Stock Plan." 4. Does not include up to 75,000 shares of common stock issuable upon the exercise of options granted to Mr. Coxon under the 2001 Stock Plan. Mr. Coxon may exercise options to purchase up to 15,000 shares of common stock on January 4 in each of the years 2002 through 2006 at a price of $0.66 per share. 5. All of Mr. Lauffin's shares of Common Stock will be held in escrow and will be subject to repurchase by the Company on a sliding scale over the next five years in the event certain minimum sales are not achieved. See "Management-Executive Compensation-Stock Sold to Certain Executives." 6. All of Mr. Molenda's shares of Common Stock will be held in escrow and will be subject to repurchase by the Company on a sliding scale over the next five years in the event certain minimum sales are not achieved. See "Management-Executive Compensation-Stock Sold to Certain Executives." 7. Includes 250,000 shares of common stock owned by Mr. Reed which are registered in the name of Direct Investors LLC, of which Mr. Reed is the Managing Director, which such firm is an affiliate of Direct Brokerage, Inc., of which Mr. Reed is the Director of Corporate Finance. The 250,000 shares represent a 62 portion of the 500,000 shares sold to Direct Brokerage, Inc. at a price of $0.66 per share. The shares will not vest until January 2002. See "Management-Executive Compensation-Stock Sold to Consultants." 8. Beechtree Capital LLC is an affiliate of the Company by virtue of its ability to appoint a member of our Board of Directors through 2006. The figure includes (i) 500,000 shares of common stock owned by Beechtree, of which Mr. Weiss is the Managing Director, (ii) 303,031 shares of common stock held in the name of CDLM Weiss Associates, of which Mr. Weiss is a 50% owner, which shares are being registered hereby, and (iii) 235,397 shares of common stock registered in the name of DLG Investment Partnership, of which Mr. Weiss is the managing partner and over which shares Mr. Weiss exercises voting control and dispository power, though he disclaims beneficial ownership of any of these shares, which shares are being registered hereby. 9. Direct Brokerage Inc. is an affiliate of the Company by virtue of its ability to appoint a member of our Board of Directors through 2006. This figure does not include shares of common stock registered in the name of or beneficially owned by E. Corp Reed, a Director of the Company and a Director of Direct nor does this figure include shares of common stock held by certain employees of Direct some of which are being registered hereby. SELLING SHAREHOLDERS The following table sets forth certain information known to us regarding beneficial ownership of our common stock at March 23, 2001 by each of the beneficial owners of the 5,086,886 shares of common stock registered in the Registration Statement covering shares being offered. The shares offered will be sold, if at all, solely by and at the discretion of the selling shareholders. We will not receive any proceeds from any sales. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. The selling shareholders may offer their shares for sale on a continuous basis Pursuant to Rule 415 un the Securities Act of 1933. All of the selling shareholders shares registered hereby will become freely tradable on the effective date of the Registration Statement of which this Prospectus forms a part.
Percent of Stock Beneficially Owned Number of ----------------------------- Name and Address Shares Beneficially Number of Prior to After of Beneficial Owner Owned Prior to Offering Shares Registered Offering (1) Offering (2) - ------------------- ----------------------- ----------------- ------------ ------------ Martin Boddy (3)(4) 4,261,099 230,000 23.67% 22.40% Gary Watson (3)(5) 2,014,513 183,000 11.19% 10.18% Eihu Allinson 15,152 15,152 * 0 8600 Stephenson Road Stephenson, MD 21153 Cary Aminoff, 38,000 38,000 * 0 5244 Netherland Avenue Riverdale, N Y 10471 63 Charles Amodeo 15,152 15,152 * 0 117 Elkton Lane North Babylon, NY 11703 Paul Asnes 15,152 15,152 * 0 10 East End Avenue New York, NY 10021 Alessandro Baina 15,152 15,152 * 0 Corso Vittorio Emanuele 164 10100 Torino TO Italy BER Investments Ltd. 75,758 75,758 * 0 2500 City West Blvd #1050 Houston, TX 77042 Nikolaus Graf Bernstorff 37,879 37,879 * 0 Linden Allee Haus 8 21514 Wotersen, Germany Mark Boutote 15,152 15,152 * 0 133 Country View Dr. Freehold, NJ 07728 Janet Breza 15,152 15,152 * 0 P.O. Box 253 Spotswood, NJ08884 Steven Capo 15,152 15,152 * 0 2408 Yorktown Street Oceanside, NY 11572 Robert Capon 15,152 15,152 * 0 3755 Henry Hudson Parkway Riverdale, NY 10463 CDLM Investments Ltd. 75,758 75,758 * 0 1705-1/2 Center Street Deer Park, TX 77536 CDLM Weiss Associates 606,061 606,061 3.37% 0 1705-1/2 Center Street Deer Park, TX 77536 64 Nancy Charmak 15,152 15,152 * 0 30 East 9th St Apt 5B New York, NY 10003 Pat Coffey 15,152 15,152 * 0 28 Glenbourne Avenue Leopardstown Valley Ireland Dublin 18 Chris Conway 15,152 15,152 * 0 9 Heritage Drive Freehold, NJ 00728 John Curtin 15,152 15,152 * 0 529 East 83rd St #4R New York, NY 10028 Robert Leonard Dewar 15,152 15,152 * 0 4 Longfellow Place, #605 Boston, MA 02114 Frank Di Giovanna 15,152 15,152 * 0 2567 Loftus Ave Oceanside, NY 11572 William Dickenson 15,152 15,152 * 0 500 Elton Adelphia Road Freehold, NJ 07728 Bernard Dishy 15,152 15,152 * 0 50 Riverside Dr. New York, NY 10024 DLG Investment Partnership 235,397 235,397 1.31% 0 1 Rockefeller Plaza Suite. 1600 New York, NY 10020 Arlene G. Dubin 7,576 7,576 * 0 160 East 84th St Apt. 10G New York, NY 10028 Frank Dwyer 15,152 15,152 * 0 32 Oak Rise Dr. Freehold, NJ 07728 65 Michael J. Emont 10,000 10,000 * 0 325 East 79th St Apt. 13E New York, NY 10021 Jack Erlanger 53,030 53,030 * 0 2 East 88th St New York, NY 10028 Mark Finkel 15,152 15,152 * 0 117 Aspen Airport B.C Suite 311 Aspen, CO 81611 Franklin C. Fisher, Jr 303,031 303,031 1.68% 0 5014 Glenmont Houston, TX 77081 Don L. Fitch 30,303 30,303 * 0 3100 Chase Tower 600 Travis Street Houston, TX 77002 Thomas Flynn 15,152 15,152 * 0 122 Garfield Avenue Avon by the sea, NJ 07717 Piero Franzioni 51,970 51,970 * 0 990 6th Avenue Apt. 17C New York, NY 10018 Lilia Ivanioukhina and Aldo Franzioni 16,667 16,667 * 0 222 W 14th Street Apt 6K, New York, NY 10011 Paul Freed 15,152 15,152 * 0 1330 Bea Court East Meadows, NY 11554 James Freitag 15,152 15,152 * 0 601 Porter Lane Hermosa Beach, CA 90254 Elizabeth Freytag 15,152 15,152 * 0 122 Garfield Avenue Avon by the Sea, NJ 07717 66 G.P.P.F. Partnership 151,515 151,515 * 0 6635 Belmont Houston, TX 77005 Kai Gaertner 45,455 45,455 * 0 Siemensstrasse 14 64289 Darmstadt, Germany Luca Gallina 15,152 15,152 * 0 Via Bassanese 5 31011 Asolo -TV-Italy Varda Geller 15,152 15,152 * 0 37 Hunting Hollow Ct. Dix Hills, NY 11746 Elliott Goldstein 35,000 35,000 * 0 2554 Lincoln Blvd. #1057 Marina del Ray, CA 90291 Andrea Grifi 15,152 15,152 * 0 Via Cirillo 15 00197 Roma, Italy Lawrence Gussoff 15,152 15,152 * 0 Three Minaus Drive Bedford, NY 10506 Heidrun Held 15,152 15,152 * 0 1 Loehrsweg Hamburg, Germany 20249 Roberta Henderson 15,152 15,152 * 0 91 Prince Street Jamaica Plain, MA 02130 Eniko Henits 15,152 15,152 * 0 158 W. Greystone Rd Old Bridge, NJ 8857 Dr. Richard Hirt 53,030 53,030 * 0 2845 Ranier Lane Plymouth, MN 55447 Rainer Inzelmann 15,152 15,152 * 0 Am Sor gfeld 44 22587 Hamburg, Germany 67 Hans Ulrich Jakubowski 15,152 15,152 * 0 Rothenbaumchaussee 140 Hamburg, Germany 20149 ViJay Kapoor 7,500 7,500 * 0 28615 Matadero Creek Court Los Altos hills, CA 94011 Laurie K. Katan 15,152 15,152 * 0 14200 Sport of Kings Wichita, KS 67230 Brian S. Katan 15,152 15,152 * 0 14200 Sport of Kings Wichita, KS 67230 Wayne Kauth 15,152 15,152 * 0 300 N. State St., Apt. 5707 Chicago, IL 60610-5669 Edward Klimerman and Janet C. Walden 30,303 30,303 * 0 14 East 75th Street Apt. 2A New York, NY 10021 Gail Komito 21,212 21,212 * 0 15 Netto Lane Plainview, NY 11803 Thomas Ladage 15,152 15,152 * 0 Walter-Maack-Str. 11 Rinteln, Germany 31737 Thomas Lander 15,152 15,152 * 0 Salomon Heine Weg 36b 20251 Hamburg, Germany Ledgewood Properties, Inc. Profit Sharing Plan 37,879 37,879 * 0 Salomon Heine Weg 36b 20251 Hamburg, Germany Ledgewood Properties, Inc. Profit Sharing Plan 37,879 37,879 * 0 Jeffrey B. Hanson, Trustee 15 Maple Avenue Morristown, NJ 07960 68 Scott D. Lester 23,000 23,000 * 0 775 E. Blithedale Ave. #349 Mill Valley, CA 94941 Melvyn R. and Judith G. Leventhal 38,000 38,000 * 0 777 Third Avenue 19th Floor New York, NY 10017 Jess Levine 15,152 15,152 * 0 P.O. Box 57071 Sherman Oaks, CA 91413 Lars P. Lidberg 15,152 15,152 * 0 11 High Circle Way North Oaks, MN 55127-6210 Louis Luguori 15,152 15,152 * 0 27 Ivanhoe Drive Manalapan, NJ 07726 Charles Maletz 15,152 15,152 * 0 6320 Calle Hermosa Alta Loma, CA 91737 Rumi J. Malott 15,152 15,152 * 0 151 East 81st St. Apt. 6F New York, NY 10162 ViJai Manilal and 7,500 7,500 * 0 Kahn, Georgina A. 1442 Queens Road Berkeley, CA 96708 Dr. Hans Jaochim Mann 45,455 45,455 * 0 Eckerweg 11 30851 Langenhagen Germany Kevin McNally 15,152 15,152 * 0 1 Manny Way Red Bank, NJ 07701 Agnes McWilliams 15,152 15,152 * 0 138 Havens Mill Road Freehold, NJ 07728 69 Hans Otto Mieth 151,515 151,515 * 0 Arnold Heise Strasse 11 20249 Hamburg, Germany NRC Resources Group, Inc. 15,152 15,152 * 0 31 Voorhis Drive Old Bethpage, NY 11804-1025 Robert O'Neill 15,152 15,152 * 0 1464 W Front Street Lincroft, NJ 07738 Dennis O'Neill 15,152 15,152 * 0 299 Riveredge Road Tinton Falls, NJ 07724 Shawn O'Neill 15, 152 15,152 * 0 152 Sleepy Hollow Road Red Bank, NJ 07701 Karen Olah 15,152 15,152 * 0 10 East End Avenue New York, NY 10021 Pal-Bro Partners LLC 15,152 15,152 * 0 Two Rector Street New York, NY 10006 Saverio Pancaldi 15,303 15,303 * 0 Via Brugnoli 5 40122 Bologna BO Italy James Parolisi 15,152 15,152 * 0 83 Fairwater Avenue Massapequa, NY 11758 Diego Pasquiero 15,152 15,152 * 0 Strada Bussolino 58/3 10090 Gassino Torinese TO Italy Gerhard Pateisky 151,515 151,515 * 0 Jagerstrasse 35 58453 Witten, Germany 70 Marco Pegorin 15,152 15,152 * 0 Via Stampatori 21 10122 Torino TO Italy Ruediger Pestlin 16,000 16,000 * 0 Nissenstrasse 9 20251 Hamburg, Germany Marco Pogliano 15,152 15,152 * 0 Piazza Vittorio Veneto 10 10123 Torino TO Italy Jeremy Porter 675,758 675,758 3.75% 0 Chequers, Heyford Road OX5 3HS Kirtlington, Oxford England Angela Prestia 15,152 15,152 * 0 490 First Avenue Brooklyn, NY 11215 E. Corprew Reed (6) 295,455 295,455 1.64% 1.39% 200 E. 15th St. Apt. 2K New York, NY 10003 Dr. Hans Rudelt 30,303 30,303 * 0 Aussenschlag 11a 21521 Wohltorf, Germany Don A. Sanders 75,757 75,757 * 0 3100 Chase Tower 600 Travis Houston, TX 77002 Sarkar, Subhas and Sarkar, Ratna 7,500 7,500 * 0 159 Southampton Berkeley, CA 94707 Antonia Scalfan 30,303 30,303 * 0 22 Fraser Street Pelham, NY 10803 Karl Schwantes 15,152 15,152 * 0 Wexstrasse 28 20355 Hamburg, Germany 71 Lee W. Shubert 15,152 15,152 * 0 11077 Swansfield Road Columbia, MD 21044-2724 Tyler D. Shubert 15,152 15,152 * 0 75 West End Avenue #R14C New York, NY 10023 Fran Spano 15,152 15,152 * 0 P.O. Box 624 East Brunswick, NJ 08816 Tim Stott 30,303 30,303 * 0 580 Patten Ave Unit 61 Long Branch, NJ 07740 Calvin Strand ` 15,152 15,152 * 0 207-85 W. Shearwater Ct. Jersey City, NJ 07305 Drew Strobel 15,152 15,152 * 0 316 Dolphin Lane West Babylon, NY, 11704 Dennis J. and Denise M. Tormey 4,546 4,546 * 0 48 Greenfield Avenue Bronxville, NY 10708 Glenn David Toth 22,727 22,727 * 0 2 Seibert Court Park Ridge, NJ 07656 Eugene Trager 15,152 15,152 * 0 8440 Casa del Lago Apt. 23B Boca Raton, FL 33433 Travin Partners LLP 303,030 303,030 1.68% 0 5433 Westheimer #500 Houston, TX 77056 Byron Tucker 30,303 30,303 * 0 23623 N Scottsdale Road D-3103 Scottsdale, AR 85255 72 Mohan and Nancy Vachani 82,500 7,500 * * 1 Diablo View Drive Orinda, CA 94563 David Weinless 15,152 15,152 * 0 249-28 Beechknoll Avenue Little Neck, NY 11362 Michael Wengrofsky 45,455 45,455 * 0 3 Tudor Terrace Livingston, NJ 07039 Frank Woodward 15,152 15,152 * 0 441 7th Avenue Manhattan Beach, CA 90266
- ----------- * Indicates less than 1% of the total number of outstanding shares. (1) Based upon 17,998,886 shares of common stock outstanding. (2) Assumes the sale of all of the shares of common stock offered by the selling shareholders. (3) The address for these individuals is c/o Nexsan Corporation, 21700 Oxnard Street, Suite 1850, Woodland, California, 91367. (4) Mr. Boddy is our President and a member of the Board of Directors. After this offering Mr. Boddy will, assuming he sells all of the shares being registered in his behalf hereby, own 4,031,099 shares of common stock. (5) Mr. Watson is our Chief Technical Officer and a member of the Board of Directors. After this offering Mr. Watson will, assuming he sells all of the shares being registered in his behalf hereby, own 1,831,513 shares of common stock. (6) Mr. Reed is a member of our Board of Directors. He also is an affiliate of Direct Brokerage Inc. ("Direct"), a consultant to Nexsan possessing the right to nominate a member of our Board of Directors and sits on our Board as Direct's member of the Board. After this offering Mr. Reed will, assuming he sells all of the shares being registered in his behalf hereby, own 250,000 shares of common stock. CERTIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In accordance with the provisions of certain agreements executed in January and February 2001 pursuant to which we sold and aggregate of 4,673,886 shares of our common stock to certain investors and raised an aggregate of $3,084,765, we agreed to use our best efforts 73 to cause and maintain the election to the Board of Directors of one representative selected by each of Beechtree Capital, Ltd. ("Beechtree") and Direct Brokerage, Inc. ("Direct") until January 4, 2006, a period of five years after the closing date of this agreement. In addition, Martin Boddy, our President and a member of the board of directors agreed, to the extent permitted by law and the applicable exchange on which our stock is trading, to vote any and all shares of common stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Board. Also pursuant to the provisions of this agreement, we agreed to use our best efforts to appoint each of Beechtree's and Direct's respective nominees to the board of directors to serve on each of the Executive Committee and the Audit Committee of the board of directors until January 4, 2006, a period of five (5) years. In addition, Martin Boddy, to the extent permitted by law and the applicable exchange on which the Company's stock is trading, agreed to vote any and all shares of common stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Executive Committee. Direct served as the exclusive agent to solicit subscriptions for the shares offered pursuant to the agreements described in the foregoing paragraph. We paid Direct selling commissions of $75,000, equal to approximately five percent (5%) of the gross proceeds received by the Company from the sale of the shares of common stock effected by it and reimbursed Direct for its accountable expenses related to these offerings in an amount equal to $27,731. Separate from our agreements with Beechtree and Direct to nominate their candidates for directors described above, we are party to consulting and services agreements with affiliates of each of these entities. Our consulting agreement with Beechtree Capital LLC ("Beechtree LLC") provides that it will render certain services, including evaluating our managerial, marketing and sales performance; consulting with us concerning ongoing strategic corporate planning and long term investment policies; assisting the negotiation of contracts with our suppliers and major customers; consulting with and advising us with regard to potential mergers and acquisitions; and reviewing press releases. Our agreement with Beechtree LLC extends through January 3, 2006, a term of five, years unless the parties agree in writing to extend the consultation for an additional one year term; provided, however, that the agreement may be terminated at any time after four years for any reason, by either party giving at least thirty (30) days written notice to the other party. In consideration of the services to be rendered by Beechtree, we have agreed to pay to Beechtree a monthly cash retainer of $8,333 for the entire term of the agreement and have sold to Beechtree 500,000 shares of our common stock at the price and on the other terms and conditions described under the heading "MANAGEMENT-Stock Sold to Certain Consultants." We also have entered into a services agreement with Direct Investors LLC, an affiliate of Direct Brokerage Inc., to advise us with respect to investment banking matters. Direct also will furnish to us advice relating to financial public relations. This agreement extends through December, 2005, a term of five years, subject to termination at any time after four years for any reason, by either party giving at least 30 days written notice to the other party. In consideration of the services to be rendered by Direct, we have agreed to pay to Direct a monthly cash retainer of $8,333 for the entire term of the agreement and have sold to Direct 500,000 shares of our common stock at the price and on the other terms and conditions described under the heading "MANAGEMENT-Stock Sold to Certain Consultants." 74 DESCRIPTION OF SECURITIES General Our authorized capital consists of 100,000,000 shares of capital stock including 90,000,0000 shares of common stock, par value $.001 per share and 10,000,000 shares of preferred stock, par value $.001 per share. At March 23, 2001 there were outstanding 17,998,886 shares of common stock and no shares of preferred stock have been designated or issued. Set forth below is a summary description of certain provisions relating to our capital stock contained in our Certificate of Incorporation and By-Laws and under the General Corporation Laws of the State of Delaware. The summary is qualified in its entirety by reference to our Certificate of Incorporation and By-Laws and the Delaware corporation laws. Common Stock We are authorized to issue 90,000,000 shares of common stock. Each outstanding share of common stock has one vote on all matters requiring a vote of the stockholders. There is no right to cumulative voting; thus, the holders of fifty percent or more of the shares outstanding can, if they choose to do so, elect all of the directors. In the event of a voluntary or involuntary liquidation, all stockholders are entitled to a pro rata distribution after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. The holders of the common stock have no preemptive rights with respect to our offerings of shares of our common stock. Holders of common stock are entitled to dividends if, as and when declared by the Board out of the funds legally available therefor. It is our present intention to retain earnings, if any, for use in our business. Dividends are, therefore, unlikely in the foreseeable future. Preferred Stock As yet, no shares of preferred stock have been designated by the Board of Directors nor have any preferred shares been issued. The Board of Directors has the authority, without further action by the holders of the Common Stock, to issue Preferred Stock in one or more series and to fix as to any such series the dividend rate, redemption prices, preferences on liquidation or dissolution, sinking fund terms, if any, conversion rights, voting rights and any other preference or special rights and qualifications. Shares of Preferred Stock issued by the Board of Directors could be utilized, under certain circumstances, as a method of raising additional capital, for possible acquisitions or for any purpose. Transfer Agent The transfer agent for our common stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. 75 Application for Admission to Quotation on the Over the Counter Electronic Bulletin Board Prior to the date of this Prospectus, no public trading market existed for our common stock. A public trading market for common stock may not develop or if developed, may not be sustained. If we meet the qualifications, we intend to apply for quotation of our common stock on the Over the Counter Electronic Bulletin Board ("OTCBB). Until we meet such qualifications, our securities may be quoted in the daily quotation sheets of the National Quotation Bureau, Inc., commonly known as the pink sheets. If our common stock is not quoted on the OTCBB, a holder may have difficulty selling, or obtaining accurate quotations as to the market value of, such stock. In order to have its securities quoted on the OTCBB, a company must: (1) be a company that reports its current financial information to the Securities and Exchange Commission, banking regulators or insurance regulators; and (2) have at least one market maker who completes and files a Form 211 with the National Association of Securities Dealers, Inc. Penny Stock Regulation Penny stocks generally are equity securities with a price of less than $5.00 per share other than securities registered on certain national securities exchanges or listed on the Nasdaq Stock Market, provided that current price and volume information with respect to transactions in such securities are provided by the exchange or system. The penny stock rules impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. Because of these penny stock rules, broker-dealers may be restricted in their ability to sell our common stock. The foregoing required penny stock restrictions will not apply to our common stock if such stock reaches and maintains a market price of $5.00 or greater. Reports to Shareholders We will furnish to holders of our common stock annual reports containing audited financial statements examined and reported upon, and with an opinion expressed by, an independent certified public accountant. We may issue other unaudited interim reports to our shareholders as we deem appropriate. 76 SHARES ELIGIBLE FOR FUTURE SALE Freely Tradable Shares. Upon the effective date of the registration statement of which this Prospectus forms a part, we will have a total of 17,998,886 shares of common stock outstanding, of which 5,086,886 shares will be freely tradable without restriction by or further registration under the Securities Act. Restricted Shares. As of the date hereof, 12,912,000 shares of common stock outstanding are "restricted securities." "Restricted securities" as defined under Rule 144 were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. These shares may be sold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144, Rule 144(k) or Rule 701 under the Securities Act. We can make no prediction as to the effect, if any, that market sales of shares of common stock or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant numbers of shares of common stock in the public market could adversely affect the market price of the common stock and could impair our future ability to raise capital through an offering of its equity securities. Lock-Up Agreements. Except for common stock being registered in this Prospectus, each of the holders of shares of common stock has agreed not to offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of any shares of common stock held by them until January 4, 2002. Rule 144. Under Rule 144 as currently in effect, a person who beneficially has owned restricted securities for at least one year, including persons who may be deemed affiliates of Nexsan are entitled to sell within any three-month period a number of shares that does not exceed the greater of: o one percent of the number of shares of common stock then outstanding, which will equal approximately 179,988 shares upon completion of this offering; or o the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. 77 Sales of restricted securities under Rule 144 also are subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. These limitations apply to both restricted and unrestricted shares held by persons who are our affiliates. Rule 144(k). Under Rule 144(k), a person who is not deemed to have been an affiliate of Nexsan at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. As of the date hereof, no shares are available for resale pursuant to 144(k) shares and no shares will become available for resale under said provision until January 2003. MARKET PRICE AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Trading Market As of the date hereof, none of our securities is traded on any public market. We are seeking to obtain the approval from NASDAQ to commence trading of our common stock on the over-the-counter electronic bulletin board, or OTCBB, upon the effective date of the registration statement of which this Prospectus forms a part. Number of Shareholders of Record At March 23, 2001, there were approximately 120 shareholders of record of our common stock. LEGAL PROCEEDINGS We are not presently party to any material legal proceeding nor are we aware of any material pending or potential legal proceeding, which might be instituted against us. PLAN OF DISTRIBUTION After effectiveness of this registration statement, the non-affiliated selling shareholders may offer and sell their shares at a price and time determined by them without subject to Rule 144. In addition, the National Securities Market Improvement Act of 1996 limits the authority of states to impose restrictions upon sales of securities made pursuant to Sections 4(1) and 4(3) of the Securities Act of companies which file reports under Sections 13 or 15(d) of the Exchange 78 Act. Section 4(1) provides that sales by any person that is not the issuer or an underwriter or a dealer are exempt from the registration statement provisions of the Securities Act of 1933. Sales by selling shareholders will be made pursuant to Section 4(1) and as a result of the National Securities Market Improvement Act no state registration of the sales will be required. Section 4(3) of the Securities Act provides an exemption from the registration provisions of the Securities Act for transactions by a dealer for transactions occurring within 40 days of the effective date of a registration statement for the securities or prior to the expiration of 40 days after the first date upon which the security was offered to the public. Sales by the selling security holders in the secondary market may be made pursuant to Section 4(1) (sales other than by an issuer, underwriter or broker). It is anticipated that following the effective date of this registration statement the selling securityholders* shares will be eligible for resale in the secondary market in each state. The selling shareholders have not informed us of how they plan to sell their shares. However, they may sell some or all of their common stock in one or more transactions, including block transactions (except for selling shareholders who are affiliates, who may sell their shares as described below): o on such public markets or exchanges as the common stock may from time to time be trading; o in privately negotiated transactions; o through the writing of options on the common stock; o in short sales; or o in any combination of these methods of distribution. The sales price to the public may be: o the market price prevailing at the time of sale; o a price related to such prevailing market price; or o such other price as the selling shareholders determine from time to time. The shares also may be sold in compliance with the Securities and Exchange Commission's Rule 144. The selling shareholders may also sell their shares directly to market makers acting as principals or brokers or dealers, who may act as agent or acquire the common stock as a principal. Any broker or dealer participating in such transactions as agent may receive a commission from the selling shareholders, or, if they act as agent for the purchaser of such common stock, from such purchaser. The selling shareholders will likely pay the usual and customary brokerage fees for such services. Brokers or dealers may agree with the selling shareholders to sell a specified number of shares at a stipulated price per share and, to the extent such broker or dealer is unable to do so acting as agent for the selling shareholders, to purchase, as principal, any unsold shares at the price required to fulfill the respective broker's or dealer's commitment to the selling shareholders. Brokers or dealers who acquire shares as principals 79 may thereafter resell such shares from time to time in transactions in a market or on an exchange, in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices, and in connection with such re-sales may pay or receive commissions to or from the purchasers of such shares. These transactions may involve cross and block transactions that may involve sales to and through other brokers or dealers. If applicable, the selling shareholders also may have distributed, or may distribute, shares to one or more of their partners who are unaffiliated with us. Such partners may, in turn, distribute such shares as described above. We can provide to investors no assurance that all or any of the common stock offered will be sold by the selling shareholders. We are bearing all costs relating to the registration of the common stock. Any commissions or other fees payable to brokers or dealers in connection with any sale of the common stock, however, will be paid by the selling shareholders or other party selling such common stock. The selling shareholders must comply with the requirements of the Securities Act and the Securities Exchange Act in the offer and sale of the common stock. In particular, during such times as the selling shareholders may be deemed to be engaged in a distribution of the common stock, and therefore be considered to be an underwriter, they must comply with applicable law and may, among other things: 00 not engage in any stabilization activities in connection with our common stock; 00 furnish each broker or dealer through which common stock may be offered, such copies of this Prospectus, as amended from time to time, as may be required by such broker or dealer; and 00 not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Securities Exchange Act. Sales by Affiliates Sales of the securities by our affiliates are subject to the volume limitations imposed by Rule 144 even after registration of such securities. An affiliate who holds unrestricted securities may sell, within any three month period, a number of the shares of our common stock that does not exceed the greater of one percent of the then outstanding shares of the class of securities being sold or, if our securities are trading on the Nasdaq Stock Market or an exchange at some time in the future, the average weekly trading volume during the four calendar weeks prior to such sale. LEGAL MATTERS RubinBaum LLP, New York, New York, has given its opinion as attorneys-at-law that the shares of common stock offered by the selling security holders will be fully paid, validly issued and non-assessable. RubinBaum LLP has passed on the validity of the common stock 80 offered by the selling security holders but purchasers of such common stock should not rely on RubinBaum LLP with respect to any other matters. Members of the firm of RubinBaum LLP own an aggregate of 52,425 shares of Nexsan's common stock. EXPERTS The financial statements of Nexsan-UK as of March 31, 2000 and for the year then ended included in this Prospectus have been audited by KPMG, independent accountants, as set forth in their report contained herein. These financial statements have been included in reliance upon the report of KPMG, given upon the authority of such firm as experts in accounting and auditing. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our directors and officers are indemnified as provided by the Delaware Business Corporation Laws, our Certificate of Incorporation and our Bylaws. We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court's decision. WHERE YOU CAN FIND MORE INFORMATION You may read and copy all or any portion of the registration statement or any other information Nexsan files at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings, including the registration statement, are also available to you on the SEC's web site (http://www.sec.gov). As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act, and, in accordance with those requirements, will file periodic reports, proxy statements and other information with the SEC. 81 NEXSAN CORPORATION 5,086,886 Shares of Common Stock PROSPECTUS April ___, 2001 Nexsan Corporation has not authorized any dealer, salesperson or other person to provide any information or make any representations other than the information or representations contained in this Prospectus. You should not rely on any additional information or representations if made. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any securities: o except the common stock offered by this Prospectus; o in any jurisdiction in which the offer or solicitation is not authorized; o in any jurisdiction where the dealer or other salesperson is not qualified to make the offer or solicitation; o to any person to whom it is unlawful to make the offer or solicitation; or o to any person who is not a United States resident or who is outside the jurisdiction of the United States. The delivery of this Prospectus or any accompanying sale does not imply that: 0 there have been no changes in Nexsan's affairs after the date of this Prospectus; or 0 the information contained in this Prospectus is accurate after the date hereof. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN OR THAT ARE CURRENTLY DEEMED IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. THE RISKS AND UNCERTAINTIES DESCRIBED IN THIS DOCUMENT AND OTHER RISKS AND UNCERTAINTIES WHICH MAY HAVE IN THE FUTURE WILL HAVE A GREATER IMPACT ON THOSE WHO PURCHASE OUR COMMON STOCK. THESE PURCHASERS WILL PURCHASE OUR COMMON STOCK AT THE MARKET PRICE OR AT A PRIVATELY NEGOTIATED PRICE AND WILL SUFFER THE RISK OF LOSING THEIR ENTIRE INVESTMENT. Index to Consolidated Financial Statements Report of Independent Accountants.............................. F-1 Balance Sheet at March 31, 2000................................ F-2 Statement of Operations for the year ended March 31, 2000...... F-3 Statement of Changes in Shareholders' Deficit and Comprehensive Income for the year ended March 31, 2000......... F-4 Statement of Cash Flows for the year ended March 31, 2000...... F-5 Notes to Financial Statements.................................. F-6 - F-16 Condensed Balance Sheet at December 31, 2000 (Unaudited)....... F-17 Condensed Statements of Operations for the nine-month periods ended December 31, 1999 and 2000 (Unaudited).................. F-18 Condensed Statement of Changes in Shareholders' Equity (Deficit) for the nine-month period ended December 31, 2000 (Unaudited)................................. F-19 Condensed Statements of Cash Flows for the nine-month periods ended December 31, 1999 and 2000 (Unaudited).................. F-20 Notes to Consolidated Financial Statements..................... F-21 - F-22 NEXSAN TECHNOLOGIES LIMITED Independent Auditors' Report The Board of Directors and Stockholders Nexsan Technologies Limited: We have audited the accompanying balance sheet of Nexsan Technologies Limited as of March 31, 2000, and the related statements of operations, stockholders' equity (deficit) and comprehensive income, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nexsan Technologies Limited as of March 31, 2000, and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. KPMG Nottingham, United Kingdom January 4, 2001 F-1 NEXSAN TECHNOLOGIES LIMITED Balance Sheet March 31, 2000
ASSETS Current assets: Cash and cash equivalents $ 107,220 Trade accounts receivable 307,359 Inventories - Raw materials 135,881 Other current assets (note 7) 30,797 --------- Total current assets 581,257 --------- Plant and equipment, net (note 6) 59,856 --------- Total assets $ 641,113 ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Short term bank borrowings (note 8) $ 29,717 Trade accounts payable 418,615 Accrued expenses 43,079 Other payables 8,339 Current installments of long term debt 22,790 Accrued dividend 6,986 --------- Total current liabilities 529,526 --------- Long-term debt, excluding current installments (note 9) 123,446 Amounts due to director and shareholder (note 9) 95,718 --------- 219,164 --------- Redeemable preferred stock (note 10): 9% redeemable preference shares, (pound)1 par value and redemption value - 60,000 shares authorized, 56,000 shares issued and outstanding 95,719 Less stock subscribed but unissued (6,382) --------- 89,337 --------- Total liabilities 838,027 --------- Commitments (Note 5) Stockholders' equity (deficit): common stock, (pound)1 par value - 40,000 shares authorized; 39,000 shares issued and outstanding 63,812 Additional paid-in capital 2,235 Subscriptions receivable (3,830) Accumulated deficit (261,741) Accumulated other comprehensive income- cumulative foreign currency translation adjustment on translation of sterling to US $ 2,610 --------- Total stockholders' deficit (note 11) (196,914) --------- Total liabilities and stockholders' deficit $ 641,113 =========
See accompanying notes to financial statements. F-2 NEXSAN TECHNOLOGIES LIMITED Statement of Operations Year ended March 31, 2000 Net sales $ 1,201,570 Cost of goods sold (1,045,484) Selling, general and administrative expenses (393,520) ----------- Net operating loss (237,434) Interest expense (17,251) ----------- Loss before income taxes (254,685) Income taxes (note 4) ----------- Net loss (254,685) Preferred stock dividends (7,056) ----------- Loss applicable to common shares $ (261,741) =========== Weighted average number of common shares outstanding 29,214 =========== Net loss per common share $ (8.96) =========== See accompanying notes to financial statements. F-3 NEXSAN TECHNOLOGIES LIMITED Statement of Changes in Stockholders' Equity (Deficit) and Comprehensive Income Year ended March 31, 2000
ACCUMULATED COMMON ADDITIONAL OTHER TOTAL STOCK PAID-IN SUBSCRIPTIONS COMPREHENSIVE ACCUMULATED STOCKHOLDERS' NO. CAPITAL RECEIVABLE INCOME DEFICIT EQUITY (DEFICIT) --------- ------- ----------- ------------- -------------- ----------- ---------------- Balances at April 1, 1999 (note 1) 37,000 $59,026 59,026 Comprehensive loss: Net loss (254,685) (254,685) Cumulative foreign currency translation adjustment 2,610 2,610 -------- Total comprehensive loss (252,075) --------- Shares issued in connection with: Offer to new investors 3,000 4,786 2,235 7,021 Subscriptions receivable (3,830) (3,830) Dividend payable (7,056) (7,056) ------ ------- ----- ------ ----- -------- -------- Balances at March 31, 2000 40,000 $63,812 2,235 (3,830) 2,610 (261,741) (196,914) ====== ======= ===== ====== ===== ======== ========
See accompanying notes to financial statements. F-4 NEXSAN TECHNOLOGIES LIMITED Statement of Cash Flows Year ended March 31, 2000
Cash flows from operating activities: Net loss $(254,685) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of tangible fixed assets 21,010 Increase in inventories (135,881) Increase in trade accounts receivable (307,359) Increase in other current assets (30,797) Increase in accrued expenses 43,079 Increase in trade accounts payable 418,615 Increase in other liabilities 8,339 --------- Net cash used by operating activities (237,679) Cash flows from investing activities: Capital expenditures for plant and equipment (80,866) --------- Net cash used in investing activities (80,866) Cash flows from financing activities: Proceeds from issuance of ordinary shares 3,191 Proceeds from issuance of preference shares 12,762 Proceeds from issuance of long-term debt 255,248 Repayment of loan (13,294) Increase in short term debt 29,717 --------- Net cash provided by financing activities 287,624 Cash and cash equivalents at beginning of year 135,600 Effect of exchange rate changes on cash and cash equivalents 2,541 Decrease in cash and cash equivalents (30,921) --------- Cash and cash equivalents at end of year $ 107,220 ========= Supplemental disclosures Cash paid for interest $ 18,523 ========= Cash paid for taxes $ -- =========
See accompanying notes to financial statements. F-5 NEXSAN TECHNOLOGIES LIMITED Notes to Financial Statements March 31, 2000 (1) Nature of Business Nexsan Technologies Limited ("Company") is a United Kingdom based Company involved in the design, manufacture and market of a comprehensive range of high-performance data enabled storage solutions for the mid- to high-end server marketplace. The Company was incorporated on January 25, 1999. Between the date of incorporation and March 31, 1999, the Company's only transactions encompassed the issuance of 37,000 shares of common stock and 48,000 shares of redeemable preferred stock to shareholders for net proceeds of $59,026 and $76,575, respectively, and other activities relating to obtaining debt financing and leased facilities. The Company did not generate any revenues or incur any costs in this period. The Company moved into leasehold premises on April 1, 1999. Product development commenced in April 1999. The first sales were made by the Company in August 1999. The Company assembles its products in the UK and markets its products to Value Added Resellers (VAR's) throughout twelve countries, predominantly located in Northern Europe. Although certain risks and uncertainties exist, the diversity and breadth of the Company's products and geographic operations mitigate the risk that adverse changes in any event would materially effect the Company's operating results. The Company is reliant on four key customers who each account for more than 10% of revenues. These key customers account 24%, 19%, 12% and 10% for a total of 65% of total revenues for the year ended March 31, 2000. Accounts receivable at March 31, 2000 include balances of five customers each of which accounts for in excess of 10% of the total accounts receivable. These customers represent 86% of the total accounts receivable balance at March 31, 2000. The Company reviews a customer's credit history before extending credit and continuously evaluates its accounts receivable for collectability. At March 31, 2000, no allowance has been made for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Generally, the Company does not require collateral or other security to support its trade receivables. (2) Basis of Accounting The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. F-6 (3) Summary of Significant Accounting Policies Cash Equivalents Cash equivalents consist of highly liquid debt instruments with original maturities of three months or less. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories. Property, Plant and Equipment Plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on a straight-line method over the estimated useful lives of the assets. Revenue Recognition Sales are made to Value Added Resellers ("VARs") who are responsible for installation, technical support and servicing the Company's products; the Company is not responsible for providing such services. The VARs have no rights for returns, there are no restocking arrangements and no price protection arrangements. Revenue from product sales is recognized upon shipment to VAR's, at which time title and risk of loss to the product has been passed to the buyer, the sales price to the buyer is fixed or determinable and collectibility is reasonably assured. Provisions for discounts and rebates to VAR's and other adjustments are provided for in the same period the related sales are recorded. Research and Development Research and development costs are expensed as incurred. Research and development costs amounted to $108,887 in the year ended March 31, 2000. Currency Translation and Transactions The reporting currency for the Company is the United States Dollar (USD). The functional currency for the Company's operations is U.K. Pound Sterling. Accordingly, the assets and liabilities of the Company are included in the financial statements by translating the assets and liabilities into the reporting currency at the exchange rates applicable at the end of the reporting year. Revenues and expenses from the Company's operations are translated at the average exchange rate for the reporting year. Gains or losses arising from this translation process are included in stockholders' equity (deficit) as accumulated other comprehensive income, a separate component of stockholders' equity (deficit).. Currency transaction gains or losses arising from transactions of the Company in currencies other than the functional currency are reported in operations as foreign currency gains and losses in each reporting period. Income Taxes Incomes taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and F-7 tax credit carryforwards. A valuation allowance is required for deferred tax assets and tax losses carried forward to the extent that it is more likely than not that such amounts will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Dividends Dividends on the common and preferred shares are payable in UK pound sterling Recent Accounting Pronouncements The Company is required to adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 138, effective April 1, 2001. The pronouncement presents accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all such derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has determined that the adoption of SFAS No. 133 will not have a significant effect on its results of operations and financial position. This statement is not required to be applied retroactively to financial statements of prior periods. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101") which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is required to adopt the accounting provisions of SAB No. 101 no later than the fourth quarter of fiscal year ended March 31, 2001. The Company does not believe that the implementation of SAB No. 101 will have any significant effect on its results of operations. (4) Income Taxes No provision for income taxes has been made due to operating losses carried forward. The Company has tax net operating losses carried forward of approximately $167,506 at March 31, 2000 and has recognised a 100% valuation allowance against such losses. Differences between the tax benefit recognized in the financial statements and the tax benefit on operating losses at the United Kingdom small company rate of 20% are summarized as follows as of March 31, 2000: Tax benefit of losses at 20% $ (33,501) Valuation allowance 33,501 --------- Net tax benefit $ -- ========= F-8 The operating losses have an unlimited carry forward under United Kingdom tax law but are limited in their use to the type of business which generated the loss. Details of deferred tax balances follow as of March 31, 2000: Tax loss carryforwards $ 33,501 Accrued expenses 1,053 -------- Deferred tax assets 34,554 Valuation allowance (32,287) -------- Net deferred tax assets 2,267 -------- Plant and equipment (2,267) -------- Deferred tax liability (2,267) -------- Net deferred tax balance $ -- ========= The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, the levels of historical taxable losses and tax planning strategies in making its assessment as to the appropriateness of the reported valuation allowances. F-9 (5) Leases The Company has several non-cancelable operating leases for warehouse facilities and motor vehicles. The warehouse lease is for a term of six years commencing on March 25, 1999. The agreement has a break clause from March 25, 2001, which allows the tenant to terminate the lease by giving not less than six months notice to the landlord. It also allows for a rent review in 2001. Motor vehicle leases are for a two year period expiring May, 2001. Rental expense for operating leases consisted of the following as of March 31, 2000: Warehouse $23,920 Motor vehicles 14,498 ------- Rental expense $38,418 ======= Future minimum lease payments under non-cancelable operating leases (with initial or remaining terms in excess of one year) as of March 31, 2000 are: Year ending March 31, Amount --------------------- ------ 2001 $ 34,803 2002 24,836 2003 23,929 2004 23,930 2005 23,930 --------- Total minimum lease payments $ 131,428 ========= (6) Tangible Fixed Assets Plant and Office equipment equipment Total --------- --------- ----- Acquisition costs: At beginning of year $ -- -- -- Additions 39,104 41,762 80,866 -------- ------- ------ At end of year 39,104 41,762 80,866 -------- ------- ------ Accumulated depreciation: At beginning of year -- -- -- Additions 8,099 12,911 21,010 -------- ------- ------ At end of year 8,099 12,911 21,010 -------- ------- ------ Net value: At March 31, 2000 $ 31,005 28,851 59,856 ======== ====== ====== F-10 The estimated lives used to depreciate tangible fixed assets are two to four years for plant and equipment and ten years for office equipment. (7) Other Current Assets Value added tax refund $ 24,178 Prepaid expenses and sundry receivables 6,619 -------- $ 30,797 ======== (8) Line of Credit On February 26, 1999, the Company entered into a banking arrangement with a commercial bank that permits the Company to borrow up to (pound)50,000 or $79,765 to finance working capital. Interest is payable quarterly at a rate of 2.75% over the bank's base rate. The facility is secured by the following: o A mortgage debenture given by Nexsan Technologies Limited, dated March 16, 1999; o A personal guarantee of up to (pound)50,000 given by a director, Mr M Boddy, dated April 30, 1999; o A charge over the life policies of Mr. M. Boddy and Mr. G. Watson, Company directors, dated July 14, 1999. The facilities may be withdrawn, reduced or varied by the bank at any time at the discretion of the bank. (9) Long-term Debt Long-term debt at March 31, 2000 consist of the following: Bank loan under the Small Firms Loan Guarantee Scheme, interest at 2% over Bank of England base rate. Principal payable in 84 monthly installments of (pound sterling) 1,190 until September 2006 $146,236 Loan from director, interest at 3% over Bank of England base rate. No set date for repayment 55,835 Loan from shareholder, interest at 3% over Bank of England base rate. No set date for repayment 39,883 -------- Total long-term debt 241,954 Less current installments (22,790) -------- Long-term debt excluding current installments $219,164 ======== F-11 The future minimum debt repayment as of March 31, 2000 are: Year ending March 31 Amount -------------------- --------- 2001 $ 22,790 2002 118,508 2003 22,790 2004 22,790 2005 22,790 Later years through 2007 32,286 -------- Total minimum payments $241,954 ======== The loan under the Small Firms Loan Guarantee Scheme is guaranteed by the UK government on condition of a premium payable quarterly to the Department of Trade and Industry. The guarantee premium payments are 1.5% per annum of the outstanding loan. Interest payable to related parties in respect of the loan from a director and the loan from a shareholder in the year amounted to $8,237. The lenders have agreed in writing that the loans will not be repayable until at least September 30, 2001 and accordingly the loans are classified as long term. (10) Redeemable Preferred Stock On March 26, 1999, the Company created 60,000 9% redeemable preference shares of (pound)1 par value. The preference shares have no voting rights except in matters concerning the preference shares. Holders of the preference shares have priority in receiving dividends to the holders of the ordinary shares. The preference shares are redeemable on either March 31, 2002, March 31 2003 and March 31, 2004 and at anytime at the instigation of the Company upon giving to the holders twenty-eight days previous notice in writing. The redemption rate is (pound)1 per share. On March 26, 1999, the Company issued 48,000 redeemable preference shares at par. On January 31, 2000, the Company issued 8,000 redeemable preference shares at par. On March 31, 2000, the Company issued 4,000 redeemable preference shares at par. These shares were paid for on June 6, 2000. The future minimum redemption payments as of March 31, 2000 are: $95,719 ======= (11) Stockholders' Equity The authorized and issued share capital of Nexsan Technologies Limited at incorporation on January 25, 1999, consisted of 1,000, (pound)1 par value ordinary shares. On March 26, 1999, the authorized share capital of the Company was increased to (pound)40,000 by the creation of 39,000 (pound)1 par value ordinary shares. On March 26, 1999, the Company issued 36,000 ordinary shares at par. F-12 On January 31, 2000, the Company issued 2,000 ordinary shares at par. On March 31, 2000, the Company issued 1,000 ordinary shares with a nominal value of (pound)1,000 for a consideration of (pound)2,500 or $3,830. These shares were paid for on June 6, 2000. (12) Segmental Reporting The Company operates in one reportable segment. Products are sold within a number of countries other than the UK, with export sales of $893,504 arising in the year ended March 31, 2000. Revenues by country consisted of the following: UK $ 308,066 Sweden 351,408 Germany 300,979 Canada 230,285 Other European 10,832 ---------- $1,201,570 ========== The Company is reliant on four key customers who each account for more than 10% of revenues. These key customers account for 24%, 19%, 12% and 10% for a total of 65% of total revenues for the year ended March 31, 2000. The significant customers to whom sales in excess of 10% was made are all Value Added Resellers. All long-lived assets are located in United Kingdom. (13) Fair Value of Financial Instruments Due to the short maturity of the Company's financial instruments and the fact that the interest rates on the Company's long-term debt approximate market rates at March 31, 2000, their carrying amount approximates fair value. (14) Subsequent Events Formation of Nexsan Corporation Nexsan Technologies Incorporated was formed in the State of Delaware on November 13, 2000, and subsequently changed its name to Nexsan Corporation ("Nexsan") on December 27, 2000. Nexsan's initial capitalization consists of 90,000,000 shares of common stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per share. None of the shares of preferred stock have been designated or issued as of the date hereof. During January and February 2001, Nexsan completed two private placements of shares of its common stock. In these private placements, Nexsan sold an aggregate of 4,673,886 shares of common stock at a price of $.66 per share and derived gross proceeds of approximately $3,085,000 therefrom. After deducting offering costs aggregating approximately $215,000, Nexsan realized $ 2,870,000 of net proceeds from the offerings. After the closing of the offerings and after giving effect to the issuance of shares of common stock in connection with the reorganization of Nexsan and the engagement of certain executivee officers and consultants, as described below, Nexsan had 17,998,886 shares of common stock outstanding. F-13 Formation of Sales Subsidiary On January 4, 2001, Nexsan formed a wholly-owned subsidiary in the State of California for the primary purpose of conducting sales. Acquisition of the Company by Nexsan On January 4, 2001, Nexsan acquired all of the shares of the Company from its shareholders solely in exchange for the issuance of 9,050,000 shares of common stock of Nexsan and thereby the Company became a wholly owned subsidiary of Nexsan. After giving effect to this share exchange and the issuance and sale of shares of common stock to executive officers, consultants and investors in the private offering made on January 4, 2001, all of which are described in this footnote, the former shareholders of the Company owned 50.28% of Nexsan's outstanding shares of common stock. Although Nexsan legally acquired the Company, for accounting and reporting purposes, the Company will be treated as the acquirer for the following reasons: o Generally accepted accounting principles state that presumptive evidence in the determination of the acquiring corporation in business combinations effected by an exchange of stock is obtained by identifying the former stockholder interests of a combining company which either retain or receive the larger portion of the voting rights in the combined corporation. As described above, the former shareholders of the Company retained a majority voting interest in the newly combined company. o Officers of the newly combined company will be from each of the combining companies. Specifically, the chief executive officer and chief technology officer of the newly combined company were officers of the Company and are subject to five year employment contracts. In addition, the operations director for the Company will continue in that position. Officers of the newly combined company that are from Nexsan are the executive vice-president of sales, vice-president of sales, and the chief financial officer. o The chairman of the board of directors is also the chief executive officer of the newly combined company and was an officer of the Company. The board of directors of the newly combined company will consist of seven members. The chairman of the board and one other member are from the management of the Company. Two other members of the board will also be officers of the newly combined company and are from the former Nexsan shareholder group. The remaining three members of the board of the newly combined company are also from the former Nexsan shareholder group. These three individuals represent two investment groups that participated in Nexan's January 4, 2001 private placement and one is a consultant to Nexsan. All board members were appointed on January 4, 2001 and will stand for re-election at the end of 2001. o The Company is the substantive operating portion of the newly combined company while prior to the share exchange, Nexsan's net assets consisted principally of cash that was raised prior to the business combination on January 4, 2001. o At the date of the share exchange on January 4, 2001, based upon the estimated fair value of the Company, the fair value of the Company exceeded the fair value of Nexsan. Based upon an assessment of all available evidence including the significant issues described above, management believes that the Company should be considered, for accounting purposes, as the acquirer. In making that determination, management believes that there are not enough factors that overcome the F-14 presumption that the shareholder group receiving the majority of the voting rights in the newly combined company should be treated as the acquirer. Accordingly, in connection with the business combination on January 4, 2001, the Company will be treated as the acquirer of Nexsan. (i.e., a reverse acquisition). Since Nexsan, prior to the date of acquisition, had no historical substantive operations and net assets consisted principally of cash, no goodwill or intangible assets are created. Essentially, this reverse acquisition will be reflected as a recapitalization of the Company. See the unaudited pro forma amounts reflected in the unaudited interim condensed balance sheet included elsewhere in this registration statement which reflect the pro forma capitalization of the Company as if the business combination had actually occurred on December 31, 2000. Employment Agreements On January 4, 2001, the shareholders and board of directors of Nexsan approved the 2001 Stock Plan ("the Plan") and reserved 7,572,222 shares of common stock to be available for awards under the Plan. Simultaneous with the business combination on January 4, 2001, employment agreements were entered into with key employees. All agreements are for an initial five year term and are renewable. The agreements provide for base salary and discretionary bonuses. As part of the employment agreements, Nexsan sold 3.2 million shares of restricted common stock at $.66 per share to two of its key employees. Nexsan also granted 2,222,222 common stock options to its Chief Executive Officer and Chief Technology Officer, at an exercise price to be determined based on price received in a future funding of at least of $5 million of Nexsan's common stock. These options were granted under the 2001 Stock Plan and vest, if at all, only if Nexsan achieves certain specified earnings before interest, tax and depreciation ("EBITDA") during specified rolling periods. Vested shares must be exercised within ten years from the date of the grant. Nexsan also granted options to its Chief Financial Officer to acquire 75,000 shares of common stock at a price of $.66 per share. The options are exercisable in 15,000 share increments commencing on the first anniversary of the execution of this officer's employment agreement and on each anniversary of said date thereafter. The shares sold to executive officers in connection with their employment agreements, as described above, were sold under the 2001 Stock Plan and are subject to the terms and conditions of restrictive stock purchase agreements between Nexsan and each executive officer. In accordance with the restricted stock purchase agreements, the shares will vest, if at all, between January 1, 2003 and December 31, 2005, only if Nexsan achieves certain specified sales targets during specified rolling periods. Further, Nexsan has a right to terminate the employment of these officers in the event certain target monthly sales are not achieved by specified dates. Also, Nexsan has the right to repurchase the shares at a price of $66 per share for a period of sixty days after the date that an employee is terminated. Upon a change of control of Nexsan, the employee has an irrevocable right to require Nesxan to purchase all of the vested and unvested shares then held by the employee at a stated percentage of fair market value of all equity interests in the Company in excess of $30 million at the time of change of control event, such percentage depending upon the year from the date of grant and when the change of control event takes place. Such right has to be exercised in respect of all shares within a specified period of a change of control. This right is exercisable during the employee's initial employment term or extended term. These shares were issued in exchange for signed promissory notes, which bear interest at the rate of 5.61% per annum and are repayable on January 4, 2006. Each employee has signed a pledge agreement to secure the note and are required to deposit the shares and assignment certificate endorsed in blank, with an escrow agent, designated by Nexsan. The employee will continue to enjoy voting and dividend rights during the time when shares are held in escrow. Nexsan has recourse under each note for the accrued and unpaid interest and up to 33 1/3% of the original principal amount of the note. F-15 Consultant Agreements Simultaneous with the reorganization of the business on January 4, 2001, Nexsan entered into consulting agreements with three different consultants to provide financial and business consulting services to Nexsan. The agreements range for a period from one year to five years and are renewable. The agreements require payment by Nexsan of minimum monthly amounts during the term of the agreement. As part of the consulting agreements, Nexsan sold an aggregate of 1,075,000 shares of restricted common stock at a price of $.66 each to the consultants. These shares were sold to the consultants pursuant to the provisions of certain restricted stock purchase agreements. Pursuant to these agreements, each of the consultants executed a promissory note in favor of Nexsan in the principal amount of the purchase price of the shares that bear interest at the rate of 5.61% per annum and are repayable between January 4, 2004 and January 4, 2006. In addition, the consultants have each executed a pledge agreement whereby they have deposited the shares and a form of assignment, endorsed in blank, with an escrow agent designated by Nexsan. The shares shall be released from escrow at such time as the notes have been paid in full. The consultants will continue to enjoy voting and dividend rights during the time when shares are held in escrow. Nexsan has recourse under the note for the accrued and unpaid interest and up to 33 1/3% of the original principal amount of the note. The restricted stock purchase agreements governing the purchase and sale of these shares provide, among other things, that Nexsan shall have the right to repurchase the shares at a price of $.66 per share for a period of sixty days after the date that a consultant is terminated. The agreements governing the sale and purchase of these shares provide that all of the shares shall be released from the repurchase option held by Nexsan on January 1, 2002, except that 37,500 of said shares shall be released from the repurchase option on June 30, 2001. Stock Purchase Agreement During January and February 2001, Nexsan completed two private placements of its common stock. In these offerings, Nexsan sold an aggregate of 4,673,886 shares of common stock at a price of $.66 per share and derived gross proceeds of approximately $3,085,000 therefrom. After deducting offering costs aggregating approximately $215,000, Nexsan realized net proceeds of $2,870,000 from the offerings. The Company is required to present a 2001 calendar year proposed budget to Beechtree, representative of the investors, for their review and approval. As stated above, the Company has retained the services of two consultants, Beechtree and Direct, to advise them with respect to investment banking matters, strategic corporate planning and other consulting matters. In connection with the private placement, the Company is required to pay these two consultants $15,000 for legal fees, $7,000 for due diligence and up to $50,000 for other expenses actually incurred by them in the Company's behalf. The additional expenses have to be paid upon the earlier of sale of $3.5 million of its securities or six months from the date of the agreement. Operating lease In February 2001, Nexsan entered into an operating lease for office space for a three-year period commencing April 15, 2001. The rent for the office space is $3,825 per month in year one , $3,978 per month in year two and $4,137 per month in year three. The lease requires a security deposit of $28,017. F-16 NEXSAN TECHNOLOGIES LIMITED Condensed Balance Sheets
ASSETS MARCH 31, DECEMBER 31, DECEMBER 31, 2000 2000 2000 (NOTE 4) ----------- ------------- ----------------- (Unaudited) (Pro forma Unaudited) Current assets: Cash and cash equivalents $ 107,220 128,816 2,998,386 Trade accounts receivable 307,359 517,570 517,570 Inventories (Raw materials) 135,881 215,800 215,800 Other current assets 30,797 50,602 50,602 ----------- --------- --------- Total current assets 581,257 912,788 3,782,358 Plant and equipment, net 59,856 133,251 133,251 ----------- --------- --------- Total assets $ 641,113 1,046,039 3,915,609 =========== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Short term bank borrowings $ 29,717 -- -- Trade accounts payable 418,615 516,569 516,569 Accrued expenses 43,079 43,639 43,639 Other payables 8,339 13,056 13,056 Current installments of long-term debt 22,790 111,977 111,977 Accrued dividends 6,986 12,734 12,734 ----------- --------- --------- Total current liabilities 529,526 697,975 697,975 Long-term debt 123,446 100,510 100,510 Amounts due to director and shareholder 95,718 -- -- ----------- --------- --------- 219,164 100,510 100,510 ----------- --------- --------- Redeemable preferred stock 9% redeemable preference shares, (pound)1 par value and redemption value - 60,000 shares authorized, 56,000 shares issued and outstanding and at March 31, 2000; 60,000 authorized, issued and outstanding at December 31, 2000 95,719 95,719 95,719 Less stock subscribed but unissued (6,382) -- -- ----------- --------- --------- 89,337 95,719 95,719 ----------- --------- --------- Restricted common stock -- -- 2,821,500 Less: Notes receivable -- -- (2,821,500) Total liabilities 838,027 894,204 894,204 ----------- --------- --------- Stockholders' equity (deficit): Common stock, (pound)1 par value. 40,000 shares authorized, 39,000 shares issued and outstanding at March 31, 2000 and 44,444 shares authorized, issued and outstanding at December 31, 2000 63,812 70,330 13,724 Less capital stock subscribed (1,595) -- -- Additional paid in capital -- 361,677 3,287,853 Accumulated other comprehensive income - cumulative foreign currency translation adjustment on translation of sterling to US $ 2,610 12,679 12,679 Accumulated deficit (261,741) (292,851) (292,851) ----------- --------- --------- Total stockholders' equity (deficit) (196,914) 151,835 3,021,405 ----------- --------- --------- Total liabilities and stockholders' equity (deficit) $ 641,113 1,046,039 3,915,609 =========== ========= =========
See accompanying notes to unaudited condensed financial statements. F-17 NEXSAN TECHNOLOGIES LIMITED Condensed Statements of Operations (Unaudited) Nine months ended December 31, 1999 and 2000
1999 2000 ---------- --------- Net sales $ 634,555 1,649,691 Cost of goods sold (482,311) (1,227,139) Selling, general and administrative expenses (353,157) (440,431) ---------- ----- Net operating loss (200,913) (17,879) Interest income -- 1,556 Interest expense (10,075) (14,787) ---------- ----- Loss before income taxes (210,988) (31,110) Income taxes -- -- ---------- ----- Net loss (210,988) (31,110) Preferred stock dividends (5,344) (6,067) ---------- ----- Loss applicable to common shares $ (216,332) (37,177) ========== ========= Weighted average number of common shares outstanding 37,000 42,467 ========== ========= Net loss per common share $ (5.85) (0.88) ========== =========
See accompanying notes to unaudited condensed financial statements. F-18 NEXSAN TECHNOLOGIES LIMITED Condensed Statement of Changes in Stockholders' Equity (Deficit) and Comprehensive Income Nine months ended December 31, 2000
ACCUMULATED COMMON STOCK ADDITIONAL OTHER TOTAL --------------------- PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS' NO. AMOUNT CAPITAL INCOME DEFICIT EQUITY (DEFICIT) -------- ------ ---------- -------------- ------------- ----------------- Balances at March 31, 2000 39,000 $ 62,217 -- 2,610 (261,741) (196,914) Net loss (Unaudited) -- -- -- -- (31,110) (31,110) Dividends payable (Unaudited) -- -- (6,067) -- -- (6,067) Add cash received from capital stock subscription (Unaudited) 1,000 1,595 2,235 -- -- 3,830 New shares issued (Unaudited) 4,444 6,518 365,509 -- -- 372,027 Net exchange differences on translation (Unaudited) -- -- -- 10,069 -- 10,069 ------ ----------- ------- ------ -------- ------- Balances at December 31, 2000 (Unaudited) 44,444 $ 70,330 361,677 12,679 (292,851) 151,835 ====== =========== ======= ====== ======== =======
See accompanying notes to unaudited condensed financial statements. F-19 NEXSAN TECHNOLOGIES LIMITED Condensed Statements of Cash Flows (unaudited) Nine months ended December 31, 1999 and 2000
1999 2000 --------- --------- Net loss $(210,988) (31,110) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of tangible fixed assets 14,229 33,914 Increase in inventories (183,816) (79,919) Increase in trade accounts receivable (291,343) (210,212) Increase in other current assets (32,150) (19,805) Increase in accrued liabilities 23,681 560 Increase in trade accounts payable 359,674 97,954 Increase in other liabilities 6,044 4,720 --------- --------- Cash used by operating activities (314,669) (203,898) Cash flows from investing activities: Capital expenditures for plant and equipment (81,783) (106,516) --------- --------- Net cash used in investing activities (81,783) (106,516) --------- --------- Cash flows from financing activities: Proceeds from issuance of ordinary shares -- 375,857 Proceeds from preference shares subscribed -- 6,380 Proceeds from issuance of long-term debt 258,144 -- Repayment of loan (7,683) (24,199) Increase (decrease) in short term debt 67,005 (29,717) --------- --------- Net cash provided by financing activities 317,466 328,321 --------- --------- Effect of exchange rate changes on cash and cash equivalents (133) 3,689 (Decrease) increase in cash and cash equivalents (79,119) 21,596 --------- --------- Cash and cash equivalents at beginning of period 137,216 107,220 --------- --------- Cash and cash equivalents at end of period $ 58,097 128,816 ========= =========
See accompanying notes to unaudited condensed financial statements. F-20 NEXSAN TECHNOLOGIES LIMITED Notes to Unaudited Condensed Financial Statements December 31, 2000 (1) Unaudited Interim Condensed Financial Statements The unaudited interim condensed financial statements of the Company as of December 31, 2000 and for the nine-months ended December 31, 1999 and 2000 included herein have been prepared in accordance with the rules and regulations of the Securities Act of 1933, as amended. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, the accompanying unaudited interim condensed financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at December 31, 2000, and the results of its operations and its cash flows for the nine months ended December 31, 1999 and 2000. The results of operations for such periods are not necessarily indicative of results expected for the full year or for any future period. These financial statements should be read in conjunction with the audited financial statements as of March 31, 2000, and for the year then ended and related notes included elsewhere in this registration statement. (2) Comprehensive Loss Comprehensive loss for the nine-month periods ended December 31, 1999 and 2000 was $214,849 and $27,108, respectively. (3) Stockholders' Equity On August 4, 2000, the authorized share capital of the Company was increased by the creation of 4,444 ordinary shares of (pound)1 par value. On the same date, the Company issued 4,444 ordinary shares for consideration of $372,027. (4) Subsequent Events and Pro Forma Financial Information The unaudited pro forma information included in the accompanying balance sheet reflects the pro forma capitalization of the Company for the following transactions that occurred on January 4, 2001, as if such events had actually taken place on December 31, 2000. (i) The issuance of 9,050,000 shares ($0.01 par value) of common stock of Nexsan in exchange for all of the outstanding common stock and all of the 9% redeemable preferred shares of the Company. F-21 NEXSAN TECHNOLOGIES LIMITED Notes to Unaudited Condensed Financial Statements December 31, 2000 (ii) The issuance of 4,673,886 shares of Nexsan in a private placement sold at a price of $0.66 per share resulting in gross proceeds of approximately $3,085,000. After deducting offering costs of approximately $215,000, Nexsan received net proceeds of $2,870,000. (iii) The issuance of 3,200,000 shares of restricted stock of Nexsan at a value of $0.66 per share to two key employees, in exchange for partial recourse notes receivable. (iv) The issuance of an additional 1,075,000 shares of restricted stock of Nexsan, at a value of $0.66 per share, to three consultants in exchange for partial recourse notes receivable. Each of the transactions described above occurred simultaneously on January 4, 2001 in connection with the transaction between the Company and Nexsan that is more fully described in Note 14 to the financial statements of the Company included herein. That transaction will be accounted for as a reverse acquisition. Also, as more fully described in Note 14, the restricted shareholders have the ability to require Nexsan to acquire the restricted shares at a specified price in the event of a change in control. Accordingly, the issuance of these restricted shares has been classified outside of permanent shareholders'equity. The unaudited pro forma information only reflects the adjustments described above and do not give effect to any other transactions. See note 14 to the financial statements of the Company included herein for a description of the transactions described above and other significant subsequent events. F-22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. Nexsan Corporation is incorporated in Delaware. Under Section 145 of the General Corporation Law of the State of Delaware, a Delaware corporation has the power, under specified circumstances, to indemnify its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against expenses incurred in any action, suit or proceeding. The Company's Certificate of Incorporation and By-Laws provide for indemnification of its directors and officers to the fullest extent permitted by the General Corporation Law of the State of Delaware. The General Corporation Law of the State of Delaware provides that a Certificate of Incorporation may contain a provision eliminating the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that such provision shall not eliminate or limit the liability of a director: (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 (relating to liability for unauthorized acquisitions or redemptions of, or dividends on, capital stock) of the General Corporation Law of the State of Delaware, or (4) for any transaction from which the director derived an improper personal benefit. Nexsan's Certificate of Incorporation contains such a provision. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or 'control persons pursuant to the foregoing provisions, it is the opinion of the Securities and Exchange Commission that such indemnification is against public policy as expressed in the Act and is therefore unenforceable. Item 25. Other Expenses of Issuance and Distribution The following table sets forth Nexsan Corporation's expenses in connection with this registration statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission. II-1 Filing Fee--Securities and Exchange Commission.................... $ 238 Fees and Expenses of Accountants and legal counsel................ $210,000* Blue Sky Fees and Expenses........................................ $ 15,000* Printing and Engraving Expenses................................... $ 35,000* Miscellaneous Expenses............................................ $ 10,000* -------- Total ............................................................ $270,238 * Estimated Item 26. Recent Sales of Unregistered Securities Since our inception on November 13, 2000, we have issued the following securities which were not registered under the Securities Act: January 4, 2001 Exchange Offer During January 2001, we undertook a tax free corporate reorganization whereby we acquired all of the outstanding shares of Nexsan Technologies Limited, a United Kingdom corporation ("Nexsan-UK"). In connection with the reorganization, we issued an aggregate of 9,050,000 shares of common stock to the holders of all of the shares of capital stock of the subsidiary, in exchange for 44,444 ordinary shares of Nexsan-UK, each having a par value of (pound)1 per share, and 60,000 9% Redeemable Preferred Shares of Nexsan-UK, each having a par value of (pound)1 per share. Each Ordinary Share of Nexsan Technologies Limited was exchanged for 201.45 shares of our common stock and each 9% Redeemable Preferred Share was exchanged for 1.6116 shares of our common stock. We assigned a value of $0.66 per share for each share of common stock issued to the holders of shares of the capital stock of the UK corporation for an aggregate offering price of $5,973,000. We derived no cash proceeds from this offering. The offering was made pursuant to the exemption from the registration provisions of the Securities Act of 1933 afforded by Regulation S promulgated thereunder. January 2001 Common Stock Option Grants and Issuances Pursuant to the 2001 Stock Plan On January 4, 2001, we issued options to purchase shares of our common stock to the following persons: Issuee No. of Options Exercisable Through ------ -------------- ------------------- Martin Boddy 1,111,111 January 4, 2006 Gary Watson 1,111,111 January 4, 2006 Paul Coxon 75,000 January 4, 2006 II-2 The options granted to Mr. Boddy and Mr.Watson are exercisable at a price equal to the price at which Nexsan sells shares of common stock to investors in the next offering of common stock in which at least $5 million of common stock is sold. The options granted to Mr. Coxon are exercisable at a price of $0.66 per share on the terms and conditions described under the heading "MANAGEMENT--Executive Compensation--2001 Stock Plan." We relied on the exemption from registration under the Securities Act of 1933 afforded by Rule 701 of the Rules and Regulations thereunder in connection with the issuance of these options. Also on January 4, 2001, we sold an aggregate of 4,275,000 shares of common stock to five persons, including certain executives and consultants, pursuant to the 2001 Stock Plan at a price of $0.66 per share for an aggregate price of $2,821,500. The purchasers paid for the shares by executing a partial recourse promissory note payable from between three and five years from the date of execution bearing interest at the rate of 5.61% per annum. Each of these purchasers has pledged their respective shares to the Company to secure the promissory note. The shares do not vest in the purchasers, in the case of 3,200,000 of the shares, unless the Company achieves certain income levels over rolling periods as specified in the purchase agreements, and in the case of 1,075,000 shares, after the a specified period of time has elapsed. A more complete description of the terms and conditions governing the sale and vesting of these shares is more fully described in the Prospectus under the heading "MANAGEMENT--Executive Compensation--Stock Sold to Certain Executives" and "Stock Sold to Certain Consultants." The Company has not realized any proceeds from the sale of these shares and will not realize any proceeds until such time as the promissory notes issued to pay for the notes have been satisfied. January and February 2001 Regulation D Offering. During January and February, 2001, we completed an offering of 3,368,335 shares of our common stock to 88 persons at a price of $0.66 per share for an aggregate offering price of $2,223,101 pursuant to the exemption from the registration requirements of the Securities Act of 1933 afforded by Rule 506 of Regulation D promulgated thereunder. We engaged Direct Brokerage Inc. to serve as the placement agent for the sale of up to 1,500,000 shares of common stock sold and agreed to pay to Direct a selling commission of 5% of the offering price and Direct sold an aggregate of 1,029,264 shares. In connection with its efforts as placement agent, we paid to Direct an aggregate of $33,062 in selling commissions and $12,225 for non-accountable expenses incurred in connection with this offering. The net proceeds derived by us from this offering, after deducting selling commissions and offering expenses, including legal and accounting fees, blue sky fees, printing costs and other miscellaneous expenses of $126,189 was $2,096,912. We used the net proceeds from this offering to fund the organization of our United States operations and for general working capital in connection with our US operations. January and February 2001 Regulation S Offering During January and February 2001, we completed an offering of 1,305,551 shares of our common stock to 18 persons at a price of $0.66 per share for an aggregate offering price of $861,660 pursuant to the exemption from the registration requirements of the Securities Act of II-3 1933 afforded by Regulation S promulgated thereunder. We engaged Direct Brokerage Inc. to serve as the placement agent for up to 1,500,000 of the shares of common stock sold and agreed to pay to Direct a selling commission of 5% of the offering price. In connection with its efforts as placement agent, we paid to Direct an aggregate of $41,938 in selling commissions and $15,506 for non-accountable expenses incurred in connection with this offering. The net proceeds derived by us from this offering, after deducting selling commissions and offering expenses, including legal and accounting fees, blue sky fees, printing costs and other miscellaneous expenses of $88,906 was $772,754. We used the net proceeds from this offering to increase our inventory, for expansion and improvement of our facilities in the UK and for general working capital in connection with our UK operations. Item 27. Exhibits and Financial Statement Schedule (a) Exhibits Exhibit No. Description of Exhibit 2.1 Exchange Agreement dated January 4, 2001, among the Registrant and the holders of all outstanding shares of the capital Stock of Nexsan Technologies Limited, a United Kingdom corporation. 3.1 Certificate of Incorporation of Nexsan Corporation. 3.2 By-Laws of Nexsan Corporation. 3.3 Certificate of Incorporation of Nexsan Technologies Incorporated. 3.4 By-Laws of Nexsan Technologies Incorporated. 3.5 Certificate of Incorporation of Nexsan Technologies Limited. 3.6 Memorandum and Articles of Association of Nexsan Technologies Limited. 4.1 Form of Stock Purchase Agreement dated as of January 4, 2001 among the Registrant and the certain persons named therein. 4.2 Form of Stock Purchase Agreement dated as of January 4, 2001 among the Registrant and the certain persons named therein. 4.3 Form of Registration Rights Agreement dated as of January 4, 2001 among the Registrant and the certain persons named therein (covering shares of common stock issued to purchasers in the Registrant's Regulation D offering and Regulation S offering). II-4 4.4 2001 Stock Option Plan. 4.5 Stock Option Issued to Martin Boddy pursuant to 2001 Stock Plan. 4.6 Stock Option Issued to Gary Watson pursuant to 2001 Stock Plan. 4.7 Stock Option Issued to Paul Coxon pursuant to 2001 Stock Plan. 4.8 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Diamond Lauffin. 4.9 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and James Molenda. 4.10 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Beechtree Capital, LLC. 4.11 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Direct Brokerage, Inc. 4.12 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Mohan Vachani. 4.13 Specimen Form of Common Stock Certificate.* 5.1 Opinion of Rubin Baum LLP * 10.1 Employment Agreement dated January 4, 2001 between the Registrant and Martin Boddy. 10.2 Employment Agreement dated January 4, 2001 between Nexsan Technologies Limited and Martin Boddy. 10.3 Employment Agreement dated January 4, 2001 between the Registrant and Gary Watson. 10.4 Employment Agreement dated January 4, 2001 between Nexsan Technologies Limited and Gary Watson. 10.5 Employment Agreement dated January 4, 2001 between the Registrant and Paul Coxon. 10.6 Employment Agreement dated January 4, 2001 between Nexsan Technologies Limited and Paul Coxon. II-5 10.7 Employment Agreement dated January 4, 2001 between the Registrant and Diamond Lauffin. 10.8 Employment Agreement dated January 4, 2001 between the Registrant and James Molenda. 10.9 Consulting Agreement dated January 4, 2001 between the Registrant and Beechtree Capital, LLC. 10.10 Services Agreement dated January 4, 2001 between the Registrant and Direct Investors, LLC. 10.11 Consulting Agreement dated January 4, 2001 between the Registrant and Mohan Vachani. 10.12 Lease for Office Space and Manufacturing Facility in Derby, England. 10.13 Lease for Office Space in Woodland, California. 23.1 Consent of KPMG. 23.2 Consent of Rubin Baum LLP (included in Exhibit 5.1). * - ------------- * To be filed by amendment. Item 28. Undertakings. The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (1) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (2) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent; .post effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (3) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. II-6 (b) insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against: public policy as expressed in the Securities Act and is, therefore, unenforceable, in the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling 'person in connection with the securities being registered, the registrant will, unless In the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such Indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona tide offering thereof. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned in the City of Woodland, California, on March 23, 2001. NEXSAN TECHNOLOGIES, INC. By: /s/ Martin Boddy -------------------------- Martin Boddy, President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Martin Boddy his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his place and stead, in any and all capacities, to sign any and all further amendments to this registration statement , or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents required in connection therewith, and granting unto said attorney-in-fact and agent each of them with full power to do any and all acts and things in our names and in any and all capacities, which such attorneys-in-fact and agents, or either of them, may deem necessary or advisable to enable NEXSAN CORPORATION to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this registration statement; and we hereby do ratify and confirm all that the such attorneys-in- fact and agents, or either of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Person Capacity Date ------ -------- ----- /s/ Martin Boddy President, Chief Executive March 23, 2001 - --------------------- Officer and Director /s/ Paul Coxon Chief Financial Officer March 23, 2001 - --------------------- and Secretary /s/ Gary Watson Chief Technical Officer March 23, 2001 - --------------------- and Director /s/ Diamond Lauffin Vice President and March 23, 2001 - --------------------- Director II-8 /s/ James Molenda Vice President-Sales and March 23, 2001 - --------------------- Director /s/ Mohan Vachani Director March 23, 2001 - --------------------- /s/ E. Corprew Reed Director March 23, 2001 - --------------------- /s/ Cary Aminoff Director March 23, 2001 - ---------------------
II-9 Exhibit No. Description of Exhibit ----------- ---------------------- 2.1 Exchange Agreement dated January 4, 2001, among the Registrant and the holders of all outstanding shares of the capital Stock of Nexsan Technologies Limited, a United Kingdom corporation. 3.1 Certificate of Incorporation of Nexsan Corporation. 3.2 By-Laws of Nexsan Corporation. 3.3 Certificate of Incorporation of Nexsan Technologies Incorporated. 3.4 By-Laws of Nexsan Technologies Incorporated. 3.5 Certificate of Incorporation of Nexsan Technologies Limited. 3.6 Memorandum and Articles of Association of Nexsan Technologies Limited. 4.1 Form of Stock Purchase Agreement dated as of January 4, 2001 among the Registrant and the certain persons named therein. 4.2 Form of Stock Purchase Agreement dated as of January 4, 2001 among the Registrant and the certain persons named therein. 4.3 Form of Registration Rights Agreement dated as of January 4, 2001 among the Registrant and the certain persons named therein (covering shares of common stock issued to purchasers in the Registrant's Regulation D offering and Regulation S offering). 4.4 2001 Stock Option Plan. 4.5 Stock Option Issued to Martin Boddy pursuant to 2001 Stock Plan. 4.6 Stock Option Issued to Gary Watson pursuant to 2001 Stock Plan. 4.7 Stock Option Issued to Paul Coxon pursuant to 2001 Stock Plan. 4.8 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Diamond Lauffin. 4.9 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and James Molenda. 4.10 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Beechtree Capital, LLC. 4.11 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Direct Brokerage, Inc. 4.12 Restricted Stock Purchase Agreement dated January 4, 2001 between the Registrant and Mohan Vachani. 10.1 Employment Agreement dated January 4, 2001 between the Registrant and Martin Boddy. 10.2 Employment Agreement dated January 4, 2001 between Nexsan Technologies Limited and Martin Boddy. 10.3 Employment Agreement dated January 4, 2001 between the Registrant and Gary Watson. 10.4 Employment Agreement dated January 4, 2001 between Nexsan Technologies Limited and Gary Watson. 10.5 Employment Agreement dated January 4, 2001 between the Registrant and Paul Coxon. 10.6 Employment Agreement dated January 4, 2001 between Nexsan Technologies Limited and Paul Coxon. 10.7 Employment Agreement dated January 4, 2001 between the Registrant and Diamond Lauffin. 10.8 Employment Agreement dated January 4, 2001 between the Registrant and James Molenda. 10.9 Consulting Agreement dated January 4, 2001 between the Registrant and Beechtree Capital, LLC. 10.10 Services Agreement dated January 4, 2001 between the Registrant and Direct Investors, LLC. 10.11 Consulting Agreement dated January 4, 2001 between the Registrant and Mohan Vachani. 10.12 Lease for Office Space and Manufacturing Facility in Derby, England. 10.13 Lease for Office Space in Woodland, California. 23.1 Consent of KPMG. 27.1 Financial Data Schedule EX-2.1 2 0002.txt EXCHANGE AGREEMENT The shares of Nexsan Corporation issued hereunder have not been, and will not be, registered under the Securities Act of 1933, as amended ("Securities Act"), or under any state securities laws, and may not be offered or sold in the United States or to U.S. persons unless such securities are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available, and hedging transactions involving such securities may not be conducted unless in compliance with the Securities Act. EXCHANGE AGREEMENT THIS EXCHANGE AGREEMENT ("Agreement") is made and entered into this 4th day of January, 2001, by and among all of the shareholders (the "Shareholders") of Nexsan Technologies, Ltd., an English corporation (the "Company"), and Nexsan Corporation, a Delaware corporation (the "Acquiror"). RECITALS WHEREAS, the Shareholders wish to transfer all of the issued and outstanding capital stock of the Company to the Acquiror solely in exchange for stock of the Acquiror; and WHEREAS, the Shareholders intend that such exchange occur simultaneously with the issuance and sale by the Acquiror of additional shares of its capital stock to purchasers thereof pursuant to that certain Stock Purchase Agreement, dated as of January 4, 2001 ("Stock Purchase Agreement"), a copy of which is attached as Exhibit A hereto, and with the issuance and sale of restricted stock to certain key executives of and consultants to Acquiror pursuant to those certain Restricted Stock Purchase Agreements ("Restricted Stock Purchase Agreements"), copies of which are attached as Exhibit B hereto, such that the issuance of shares of stock by the Company to the Shareholders, the parties to the Stock Purchase Agreement and such key executives and consultants are part of a single transaction described in Section 351 of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I EXCHANGE OF SHARES Section 1.1. Transfer of the Shares. Subject to the terms and conditions set forth herein, at the Closing (as defined in Section 1.3), Acquiror shall acquire from the Shareholders, and the Shareholders shall assign and transfer to Acquiror, all of their respective shares ("Shares") of the capital stock of the Company, representing all issued and outstanding shares of the capital stock of the Company, solely in exchange for the Consideration shares (as defined in Section 1.2). Section 1.2. Consideration Shares. The consideration for all of the Shares will be the issuance of, and delivery of certificates representing, an aggregate of 9,050,000 shares (the "Consideration Shares") of the common stock, par value $.001 ("Common Stock") of the Acquiror. The Consideration Shares shall be allocated among the Shareholders as set forth on Schedule A hereto. Section 1.3. The Closing. (a) The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of RubinBaum LLP, 30 Rockefeller Plaza, New York, New York 10112 or such other place as the Shareholders and Acquiror may mutually agree, contemporaneously with the closing of the transactions contemplated by the Stock Purchase Agreement and the Restricted Stock Purchase Agreements (the "Closing Date"). (b) At the Closing, (i) each Shareholder shall deliver to the Acquirer one or more certificates representing all of his or her Shares of the Company, accompanied by executed powers of attorney and executed stock transfer forms in favor of the Acquiror against receipt of the Consideration Shares, (ii) the Acquiror shall deliver the Consideration Shares, and (iii) the Shareholder and the Acquiror shall execute, deliver and acknowledge, or cause to be executed, delivered and acknowledged, such certificates and other documents related to the consummation of the transactions contemplated hereby as may be reasonably requested by the parties hereto. ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING THE SHAREHOLDERS Each of the Shareholders hereby represents, warrants and covenants, severally and not jointly, to Acquiror and to each other, as follows: Section 2.1. Ownership. The Shareholder owns of record and beneficially the number of Shares set forth opposite his name on Schedule A hereto, free and clear of any liens, subscriptions, options, warrants, calls, rights, commitments or any other agreements. The Shareholder is not a party to any voting trust, proxy or other agreement or understanding with respect to the voting of any of the Shares. Section 2.2. Authorization and Validity of Agreement. The Shareholder has the requisite authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. This Agreement has been duly executed by the -2- Shareholder and constitutes the legal, valid and binding obligation of the Shareholder, enforceable against him in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' fights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 2.3 Consents and Approvals. Neither the execution and delivery of this Agreement by the Shareholder nor the consummation by the Shareholder of the transactions contemplated hereby will require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity. Section 2.4. No Conflict or Violation. Neither the execution, delivery or performance of this Agreement by the Shareholder, nor the consummation by the Shareholder of the transactions contemplated hereby, nor compliance by the Shareholder with any of the provisions hereof, will (a) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, vesting, payment, exercise, acceleration, suspension or revocation) under, any of the terms, conditions or provisions of any material Contract to which the Shareholder is a party or by which the Shareholder or any his properties or assets are bound or (b) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Shareholder or any of his properties or assets. Section 2.5. Litigation. There is no suit, action, proceeding or investigation (whether at law or equity, before or by any federal, state or foreign commission, court, tribunal, board, agency or instrumentality, or before any arbitrator) pending or, to the knowledge of the Shareholder, threatened against or affecting the Shareholder, the outcome of which would in any manner impair the Shareholder's ability to perform his obligations hereunder. Section 2.6. Brokers and Finders. In connection with this Agreement, no broker, finder or investment bank has acted directly or indirectly for the Shareholder, and the Shareholder has not incurred any obligation to pay a brokerage, finder's or other fee or commission to any person. Section 2.7. Compliance with U.S. Securities Act. The Shareholder (a) understands that, except as provided in any registration rights agreement to which such Shareholder may be party, that the Consideration Shares have not been, and will not be, registered under the Securities Act of 1933, as amended ("Securities Act"), or under any state securities laws, and may not be offered or sold in the United States or to U.S. persons unless the securities are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available, and hedging transactions involving such securities may not be conducted unless in compliance with the Securities Act, and are being offered and sold in reliance upon federal and state exemptions for offshore transactions and transactions not involving any public offering; (b) is a natural person who is not a resident of the U.S. and is acquiring the Consideration Shares solely for his own account and not for the account of any U.S. person (as defined in Rule 902 under the Securities Act); (c) agrees to resell the Consideration Shares only in accordance with the provisions of Regulation S -3- (Rule 901 through Rule 905, and Preliminary Note) promulgated under the Securities Act, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; and agrees not to engage in hedging transactions with regard to the Consideration Shares unless in compliance with the Securities Act; and (d) agrees that the certificates representing the Consideration Shares will contain a legend to the effect that transfer is prohibited except in accordance with the provisions of Regulation S (Rule 901 through Rule 905, and Preliminary Note) promulgated under the Securities Act , or pursuant to an available exemption from registration, and that hedging transactions with regard to the Consideration Shares may not be conducted unless in compliance with the Securities Act; and (e) acknowledges and agrees that the Acquiror shall refuse to register any transfer of Consideration Shares not made in accordance with the provisions of Regulation S (Rule 901 through Rule 905, and Preliminary Note) promulgated under the Securities Act, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration. ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR Acquiror hereby represents and warrants to the Shareholders as follows: Section 3.1. Organization. Acquiror is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Attached as Exhibit C hereto are copies of the Certificate of Incorporation and By-Laws of the Acquiror, as amended to date. Section 3.2. Authorization and Validity of Agreement. Acquiror has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. Acquiror's Board of Directors has duly authorized the execution, delivery and performance of this Agreement by Acquiror, and no other corporate proceedings on the part of Acquiror are necessary to authorize this Agreement or the transactions contemplated hereby. The Agreement has been duly executed and delivered by Acquiror and, assuming this Agreement constitutes the legal, valid and binding obligation of the Shareholders, constitutes the legal, valid and binding obligation of Acquiror, enforceable against Acquiror in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 3.3. Consents and Approvals. Neither the execution and delivery of this Agreement by Acquiror nor the consummation by Acquiror of the transactions contemplated hereby will require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity. -4- Section 3.4. No Conflict or Violation. Neither the execution, delivery or performance of this Agreement by Acquiror, nor the consummation by Acquiror of the transactions contemplated hereby, nor compliance by Acquiror any of the provisions hereof, will (a) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, vesting, payment, exercise, acceleration, suspension or revocation) under, any of the terms, conditions or provisions of any material note, bond, mortgage, deed of trust, security interest, indenture, license, contract, agreement, plan or other instrument or obligation to which Acquiror is a party or by which Acquiror, or any of its properties or assets may be bound or affected, or (b) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Acquiror or any of its properties or assets. Section 3.5. Litigation. There is no suit, action, proceeding or investigation (whether at law or equity, before or by any federal, state or foreign commission, court, tribunal, board, agency or instrumentality, or before any arbitrator) pending or threatened against or affecting Acquiror the outcome of which would in any manner impair the ability of Acquiror to perform its obligations hereunder or to consummate this Agreement. Section 3.6. Brokers and Finders. In connection with this Agreement, except for Beechtree Capital Ltd. and Direct Brokerage, Inc., no broker, finder or investment bank has acted directly or indirectly for Acquiror, and Acquiror has not incurred any obligation to pay a brokerage, finder's or other fee or commission to any person. Section 3.7. Investment Representation. Acquiror acknowledges that the Company's Shares are not registered under the securities laws of any jurisdiction and that it is acquiring the Company's Shares for its own account, and not with a view to the distribution thereof. Section 3.8. No Business Activities. Since its inception, the Acquiror has not engaged in any business other than the negotiation and execution of this Agreement, the Stock Purchase Agreement, the Restricted Stock Purchase Agreements and related agreements. ARTICLE IV COVENANTS OF ACQUIROR, SHAREHOLDERS AND COMPANY The parties hereto agree that: Section 4.1. Efforts. Subject to the terms and conditions of this Agreement and applicable law, each of the parties hereto shall act in good faith and use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby as soon as practicable, including such actions or things as the other party may reasonably request in order to -5- cause any of the conditions to such other party's obligation to consummate the transactions contemplated by this Agreement to be fully satisfied. Section 4.2. Transfer Taxes. All transfer, documentary, sales, use, registration and other such taxes, and any penalties, interest and additions to such taxes, that are incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by Acquiror, except to the extent that, under applicable law, such taxes are the sole obligation of the Shareholders, in which event each of the Shareholders shall pay any such Tax which is his responsibility. The parties to this Agreement shall cooperate in the timely making of all filings, returns, reports and forms as may be required in connection therewith. Section 4.2. Survival of Representations, Warranties and Covenants. The representations, warranties, covenants, indemnities and agreements contained herein and in any certificate, instrument or document furnished in connection herewith are and will be deemed and construed to be continuing representations, warranties, covenants, indemnities and agreements shall survive the Closing for a period of three years after the Closing Date, except that the representations and warranties contained in Sections 2.1, 2.2, 2.3 and 2.4 shall survive the Closing indefinitely. ARTICLE V INDEMNITY Section 5.1 In the event a Shareholder breaches (or in the event any third party alleges facts that, if true, would mean the Shareholder has breached) any of his representations, warranties, and covenants contained in this Agreement, then the Shareholder agrees to indemnify the Acquiror from and against the entirety of any Adverse Consequences the Acquiror may suffer through and after the date of the claim for indemnification resulting from, arising out of, relating to, in the nature of, or caused by the breach; provided, that the maximum amount of Adverse Consequences against which the Acquiror shall be indemnified in the case of any breach or alleged breach of Section 2.5 or Section 2.6 shall not exceed the value of the Consideration Shares received by such Shareholder. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses. ARTICLE VI TERMINATION Section 6.1. Termination. This Agreement maybe terminated and may be abandoned at any time prior to the Closing Date, by mutual written consent of the Shareholders and Acquiror. -6- Section 6.2. Effect of Termination. In the event of any termination of this Agreement pursuant to this Article, this Agreement forthwith shall become void and of no further force or effect, and no party hereto (or any of its affiliates, directors, officers, agents or representatives) shall have any liability or obligation hereunder, except for any breach thereof prior to such termination. ARTICLE VII MISCELLANEOUS Section 7.1. Entire Agreement. This Agreement (including the schedules, exhibits and other documents referred to herein) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior written or oral and all contemporaneous oral agreements and undertakings between any of the parties hereto with respect to the subject matter hereof Section 7.2. Assignment; Binding Effect. Neither this Agreement nor any of the rights, benefits or obligations hereunder may be assigned, in whole or in part, by either party (whether by operation of law or otherwise) without the prior written consent of the other party hereto. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 7.3. Amendments. This Agreement may be amended by the parties at any time prior to the Closing Date: provided, however, that this Agreement may not be amended or modified except by an instrument, in writing signed on behalf of each of the parties hereto. Section 7.4. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated thereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. Section 7.5. Captions. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 7.6. Counterparts; Facsimile. This Agreement may be executed in counterparts, and by different parties on separate counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument, and this Agreement may be executed by facsimile signature. -7- Section 7.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to any applicable principles of conflicts of law. Section 7.8 Submission to Jurisdiction. Each of the parties submits to the jurisdiction of any state or federal court sitting in New York County, State of New York in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each Party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto. Any party may make service on any other party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 7.9. Nothing in this Section 7.8, however, shall affect the right of any party to serve legal process in any other manner permitted by law or in equity. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or in equity. Section 7.9 Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to a Shareholder: Copy to: -------------------- -------- The address of such Shareholder set forth on Schedule A If to the Acquiror: Copy to: ------------------- -------- Nexsan Corporation RubinBaum LLP c/o Beechtree Capital, LLC 30 Rockefeller Plaza 1 Rockefeller Plaza New York, New York 10112 New York, New York 10020 Attn: Michael J. Emont Attn: Tyler Shubert Any party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address -8- to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. -9- IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the date first above written. Nexsan Corporation By: /s/ Martin Boddy ---------------------------------- Name: Title: By: /s/ Martin Boddy ---------------------------------- Martin Boddy By: /s/ Kathryn Marie Boddy ---------------------------------- Kathryn Marie Boddy By: /s/ Paul Skelton ---------------------------------- Paul Skelton By: /s/ Gary Watson ---------------------------------- Gary Watson By: /s/ Lynn Cox ---------------------------------- Lynn Cox By: /s/ Olivind Martinsen ---------------------------------- Olivind Martinsen By: /s/ Nicholas Smith ---------------------------------- Nicholas Smith By: /s/ Barrie Vaughan ---------------------------------- Barrie Vaughan SCHEDULE A - -------------------------------------------------------------------------------- NAME & ADDRESS HOLDING OF ORDINARY SHARES CONSIDERATION OF SHAREHOLDER OF(POUNDS STERLING)1.00 EACH SHARES - -------------------------------------------------------------------------------- MARTIN BODDY 20,999 4,230,277 5 DUCK ISLAND TAMWORTH STREET DUFFIELD DERBYSHIRE DE56 4EZ - -------------------------------------------------------------------------------- KATHRYN MARIE BODDY 1 200 5 DUCK ISLAND TAMWORTH STREET DUFFIELD DERBYSHIRE DE56 E4Z - -------------------------------------------------------------------------------- PAUL SKELTON 4,000 805,805 ROSE COTTAGE CROOPER LANE THURVASTON DERBYSHIRE - -------------------------------------------------------------------------------- GARY WATSON 10,000 2,014,513 25 WHARFEDALE ROAD LONG EATON NOTTINGHAM NG10 3HG - -------------------------------------------------------------------------------- LYNN COX 2,000 402,903 CORNER COTTAGE MAIN ROAD PENTRICH RIPLEY DERBYSHIRE DE5 3RE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NAME & ADDRESS HOLDING OF ORDINARY SHARES CONSIDERATION OF SHAREHOLDER OF(POUNDS STERLING)1.00 EACH SHARES - -------------------------------------------------------------------------------- OLVIND MARTINSEN 2,000 402,903 MEFJORDVEIEN 36 3234 SANDEFJORD NORWAY - -------------------------------------------------------------------------------- NICHOLAS SMITH 1,000 201,452 CROFT COTTAGE FIRESTONE HAZELWOOD DERBYSHIRE DE56 4AE - -------------------------------------------------------------------------------- BARRIE VAUGHAN 4,444 895,250 21 WOODLANDS LANE QUORNDON DERBYSHIRE DE22 5JU - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NAME OF SHAREHOLDER HOLDING OF 9% REDEEMABLE CONSIDERATION PREFERENCE SHARES OF SHARES (POUNDS STERLING)1.00 EACH - -------------------------------------------------------------------------------- MARTIN BODDY 19,000 30,621 - -------------------------------------------------------------------------------- PAUL SKELTON 21,000 33,844 - -------------------------------------------------------------------------------- LYNN COX 8,000 12,893 - -------------------------------------------------------------------------------- OLVIND MARTINSEN 8,000 12,893 - -------------------------------------------------------------------------------- NICHOLAS SMITH 4,000 6,446 - -------------------------------------------------------------------------------- EX-3.1 3 0003.txt CERTIFICATE OF INCORPORATION STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE ------------------------------ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "NEXSAN TECHNOLOGIES INCORPORATED", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF NOVEMBER, A.D. 2000, AT 9 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY RECORDER OF DEEDS. /s/ Edward J. Freel --------------------------------------- Edward J. Freel, Secretary of State [Graphic Omitted] AUTHENTICATION: 0791363 DATE: 11-14-00 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 11/13/2000 001568110 - 3313928 CERTIFICATE OF INCORPORATION OF NEXSAN TECHNOLOGIES INCORPORATED FIRST: The name of the Corporation is Nexsan Technologies Incorporated. SECOND: The address of the registered office of the Corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent. The name of its registered agent at such address is United Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: (a) The total number of shares of capital stock which may be issued by the Corporation is 1,000 shares, all of which shares shall be Common Stock, of the par value of $0.01 per share. (b) The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock are as follows: COMMON STOCK (1) Dividends may be paid upon the Common Stock as and when declared by the Board of Directors out of any funds legally available therefor. (2) Upon any liquidation, dissolution or winding up of the Corporation, the holders of the Common Stock shall be entitled to receive any and all assets remaining to be paid or distributed. (3) Except as otherwise provided by statute or by any express provision of this Certificate, all rights to vote and all voting power shall be exclusively vested in the Common Stock and the holders thereof shall be entitled to one vote for each share for the election of directors and upon all other matters. GENERAL (4) The Corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, save as may be expressly provided by the laws of the State of Delaware. FIFTH: The name and mailing address of the sole incorporator are as follows: NAME MAILING ADDRESS ---- --------------- David A. Parnes 30 Rockefeller Plaza - 29th Floor New York, New York 10112 SIXTH: (a) The number of directors of the Corporation which shall constitute the whole Board of Directors shall be such as from time to time may be fixed by or in the manner provided in the By-laws but in no case shall the number of directors be less than one. Except as may otherwise be required by law, vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. (b) All corporate powers of the Corporation shall be exercised by the Board of Directors except as otherwise provided herein or by law. In furtherance and not in limitation of the powers conferred by statute and by law the Board of Directors is expressly authorized to make, amend, alter, change, add to or repeal By-Laws of the Corporation, without any action on the part of the stockholders. SEVENTH: (a) No contract or transaction between the Corporation and one or more of its Directors, or between a corporation and any other corporation, partnership, association or other organization in which one or more of its Directors or officers are Directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because such Directors or officers are present at or participate in the meeting of the Board of Directors or the committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose if: (1) The material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. In any case described in this Section, any common or interested Director may be counted in determining the existence of a quorum at any meeting of the Board of Directors or any committee -2- which shall authorize any such contract or transaction and may vote thereat to authorize any such contract or transaction. Any Director of the Corporation may vote upon any contract or other transaction between the Corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a Director of such subsidiary or affiliated corporation. (b) No person who is or at any time has been a Director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that the foregoing provision shall not eliminate or limit the liability of a Director (i) for any breach of such Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from which such Director derived an improper personal benefit. (c) Any contract, transaction or act of the Corporation or of the Board of Directors which shall be ratified by a majority of a quorum of the stockholders entitled to vote at any annual meeting or at any special meeting called for that purpose shall be as valid and binding as though ratified by every stockholder of the Corporation; provided, however, that any failure of the stockholders to approve or ratify such contract, transaction or act when and if submitted to them shall not be deemed in any way to invalidate the same or to deprive the Corporation, its Directors or officers of their right to proceed with such contract, transaction or act. (d) Each Director, officer and employee, past or present, of the Corporation, and each person who serves or may have served at the request of the Corporation as a Director, Trustee, officer or employee of another corporation, association, trust or other entity and their respective heirs, administrators and executors, shall be indemnified by the Corporation in accordance with, and to the fullest extent permitted by, the provisions of the General Corporation Law of the State of Delaware as it may from time to time be amended. Each agent of the Corporation and each person who serves or may have served at the request of the Corporation as an agent of another corporation, or as an employee or agent of any partnership, joint venture, trust or other enterprise may, in the discretion of the Board of Directors, be indemnified by the Corporation to the same extent as provided herein with respect to Directors, officers and employees of the Corporation. The provisions of this paragraph (d) shall apply to any member of any Committee appointed by the Board of Directors as fully as though such person shall have been an officer or Director of the Corporation. (e) The provisions of this Article SEVENTH shall be in addition to and not in limitation of any other rights, indemnities, or limitations of liability to which any Director or officer may be entitled, as a matter of law or under any By-Law, agreement, vote of stockholders or otherwise. EIGHTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title -3- 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. NINTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Elections of Directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in the Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon officers, Directors and stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned has executed this Certificate and does affirm the contents hereof as true under the penalties of perjury this 10th day of November, 2000. /s/ David A. Parnes ------------------------------------ David A. Parnes, Incorporator -4- STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE ------------------------------ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "NEXSAN TECHNOLOGIES INCORPORATED", CHANGING ITS NAME FROM "NEXSAN TECHNOLOGIES INCORPORATED" TO "NEXSAN CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF DECEMBER, A.D. 2000, AT 9 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY RECORDER OF DEEDS. /s/ Edward J. Freel --------------------------------------- Edward J. Freel, Secretary of State [Graphic Omitted] AUTHENTICATION: 0884365 DATE: 12-29-00 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 12/28/2000 001654113 - 3313928 RESTATED CERTIFICATE OF INCORPORATION OF NEXSAN TECHNOLOGIES INCORPORATED NEXSAN TECHNOLOGIES INCORPORATED, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that the Corporation was originally incorporated on November 13, 2000, and that its original Certificate of Incorporation was filed with the Secretary of State of Delaware on the same date. The Corporation further certifies that this Restated Certificate of Incorporation restates in its entirety, and amends, the provisions previously filed with the Secretary of State of the State of Delaware, as follows: FIRST: NAME. The name of the Corporation is Nexsan Corporation. SECOND: REGISTERED OFFICE AND REGISTERED AGENT. The address of the registered office of the Corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent. The name of its registered agent at such address is United Corporate Services, Inc. THIRD: PURPOSE. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: CAPITAL STOCK. A. AUTHORIZED CAPITAL STOCK. The total number of shares of capital stock which may be issued by the Corporation is 100,000,000, of which 90,000,000 shares shall be Common Stock of the par value of $0.001 per share ("COMMON STOCK"), and 10,000,000 shares shall be Preferred Stock of the par value of $0.001 per share ("PREFERRED STOCK"). The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock are as follows: B. COMMON STOCK. (1) Dividends may be paid upon the Common Stock as and when declared by the Board of Directors out of any funds legally available therefor. (2) Except as otherwise provided by statute, by any express provision of this Certificate or by any provision of any certificate referred to in Article FOURTH 'C', upon any liquidation, dissolution or winding up of the Corporation, the holders of the Common Stock shall be entitled to receive any and all assets remaining to be paid or distributed. (3) Except as otherwise provided by statute, by any express provision of this Certificate or by any provision of any certificate referred to in Article FOURTH 'C', all rights to vote and all voting power shall be exclusively vested in the Common Stock and the holders thereof shall be entitled to one vote for each share for the election of directors and upon all other matters. C. PREFERRED STOCK. (1) The Board of Directors of the Corporation is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for, from time to time, in one or more series of any number, the issuance of shares of Preferred Stock, and, by filing a certificate pursuant to the General Corporation Law of the State of Delaware, to establish the number of shares to be included in each such series and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of each of the following: a. The number of shares constituting that series and the distinctive designation of that series; b. The dividend rate on the shares of the series, whether dividends shall be cumulative and, if so, from which date or dates, and whether they shall be payable in preference to, or in another relation to, the dividends payable on any other class or classes or series of stock; c. Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; d. Whether that series shall have conversion or exchange privileges, and, if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board of Directors shall determine; e. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the manner of selecting shares for redemption if less than all such shares are to be redeemed, the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; -2- f. Whether that series shall be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of that series and, if so, the terms and amounts of such sinking fund; g. The rights and restrictions of the shares of the series upon the creation of indebtedness of the Corporation or any subsidiary; h. The right of the shares of that series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and whether such rights shall be in preference to or in another relation to the comparable rights of any other class or classes or series of stock; i. Any other relative, participating optional or other special, rights, qualifications, limitations or restrictions of that series. FIFTH: OWNERSHIP OF SHARES OF CAPITAL STOCK. The Corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, save as may be expressly provided by the laws of the State of Delaware. SIXTH: INCORPORATOR. The name and mailing address of the sole incorporator are as follows: Name Mailing Address ---- --------------- David A. Parnes 30 Rockefeller Plaza - 29th Floor New York, New York 10112 SEVENTH: BOARD OF DIRECTORS. A. The number of directors of the Corporation which shall constitute the whole Board of Directors shall be such as from time to time may be fixed by or in the manner provided in the By-laws but in no case shall the number of directors be less than one. Except as may otherwise be required by law, vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. B. All corporate powers of the Corporation shall be exercised by the Board of Directors except as otherwise provided herein or by law. -3- C. No contract or transaction between the Corporation and one or more of its Directors, or between a corporation and any other corporation, partnership, association or other organization in which one or more of its Directors or officers are Directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because such Directors or officers are present at or participate in the meeting of the Board of Directors or the committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose if: (1) The material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. In any case described in this Section, any common or interested Director may be counted in determining the existence of a quorum at any meeting of the Board of Directors or any committee which shall authorize any such contract or transaction and may vote thereat to authorize any such contract or transaction. Any Director of the Corporation may vote upon any contract or other transaction between the Corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a Director of such subsidiary or affiliated corporation. D. No person who is or at any time has been a Director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that the foregoing provision shall not eliminate or limit the liability of a Director (i) for any breach of such Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from which such Director derived an improper personal benefit. E. Except as otherwise provided by statute, any contract, transaction or act of the Corporation or of the Board of Directors which shall be ratified by a majority of a quorum of the stockholders entitled to vote at any annual meeting or at any special meeting called for that purpose shall be as valid and binding as though ratified by every stockholder of the Corporation; provided, however, that any failure of the stockholders to approve or ratify such contract, transaction or act -4- when and if submitted to them shall not be deemed in any way to invalidate the same or to deprive the Corporation, its Directors or officers of their right to proceed with such contract, transaction or act. F. Each Director, officer and employee, past or present, of the Corporation, and each person who serves or may have served at the request of the Corporation as a Director, Trustee, officer or employee of another corporation, association, trust or other entity and their respective heirs, administrators and executors, shall be indemnified by the Corporation in accordance with, and to the fullest extent permitted by, the provisions of the General Corporation Law of the State of Delaware as currently in existence, or as amended from time to time. If the Delaware General Corporation Law is amended after the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Each agent of the Corporation and each person who serves or may have served at the request of the Corporation as an agent of another corporation, or as an employee or agent of any partnership, joint venture, trust or other enterprise may, in the discretion of the Board of Directors, be indemnified by the Corporation to the same extent as provided herein with respect to Directors, officers and employees of the Corporation. The provisions of this paragraph (F) shall apply to any member of any Committee appointed by the Board of Directors as fully as though such person shall have been an officer or Director of the Corporation. G. The provisions of this Article SEVENTH shall be in addition to and not in limitation of any other rights, indemnities, or limitations of liability to which any Director or officer may be entitled, as a matter of law or under any By-Law, agreement, vote of stockholders or otherwise. EIGHTH: BYLAWS. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter or repeal By-laws of the Corporation. NINTH: MISCELLANEOUS. A. Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Elections of Directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. B. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application -5- of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. TENTH: AMENDMENT OR REPEAL. The Corporation reserves the right to amend, alter, change or repeal any provision contained in the Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon officers, Directors and stockholders herein are granted subject to this reservation. ELEVENTH: AUTHORIZATION. This Restated Certificate of Incorporation was authorized by the written consent of the sole Incorporator, and is being filed pursuant to Sections 245 and 241 of the General Corporation Law of the State of Delaware, the corporation not having received payment for any of its capital. The document is being signed by the incorporator as no directors or officers have been elected. IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate of Incorporation and does affirm the contents hereof as true under the penalties of perjury this 27th day of December 2000. NEXSAN TECHNOLOGIES INCORPORATED BY THE INCORPORATOR: /s/ David A. Parnes ------------------------------------- Name: David A. Parnes Title: Sole Incorporator -6- EX-3.2 4 0004.txt BY-LAWS BY-LAWS OF NEXSAN CORPORATION (ORIGINALLY INCORPORATED AS NEXSAN TECHNOLOGIES INCORPORATED) (A DELAWARE CORPORATION) ARTICLE I Offices SECTION 1. Registered Office. The registered office of the Corporation within the State of Delaware shall be located at United Corporate Services, Inc., 15 East North Street in the City of Dover, County of Kent. SECTION 2. Other Offices. The Corporation may maintain offices or places of business at such other locations within or without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II Stockholders SECTION 1. Place of Meetings. All meetings of the stockholders of the Corporation for the election of Directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a written waiver signed by the person entitled to such notice or a waiver by electronic transmission by the person entitled to such notice. The Board of Directors may, in its discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication in the manner permitted by the General Corporation Law of the State of Delaware. SECTION 2. Annual Meeting. The annual meeting of the stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a written waiver signed by the person entitled to such notice or a waiver by electronic transmission by the person entitled to such notice. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Special Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time by the Board of Directors,the Chairman of the Board, if one shall have been elected, or the Vice Chairman of the Board, if one should have been elected. SECTION 4. Notice of Meetings; Waiver. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date, place, if any, and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, shall be given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his or her address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. To the fullest extent permitted by the General Corporation Law of the State of Delaware, notice shall be permitted to be provided by electronic transmission. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, or a waiver of notice by electronic transmission, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice or any waiver of notice by electronic transmission. SECTION 5. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten days prior to the meeting, during ordinary business hours, at the Corporation's principal place of business or, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. SECTION 6. Quorum; Adjournments. Except as otherwise provided by statute or by the Certificate of Incorporation, the holders of a third of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, and where a separate vote by a class is required, a third of the voting power of the outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the third of the shares of such class, present in person or represented by proxy at the meeting, shall be the act of such class. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by 2 proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, the Vice Chairman, if one shall have been elected, or in their absence or if one shall not have been elected, the President, shall act as Chairman of the meeting. The Secretary or, in his or her absence or inability to act, the person whom the Chairman of the meeting shall appoint secretary of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. SECTION 8. Telephonic Meeting. Unless restricted by the Certificate of Incorporation, any one or more stockholders may participate in any meeting of the stockholders, whether annual, special or otherwise, by a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. SECTION 9. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the Chairman of the meeting. SECTION 10. Voting. Except as otherwise provided by statute or the Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his or her name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. SECTION 11. Proxies. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him or her by a proxy signed by such stockholder or his or her attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the Secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the 3 Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the Chairman of the meeting to be advisable, the vote on any question need not be by written ballot. On a vote by written ballot, each written ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and shall state the number of shares voted. The Board of Directors may permit stockholders to cast votes by ballots submitted by electronic transmission in lieu of casting votes by written ballots, provided that such electronic submission either sets forth or is submitted with information from which it can be determined that the electronic transmission was authorized by a stockholder or proxy holder. SECTION 12. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the Chairman of the meeting shall, or if inspectors shall not have been appointed, the Chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the Chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of Directors. Inspectors need not be stockholders. SECTION 13. Action by Consent. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of statute or of the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with, and the action taken without such meeting and vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the corporation entitled to vote thereon were present and voted. To the fullest extent permitted by the General Corporation Law of the State of Delaware, a telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxy holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and dated for the purposes of this Section 12. ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may 4 exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not directed or required by statute or the Certificate of Incorporation to be exercised or done by the stockholders, except as restricted by the following provisions of Section 2 of this Article III. SECTION 2. Number, Qualifications, Election and Term of Office. The number of directors constituting the initial Board of Directors shall be as determined in the resolution of the Incorporator of the Corporation electing the initial Board of Directors. Thereafter, the number of directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors or by action of the stockholders of the Corporation. Any decrease in the number of directors shall be effective at the time of the next succeeding annual meeting of the stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. Directors need not be stockholders of the Corporations. Except as otherwise provided by statute, these By-laws or any agreement to the contrary between the Corporation and all its stockholders, the directors (other than members of the initial Board of Directors) shall be elected at the annual meeting of stockholders. Each director shall hold office until his or her successor shall have been elected and qualified, or until his or her death, or until he or she shall have resigned, or have been removed, as hereinafter provided in these By-Laws. SECTION 3. Place of Meetings. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more Directors of the Corporation or by the Vice Chairman, if one shall have been elected, or by the President. SECTION 7. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and 5 place of the meeting. Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him or her at his or her residence or usual place of business, by first class mail, at least ten days before the day on which such meeting is to be held, or shall be sent addressed to him or her at such place by telegraph, cable, telex, telecopy or other similar means, or be delivered to him or her personally or be given to him or her by telephone, electronic transmission or other similar means, at least forty eight hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he or she shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 8. Quorum and Manner of Acting; Adjournment. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the Directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the Directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the Directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The Directors shall act only as a Board and the individual Directors shall have no power as such. SECTION 9. Organization. At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in his or her absence, another director chosen by a majority of the Directors present) shall act as Chairman of the meeting and preside thereat. The Secretary or, in his or her absence, any person appointed by the Chairman shall act as Secretary of the meeting and keep the minutes thereof. SECTION 10. Resignations. Any Director of the Corporation may resign at any time by notice given in writing or by electronic transmission of his or her resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), an increase in the number of Directors or any other cause, may be filled by the vote of a majority of the Directors then in office, though less than a quorum, or by the sole remaining Director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each Director so elected shall hold office until his or her successor shall have been elected and qualified. 6 SECTION 12. Removal of Directors. Any Director may be removed, either with or without cause, at any time, by the holders of fifty (50%) percent of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of Directors. SECTION 13. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of Directors for services to the Corporation in any capacity. SECTION 14. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 15. Action by Consent. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. 7 ARTICLE IV Officers SECTION 1. Number and Qualifications. The officers of the Corporation shall be elected by the Board of Directors. Such officers shall include the Chief Executive Officer, the Chief Operating Officer, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, the Secretary and the Treasurer and may also include one or more Vice-Presidents. The Board of Directors may also elect as an officer of the Corporation a Chairman of the Board and, as may be necessary or desirable for the business of the Corporation, may elect such other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) with such titles and duties as the Board of Directors shall state in a resolution which is not inconsistent with these By-Laws. Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a Director. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, or until his or her death, or until he or she shall have resigned or have been removed, as hereinafter provided in these By-Laws. SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof. SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall have been elected, shall be a member of the Board and, if present, shall preside at each meeting of the Board of Directors or the stockholders. He or she shall advise and counsel with the President, and in his or her absence with other executives of the Corporation and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. SECTION 5. Vice Chairman of the Board. The Vice Chairman of the Board, if one shall have been elected, shall be a member of the Board and, if present, in the absence of the Chairman, shall preside at each meeting of the Board of Directors or the stockholders. He or she shall advise and counsel with the Chairman and President, and in their absence with other executives of the Corporation and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. SECTION 6. Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Corporation and shall preside at all meetings of the shareholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The Chief Executive Officer shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. 8 SECTION 7. Chief Operating Officer. The Chief Operating Officer shall perform such duties and have such powers as the Board of Directors shall designate from time to time. SECTION 8. President. Should the office of the Chief Executive Officer be vacant, and in the absence or disability of the Chief Executive Officer, the President shall be the chief executive officer of the Corporation and shall preside at each meeting of the Board of Directors or the stockholders. He or she shall perform all duties incident to the office of President and chief executive officer and such other duties as may from time to time be assigned to him or her by the Board of Directors. SECTION 9. Vice-President. If the Corporation has one or more Vice-Presidents, each Vice-President shall perform all such duties as from time to time may be assigned to him or her by the Board of Directors or the President. At the request of the President or in his or her absence or in the event of his or her inability or refusal to act, the Vice-President, if the Corporation has one, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Vice-Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 10. Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board of Directors. SECTION 11. Secretary. The Secretary shall: 9 (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Board of Directors. SECTION 12. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 13. The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 14. Officers' Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his or her duties, in such amount and with such surety as the Board of Directors may require. SECTION 15. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a Director of the Corporation. ARTICLE V Capital Stock SECTION 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of 10 the Board or the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him or her in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. Facsimile; Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. SECTION 3. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. 11 SECTION 6. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of capital stock of the Corporation. SECTION 7. Fixing the Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 8. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI Indemnification of Directors and Officers SECTION 1. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or 12 suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. SECTION 3. Indemnification in Certain Cases. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in such Sections 1 and 2 of this Article VI. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a majority vote of a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (c) by a majority vote of the stockholders who were not parties to such action, suit or proceeding. SECTION 5. Advances for Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article VI. SECTION 6. Rights Not-Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. SECTION 7. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the 13 Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article VI. SECTION 8. Definition of Corporation. For the purposes of this Article VI, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity. SECTION 9. Survival of Rights. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII General Provisions SECTION 1. Dividends. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors. Dividends may be paid in cash, property or shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created. SECTION 3. Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors. SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the 14 Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. Voting of Stock in Other Corporations. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board, the Vice Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board, the Vice Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. ARTICLE VIII Amendments These By-Laws may be amended or repealed or new by-laws adopted (a) by action of the stockholders entitled to vote thereon at any annual or special meeting of stockholders or (b) as the Certificate of Incorporation so provides, by action of the Board of Directors at a regular or special meeting thereof. Any by-law made by the Board of Directors may be amended or repealed by action of the stockholders at any annual or special meeting of stockholders. 15 EX-3.3 5 0005.txt CERTIFICATE OF INCORPORATION STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE -------------------------------- I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "NEXSAN TECHNOLOGIES INCORPORATED", FILED IN THIS OFFICE ON THE SECOND DAY OF JANUARY, A.D. 2001, AT 9'OCLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY RECORDER OF DEEDS. [GRAPHIC OMITTED] /s/ HARRIET SMITH WINDSOR ------------------------- SECRETARY OF STATE 3338462 8100 AUTHENTICATION: 0900488 010000651 DATE: 01-06-01 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 01/02/2001 010000651 - 3338462 CERTIFICATE OF INCORPORATION OF NEXSAN TECHNOLOGIES INCORPORATED FIRST: The name of the Corporation is Nexsan Technologies Incorporated. SECOND: The address of the registered office of the Corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent. The name of its registered agent at such address is United Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: (a) The total number of shares of capital stock which may be issued by the Corporation is 1,000 shares, all of which shares shall be Common Stock, of the par value of $0.01 per share. (b) The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock are as follows: COMMON STOCK (1) Dividends may be paid upon the Common Stock as and when declared by the Board of Directors out of any funds legally available therefor. (2) Upon any liquidation, dissolution or winding up of the Corporation, the holders of the Common Stock shall be entitled to receive any and all assets remaining to be paid or distributed. (3) Except as otherwise provided by statute or by any express provision of this Certificate, all rights to vote and all voting power shall be exclusively vested in the Common Stock and the holders thereof shall be entitled to one vote for each share for the election of directors and upon all other matters. GENERAL (4) The Corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, save as may be expressly provided by the laws of the State of Delaware. FIFTH: The name and mailing address of the sole incorporator are as follows: NAME MAILING ADDRESS ---- --------------- David A. Parnes 30 Rockefeller Plaza - 29th Floor New York, New York 10112 SIXTH: (a) The number of directors of the Corporation which shall constitute the whole Board of Directors shall be such as from time to time may be fixed by or in the manner provided in the By-laws but in no case shall the number of directors be less than one. Except as may otherwise be required by law, vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. (b) All corporate powers of the Corporation shall be exercised by the Board of Directors except as otherwise provided herein or by law. In furtherance and not in limitation of the powers conferred by statute and by law the Board of Directors is expressly authorized to make, amend, alter, change, add to or repeal By-Laws of the Corporation, without any action on the part of the stockholders. SEVENTH: (a) No contract or transaction between the Corporation and one or more of its Directors, or between a corporation and any other corporation, partnership, association or other organization in which one or more of its Directors or officers are Directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because such Directors or officers are present at or participate in the meeting of the Board of Directors or the committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose if: (1) The material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. In any case described in this Section, any common or interested Director may be counted in determining the existence of a quorum at any meeting of the Board of Directors or any committee - 2 - which shall authorize any such contract or transaction and may vote thereat to authorize any such contract or transaction. Any Director of the Corporation may vote upon any contract or other transaction between the Corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a Director of such subsidiary or affiliated corporation. (b) No person who is or at any time has been a Director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that the foregoing provision shall not eliminate or limit the liability of a Director (i) for any breach of such Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from which such Director derived an improper personal benefit. (c) Any contract, transaction or act of the Corporation or of the Board of Directors which shall be ratified by a majority of a quorum of the stockholders entitled to vote at any annual meeting or at any special meeting called for that purpose shall be as valid and binding as though ratified by every stockholder of the Corporation; provided, however, that any failure of the stockholders to approve or ratify such contract, transaction or act when and if submitted to them shall not be deemed in any way to invalidate the same or to deprive the Corporation, its Directors or officers of their right to proceed with such contract, transaction or act. (d) Each Director, officer and employee, past or present, of the Corporation, and each person who serves or may have served at the request of the Corporation as a Director, Trustee, officer or employee of another corporation, association, trust or other entity and their respective heirs, administrators and executors, shall be indemnified by the Corporation in accordance with, and to the fullest extent permitted by, the provisions of the General Corporation Law of the State of Delaware as it may from time to time be amended. Each agent of the Corporation and each person who serves or may have served at the request of the Corporation as an agent of another corporation, or as an employee or agent of any partnership, joint venture, trust or other enterprise may, in the discretion of the Board of Directors, be indemnified by the Corporation to the same extent as provided herein with respect to Directors, officers and employees of the Corporation. The provisions of this paragraph (d) shall apply to any member of any Committee appointed by the Board of Directors as fully as though such person shall have been an officer or Director of the Corporation. (e) The provisions of this Article SEVENTH shall be in addition to and not in limitation of any other rights, indemnities, or limitations of liability to which any Director or officer may be entitled, as a matter of law or under any By-Law, agreement, vote of stockholders or otherwise. EIGHTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title -3- 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. NINTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Elections of Directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in the Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon officers, Directors and stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned has executed this Certificate and does affirm the contents hereof as true under the penalties of perjury this 1st day of January, 2001. /s/ David A. Parnes ---------------------- David A. Parnes, Incorporator -4- EX-3.4 6 0006.txt BY-LAWS Exhibit 3.4.wpdBY-LAWS OF NEXSAN TECHNOLOGIES INCORPORATED (a Delaware corporation) ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of the Corporation within the State of Delaware shall be located at United Corporate Services, Inc., 15 East North Street in the City of Dover, County of Kent. SECTION 2. Other Offices. The Corporation may maintain offices or places of business at such other locations within or without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS SECTION 1. Place of Meetings. All meetings of the stockholders of the Corporation for the election of Directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. SECTION 2. Annual Meeting. The annual meeting of the stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Special Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time by the Board of Directors or the Chairman of the Board, if one shall have been elected. 4. SECTION 4. Notice of Meetings; Waiver. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date and place shall be given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his or her address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. SECTION 5. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place Exhibit 3.4.wpd5. within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 6. Quorum; Adjournments. The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7.Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in his or her absence or if one shall not have been elected, the President, shall act as Chairman of the meeting. The Secretary or, in his or her absence or inability -2- to act, the person whom the Chairman of the meeting shall appoint secretary of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. SECTION 8. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the Chairman of the meeting. SECTION 9. Voting. Except as otherwise provided by statute or the Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his or her name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. SECTION 10. Proxies. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his or her attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the Secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the Chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and shall state the number of shares voted. SECTION 11. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the Chairman of the meeting shall, or if inspectors shall not have been appointed, the Chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares of -3- capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the Chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of Directors. Inspectors need not be stockholders. SECTION 12. Action by Consent. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of statute or of the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with, and the action taken without such meeting and vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the corporation entitled to vote thereon were present and voted. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualifications, Election and Term of Office. The number of Directors constituting the initial Board of Directors shall be as determined in the resolutions of the Incorporator of the Corporation electing the Initial Board of Directors. Thereafter, the number of Directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors or by action of the stockholders of the Corporation. Any decrease in the number of Directors shall be effective at the time of the next succeeding annual meeting of stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. Directors need not be stockholders. Except as otherwise provided by statute or these By-Laws, the Directors (other than members of the initial Board of Directors) shall be elected at the annual meeting of stockholders. Each director shall hold office until his or her successor shall have been elected and qualified, or until his or her death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. -4- SECTION 3. Place of Meetings. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more Directors of the corporation or by the President. SECTION 7. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his or her residence or usual place of business, by first class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopy or other similar means, or be delivered to him personally or be given to him by telephone or other similar means, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 8. Quorum and Manner of Acting; Adjournment. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the entire Board of Directors shall be the act of the Board -5- of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the Directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the Directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the Directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The Directors shall act only as a Board and the individual Directors shall have no power as such. SECTION 9. Organization. At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in his or her absence, another director chosen by a majority of the Directors present) shall act as Chairman of the meeting and preside thereat. The Secretary or, in his or her absence, any person appointed by the Chairman shall act as Secretary of the meeting and keep the minutes thereof. SECTION 10. Resignations. Any Director of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), an increase in the number of Directors or any other cause, may be filled by the vote of a majority of the Directors then in office, though less than a quorum, or by the sole remaining Director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each Director so elected shall hold office until his or her successor shall have been elected and qualified. SECTION 12. Removal of Directors. Any Director may be removed, either with or without cause, at any time, by the holders of a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of Directors. SECTION 13. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of Directors for services to the Corporation in any capacity. SECTION 14. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the -6- absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 15. Action by Consent. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. ARTICLE IV OFFICERS SECTION 1. Number and Qualifications. The officers of the Corporation shall be elected by the Board of Directors and shall include the President, one or more Vice-Presidents, the Secretary and the Treasurer. If the Board of Directors wishes, it may also elect as an officer of the Corporation a Chairman of the Board and may elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a Director. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, or until his or her death, or until he or she shall have resigned or have been removed, as hereinafter provided in these By-Laws. SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall take effect at -7- the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof. SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall have been elected, shall be a member of the Board, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders. He shall advise and counsel with the President, and in his or her absence with other executives of the Corporation, and shall perform such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 5. The President. The President shall be the chief executive officer of the Corporation. He shall, in the absence of the Chairman of the Board or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders. He shall perform all duties incident to the office of President and chief executive officer and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 6. Vice-President. Each Vice-President shall perform all such duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or in his or her absence or in the event of his or her inability or refusal to act, the Vice-President, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Vice-Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 7. Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; -8- (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Secretary. The Secretary shall: (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. -9- SECTION 11. Officers' Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his or her duties, in such amount and with such surety as the Board of Directors may require. SECTION 12. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a Director of the Corporation. ARTICLE V CAPITAL STOCK SECTION 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. Facsimile; Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond in such sum as it may -10- direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of capital stock of the Corporation. SECTION 7. Fixing the Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 8. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. -11- ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. SECTION 3. Indemnification in Certain Cases. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. -12- SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections 1 and 2 of this Article VI. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. SECTION 5. Advances for Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. SECTION 6. Rights Not-Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. SECTION 7. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI. SECTION 8. Definition of Corporation. For the purposes of this Article VI, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. SECTION 9. Survival of Rights. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall continue as to a person who has ceased to -13- be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII GENERAL PROVISIONS SECTION 1. Dividends. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors. Dividends may be paid in cash, property or shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created. SECTION 3. Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors. SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7.. Voting of Stock in Other Corporations. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may -14- be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. ARTICLE VIII AMENDMENTS These By-Laws may be amended or repealed or new by-laws adopted (a) by action of the stockholders entitled to vote thereon at any annual or special meeting of stockholders or (b) if the Certificate of Incorporation so provides, by action of the Board of Directors at a regular or special meeting thereof. Any by-law made by the Board of Directors may be amended or repealed by action of the stockholders at any annual or special meeting of stockholders. EX-3.5 7 0007.txt CERTIFICATE OF INCORPORATION [GRAPHIC OMITTED] CERTIFICATE OF INCORPORATION OF A PRIVATE LIMITED COMPANY Company No. 3700226 The Registrar of Companies for England and Wales hereby certifies that NEXSAN TECHNOLOGIES LIMITED is this day incorporated under the Companies Act 1985 as a private company and that the company is limited. Given at Companies House, Cardiff, the 25th January 1999 REGISTRAR OF COMPANIES [GRAPHIC OMITTED] FOR ENGLAND AND WALES THE OFFICIAL SEAL OF THE REGISTRAR OF COMPANIES [GRAPHIC OMITTED] C O M P A N I E S H O U S E HC007A EX-3.6 8 0008.txt MEMORANDUM AND ARTICLES OF ASSOCIATION MEMORANDUM ---------- AND ARTICLES OF --------------- ASSOCIATION OF -------------- NEXSAN TECHNOLOGIES LIMITED Incorporated 25th January 1999 Registration Number: 3700226 Incorporated under the Companies Act 1985 as a private company limited by shares (As amended by a Special Resolution dated 26 March 1999) THE COMPANIES ACTS 1985 AND 1989 PRIVATE COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION OF NEXSAN TECHNOLOGIES LIMITED 1. The Company's name is NEXSAN TECHNOLOGIES LIMITED. 2. The Company's registered office is to be situated in England and Wales. 3. The Company's objects are:- (a) To carry on business as a general commercial company. (b) To purchase or by any other means acquire any freehold, leasehold or other property for any estate or interest whatever and any rights or privileges of any kind over or in respect of any property and any real or personal property or rights whatsoever which may be necessary for, or may be conveniently used with, or may enhance the value of any other property of the Company. (c) To purchase, or by other means acquire and protect, prolong and renew, whether in the United Kingdom or elsewhere any patents, patent rights, brevets d'invention, licences, copyrights, secret processes, trade marks, designs, protections and concessions which may appear likely to be advantageous or useful to the Company in pursuit of any trade or business carried on by the Company and to use and turn to account and to manufacture under or grant licences or privileges in respect of the same, and to expend money in experimenting upon, testing and improving any patents, inventions or rights which the Company may acquire or propose to acquire. (d) To acquire or undertake the whole or any part of the business, goodwill, and assets of any person, firm, or company carrying on or proposing to carry on any of the businesses which the Company chooses to carry on and as part of the consideration for such acquisition to undertake all or any of the liabilities of such person, firm or company, or to acquire an interest in amalgamate with, or enter into partnership or into any arrangement for sharing profits, or for co-operation, or for limiting competition, or for mutual assistance with any such person, firm or company, and to give or accept, by way of consideration for any of the acts or things aforesaid or property acquired, any shares, debentures, debenture stock or securities that may be agreed upon, and to hold and retain, or sell, mortgage and deal with any shares, debentures, debenture stock or securities so received. (e) To improve, manage, cultivate, construct, repair, develop, exchange, let on lease or otherwise, mortgage, charge, sell, dispose of, turn to account, grant rights and privileges in 1 respect of, or otherwise deal with all or any part of the property and rights of the Company. (f) To invest and deal with the moneys of the Company not immediately required upon such securities and in such manner as may from time to time be determined. (g) To lend or advance money or give credit to any persons, firms or companies or others having dealings with the Company upon such terms and with or without security and subject to such conditions as may seem desirable and to give guarantees or become security for any such persons, firms, companies or others. (h) To guarantee support or to secure whether by personal obligation or covenant or by mortgaging or charging all or any part of the undertaking property and assets (present and future) and uncalled capital of the Company or by any one or more or all of such methods or by any other method the performance of any obligations or commitments of, and the repayment or payment of the principal amounts of, and premiums, interest, dividends, and other moneys payable on or in respect of, any debentures, debenture stock, loan stock, shares or other securities, liabilities or obligations of any person firm or company, including (without prejudice to the generality of the foregoing) any company which is for the time being a subsidiary or a holding company, as defined in section 736 of the Companies Act 1985, (as re-enacted by the Companies Act of 1989 or any subsequent re-enactment or amendment thereof) or a subsidiary undertaking (as defined by Section 258 of the Companies Act 1985 or any re-enactment or amendment thereof) of the Company, or another subsidiary of such holding company or otherwise associated with the Company in business or through shareholdings. (i) To borrow and raise money in any manner and to secure the repayment of money borrowed, raised or owing by mortgage, charge, standard security, lien or other security upon the whole or any part of the Company's property or assets (whether present or future), including its uncalled capital, and also by a similar mortgage, charge, standard security, lien or security to secure and guarantee the performance by the Company of any obligation or liability it may undertake or which may become binding on it. (j) To draw, make, accept, endorse, discount, execute and issue cheques, bills of exchange, promissory notes, bills of lading, warrants, debentures, and other negotiable instruments that may be incidental or conducive to the Company's commercial activity. (k) To enter into any arrangements with any government or authority (supreme, municipal, local, or otherwise) or any corporations, companies or persons, that may seem conducive to the attainment of the Company's object and to obtain from any such government or authority, corporation, company or person, any charters, contracts, decrees, rights, privileges or concessions which the Company may think desirable and to carry out, exercise and comply with any such charters, contracts, decrees, rights, privileges and concessions. (l) To subscribe for, take, purchase, or otherwise acquire and hold shares, stock or other 2 interests in or obligations of any other company or corporation. (m) To promote any other company for the purpose of acquiring all or any of the property or undertaking or any of the liabilities of the Company, or of undertaking any business or operations which may appear likely to assist or benefit the Company or to enhance the value of any property or business of the Company, and to place or guarantee the placing of, underwrite, subscribe for, or otherwise acquire all or any part of the shares or securities of any such company as aforesaid. (n) To sell, let, licence, develop or otherwise deal with the whole or any part of the undertaking of the Company, either together or in portions upon such terms, as the Company may think fit, with power to accept shares, debentures, or securities of any company purchasing the same. (o) To undertake and perform sub-contracts and also to act in any of the businesses of the Company through or by means of agents, brokers, sub-contractors or others. (p) Subject to and in accordance with a due compliance with the provisions of Sections 155 to 158 (inclusive) of the Act (if and so far as such provisions shall be applicable), to give, whether directly or indirectly, any kind of financial assistance (as defined in Section 152(1)(a) of the Act) for any such purpose as is specified in Section 151(1) and/or Section 151(2) of the Act. (q) To remunerate any person, firm or company rendering services to the Company either by cash payment or by the allotment subject to the provisions of the Companies Act 1985 (or any statutory modification or re-enactment thereof) to him or them of shares or other securities of the Company credited as paid up in full or in part or otherwise. (r) To pay out of the funds of the Company all costs and expenses of or incidental to the promotion formation and incorporation of the Company, or to contract with any person, firm or company to pay the same, and to pay commissions to brokers and others for underwriting, placing, selling or guaranteeing the subscription of any shares or other securities of the Company. (s) To purchase and maintain insurance policies to indemnify the officers and auditor of the Company against any costs, expenses and liabilities arising from negligence, default, breach of duty or trust incurred by them in discharge of their duties or in relation thereto pursuant to the provisions contained in section 310(3) of the Companies Act 1985. (t) To support and subscribe to any charitable or public object and to support and subsribe to any institution, society, or club which may be for the benefit of the Company or its Directors or employees; to remunerate the Directors of the Company in any manner the Company may think fit and to pay or provide pensions for or make payments to or for the benefit of any persons who are or were at any time in the employment or service of the Company or of any company for the time being the Company's holding company or subsidiary company as defined by Section 736 of the Companies Act 1985 or otherwise 3 associated with the Company in business and the wives, widows, families and dependents of any such persons; to make payments towards life insurance; to set up, establish support and maintain superannuation and other funds or schemes (whether contributory or non-contributory) for the benefit of any of such persons as aforesaid and of their wives, widows, families and dependents, and to set up, establish, support and maintain profit sharing, share option or share purchase schemes for the benefit of any of the employees of the Company or of any such subsidiary or holding company and to lend money to any such employees or to trustees on their behalf to enable any such schemes to be established or maintained. (u) To distribute any property of the Company in specie among the members. (v) To do all such other things as may be deemed incidental or conducive to the attainment of the Company's objects or any of them. AND it is hereby declared that i) None of the objects set forth in any sub-clause of this clause shall be restrictively construed but the widest interpretation shall be given to each such object, and the foregoing sub-clauses shall be construed independently of each other, except where the context expressly so requires and none of the objects therein mentioned shall be deemed to be merely subsidiary or ancillary to the objects contained in any other sub-clause; and ii) Without prejudice to the generality of sub-clause (v), such matters as are hereinbefore set out in sub-clause (b) to (u) are deemed to be incidental or conducive to the Company's object; and iii) The word "Company" in this clause shall, except where used in reference to this Company, be deemed to include any partnership or other body of persons whether corporate or unincorporate and whether domiciled in any part of the United Kingdom or elsewhere. 4. The liability of the members is limited. 5. The authorised share capital of the company is One hundred thousand pounds (pounds sterling 100,000.00) divided in forty thousand (40,000) Ordinary Shares of pounds sterling 1.00 each and sixty thousand (60,000) 9% Redeemable Preference Shares of pounds sterling 1.00 each 4 I, the subscriber to this Memorandum of Association, wish to be formed into a Company pursuant to this Memorandum; and I agree to take the number of shares shown opposite my name. - -------------------------------------------------------------------------------- Name and address of the subscriber and number of shares taken by the subscriber - -------------------------------------------------------------------------------- York Place Company Nominees Limited One 12 York Place Leeds LS I 2DS - -------------------------------------------------------------------------------- Dated 14 January 1999 Witness to the above signature Andrea Benito 7 The Ropewalk Nottingham NG1 5DU 5 THE COMPANIES ACTS 1985 AND 1989 PRIVATE COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF NEXSAN TECHNOLOGIES LIMITED PRELIMINARY DEFINITIONS "Ordinary Shares" shall have the meaning given in Regulation 2 of these Articles "Preference Shares" shall have the meaning given in Regulation 2 of these Articles 1. (a) Subject as hereinafter provided the Regulations contained in Table A in the Schedule to the Companies (Tables A to F) Regulations 1985 as amended by the Companies (Tables A to F) (Amendment) Regulations 1985 (such Table being hereinafter called "Table A") shall apply to the Company. (b) In these Articles the expression "the Act" means the Companies Act 1985 but so that any reference in these Articles to any provision of the Act shall be deemed to include a reference to any statutory modification or re-enactment of that provision for the time being in force. SHARES 2. The authorised share capital of the Company is One hundred thousand pounds (pounds sterling 100,000.00) divided in forty thousand (40,000) Ordinary Shares of pounds sterling 1.00 each ("Ordinary Shares") and sixty thousand (60,000) 9% Redeemable Preference Shares of pounds sterling 1.00 each ("Preference Shares"). The rights and restrictions attached to and binding on the Ordinary Shares and Preference Shares in addition to those prescribed by the Act are as follows:- 2.1 Income: Preference Shares 2.1.1 The holders of the Preference Shares shall be entitled to receive in priority to the holders of any other class of shares any payment by way of dividend and the Company shall pay a preferential dividend ("the Preference Dividend") at the rate of 9 per cent (9%) per annum (exclusive of associated tax credit) of the capital from time to time paid up or credited as paid up on the Preference Shares respectively held by them 2.1.2 Subject to Regulation 2.4.6 below the Preference Dividend shall accrue on a daily basis commencing on the date of issue of the relevant Preference Shares 6 and shall be paid on 31st March in each year and on the Redemption Date (defined in Regulation 2.4.1 and 2.4.2 below) if different to the Redemption Date with the first such payment being made on 31st March 2002 in respect of the period from the date of their issue up to that date 2.1.3 On the date of payment of any instalment of the Preference Dividend the instalment so payable shall ipso facto and without any resolution of the Directors or of the Company in general meeting become a debt which is then payable by the Company to the holders of the Preference Shares 2.1.4 If for any reason the Company is unable to or does not pay in full on the date due ("a Preference Dividend date") any Preference Dividend ("the relevant Preference Dividend") to any of the holders of the Preference Shares which would otherwise be required to be paid pursuant to the foregoing provisions of this Article on that Preference Dividend date to any of the holders of such shares ("the relevant Preference Shareholders") the following provisions shall apply:- (a) on the Preference Dividend date the Company shall pay to the relevant Preference Shareholders on account of the relevant Preference Dividend the maximum sum (if any) which can then be properly paid by the Company; and (b) on every succeeding Preference Dividend date or (if earlier) on such date or dates as the holders of at least fifteen per cent in nominal value of the issued Preference Shares shall demand in writing the Company shall pay to the relevant Preference Shareholders on account of the balance of the relevant Preference Dividend for the time being remaining outstanding (until the relevant Preference Dividend shall have been paid in full) the maximum sum (if any) on such succeeding Preference Dividend date respectively which can be properly paid by the Company 2.2 Income: Ordinary Shares Provided that the Preference Dividend for the relevant year and any arrears thereof shall have been paid and subject to all reemptions of Preference Shares which have fallen due having been duly made the balance of any profits then available and resolved to be distributed in any financial year or period shall be distributed amongst the holders of the Ordinary Shares pari passu pro rata to the number of Ordinary Shares respectively held by them 2.3 Capital: All classes of shares On a return of assets on liquidation or otherwise (except on the redemption of shares of any class or the purchase by the Company of its own shares) the assets of the Company remaining after payment of its debts and liabilities and the costs charges and expenses of any such liquidation and available for distribution to holders of Preference Shares and 7 Ordinary Shares shall be applied in the following manner and order of priority:- 2.3.1 first, in paying to the holders of the Preference Shares any unpaid arrears and accruals of Preference Dividend respectively due on their holdings of Preference Shares as at the date of return of capital (irrespective of whether the same have been earned or declared or not) 2.3.2 secondly, in paying to the holders of the Preference Shares the amounts respectively paid up or credited as paid up thereon 2.3.3 lastly, in paying the balance (if any) amongst the holders of the Ordinary Shares Pari Passu in proportion to the amounts paid up or credited as paid up on the Ordinary Shares 2.4 Redemption: Preference Shares 2.4.1 Subject to the provisions of the Act, the Company shall redeem Shares for the time being outstanding and fully paid on 31st March 2002 31st March 2003 and 31st March 2004 and shall give to the holders of the Preference Shares as are to be redeemed not less than 28 days previous notice in writing of its intention in that behalf if (the last day of such notice period being referred to below as the "Redemption Date") 2.4.2 Notwithstanding the mandatory provisions of sub-paragraph 2.4.1 above and subject to the provisions of the Act the Company shall have the right at any time to redeem all or (subject as provided in sub-paragraph 2.4.3 below) some of the Preference Shares for the time being outstanding and fully paid upon giving to the holders of the Preference Shares as are to be redeemed not less than twenty-eight days previous notice in writing of its intention in that behalf (the last day of such notice period also being referred to below as the "Redemption Date") 2.4.3 Any Preference Shares to be redeemed pursuant to sub-paragraphs 2.4.1 or 2.4.2 above shall be selected as nearly as may be to ensure that the number of Preference Shares in the name of each holder thereof is thereby reduced in the same proportion 2.4.4 Upon the Redemption Date each of the holders of the Preference Shares concerned shall be bound to deliver to the Company at its registered office the certificate for such of the shares concerned as are held (or an appropriate indemnity in such form as the Company may reasonably require) in order that the same may be cancelled. Upon such delivery the Company shall pay to the holder (or, in the case of joint holders, to the holder whose name stands first the Register of Members of the Company in respect of such shares) the amount due to him in respect of such redemption as set out in sub-paragraph 2.4.5 below against the delivery of a proper receipt for the redemption moneys payable in respect thereof. If any certificate so delivered to the Company includes any Preference Shares not 8 to be redeemed on the relevant Redemption Date a fresh certificate for such Preference Shares not so redeemed shall be issued to the holder or holders delivering such certificate to the Company; 2.4.5 There shall be paid on the redemption of each Preference Shares the redemption amount provided below together with all arrears and accruals of Preference Dividend (whether declared or not) relating thereto, calculated up to and including the Redemption Date. The redemption amount per Preference Share shall be one pound sterling (pounds sterling 1.00) 2.4.6 The Preference Dividend payable on each Preference Share shall cease to accrue as from the date fixed for redemption thereof unless, upon the presentation of the certificate relating thereto (or an appropriate indemnity aforesaid) and a receipt for the redemption moneys duly signed and authenticated in such manner as the Directors may reasonably require, payment of the redemption moneys is refused by the Company 2.5 Voting: Preference Shares The holders of the Preference Shares shall have the right to receive notice of all General Meetings of the Company but shall have no right to attend or vote thereat either in person or by proxy by virtue or in respect of their holdings of Preference Shares unless the business of the meeting includes a resolution for the winding up or the Company and/or directly or indirectly altering abrogating any of the special rights and privileges attaching to their Preference Shares in which event (save as otherwise expressly provided in these Articles) each holder of Preference Shares present in person or by proxy or corporate representative shall be entitled to a show of hands to one vote and on a poll to one vote for every Preference Shares of which he is the holder PROVIDED THAT the holders of the Preference Shares concerned shall be entitled to vote only on any such resolution 2.6 Voting: Ordinary Shares Each holder of Ordinary Shares present in person or by proxy or corporate representative shall be entitled on a show of hands to one vote and on a poll to one vote for every Ordinary Share of which he is the holder 3. (a) Directors shall have full control of shares which are comprised in the authorised share capital with which the Company is incorporated and may allot relevant securities (as defined in Section 80(2) of the Act) as authorised from time to time by the Company, and during the period of five years commencing with the date of incorporation the Directors shall have authority to allot relevant securities to such persons and for such consideration and upon such terms and conditions as they may determine provided that the nominal value of the relevant securities alloted shall not exceed the authorised but unissued share capital of the Company for the time being, and after the period of five years commencing with the date of incorporation of the Company the Directors may allot any relevant securities in pursuance of an offer or agreement so to do made by the Company within that 9 period. The Authority hereby given may at any time be renewed, revoked or varied by Ordinary Resolution of the Company. (b) All shares which are not comprised in the authorised share capital with which the Company is incorporated and which the Directors propose to issue shall first be offered to the Members in proportion as nearly as may be to the number of the existing shares held by them respectively unless the Company shall by Special Resolution otherwise direct. The offer shall be made by notice specifying the number of shares offered, and limiting a period (not being less than fourteen days) within which the offer, if not accepted, will be deemed to be declined. After the expiration of that period, those shares so deemed to be declined shall be offered in the proportion aforesaid to the persons who have, within the said period, accepted all the shares offered to them; such further offer shall be made in like terms in the same manner and limited by a like period as the original offer. Any shares not accepted pursuant to such offer or further offer as aforesaid or not capable of being offered as aforesaid except by way of fractions and any shares released from the provisions of this Article by any such Special Resolution as aforesaid shall be under the control of the Directors, who may allot, grant options over or otherwise dispose of the same to such persons, on such terms, and in such manner as they think fit, provided that, in the case of shares not accepted as aforesaid, such shares shall not be disposed of on terms which are more favourable to the subscribers therefor than the terms on which they were offered to the Members. The foregoing provisions of this paragraph (b) shall have effect subject to Sections 80, 80A and 379A of the Act. (c) In accordance with Section 91(1) of the Act, Sections 89(1) and 90(1) to (6) (inclusive) of the Act shall not apply to the Company. LIEN 4. The lien conferred by Regulation 8 of Table A shall attach to all shares whether fully paid or not and to all shares standing registered in the name of any person indebted or under liability to the Company, whether he shall be the sole registered holder thereof or shall be one of two or more joint holders. Regulation 8 of Table A shall be modified accordingly. TRANSFER OF SHARES 5. The Directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of any share, whether or not it is a fully paid share, and the first sentence of Regulation 24 of Table A shall not apply to the Company. TRANSMISSION OF SHARES 6. (a) Regulation 31 of Table A shall not apply to the Company. 10 (b) A person becoming entitled to a share in consequence of the death or bankruptcy of a member shall have the rights to which he would be entitled if he were the holder of the share, except that he shall not, before being registered as a holder of the share, be entitled in respect of it to attend or vote at any meeting of the Company or at any separate meeting of the holders of any class of shares in the Company unless the Company is without directors for whatever reason, in which case he shall be entitled to vote on any resolution to appoint a new director or directors as if he were already registered as a shareholder. GENERAL MEETINGS AND RESOLUTIONS 7. (a) Regulations 40 and 41 of Table A shall not apply to the Company. (b) No business shall be transacted at any General Meeting unless a quorum is present. Two persons entitled to vote upon the business to be transacted, each being a member or a proxy for a member or a duly authorised representative of a corporation shall be quorum, unless the Company has only one member in which case one member present in person or by proxy shall be a quorum. (c) If a quorum is not present within half an hour from the time appointed for a General Meeting the General Meeting shall stand adjourned to the same day in the next week at the same time and place or to such other day and at such other time and place as the Directors may determine; and if at the adjourned General Meeting a quorum is not present within half an hour from the time appointed therefor such adjourned General Meeting shall be dissolved. (d) In addition to the requirements of Regulation 100 of Table A, the directors shall also insert in the minute book of the Company: (i) a memorandum of all decisions taken by a sole member when the Company has only one member which may have been taken by the Company in General Meeting and which have effect as if agreed in General Meeting; and (ii) all written resolutions passed by the Company. APPOINTMENT OF DIRECTORS 8. (a) Regulation 64 of Table A shall not apply to the Company. (b) The maximum number and minimum number respectively of the Directors may be determined from time to time by Ordinary Resolution of the Company. Subject to and in default of any such determination there shall be no maximum number of Directors and the minimum number of Directors shall be one. Whensoever the minimum number of the Directors shall be one, a sole Director shall have authority to exercise all the powers and discretions by Table A and by these Articles expressed to be vested in the Directors generally, and Regulation 89 of Table A shall be modified accordingly. 11 (c) No Director shall be liable to retire by rotation and Regulations 73 to 77 (inclusive) and Regulation 80 of Table A shall not apply to the Company. In Regulation 78 the words "and may also determine the rotation in which any additional directors are to retire" shall be deleted. BORROWING POWERS 9. The Directors may exercise all the powers of the Company to borrow money of unlimited amount and upon such terms and in such manner as they think fit and subject (in the case of any security convertible into shares) to Section 80, 80A and 379A of the Act to grant any mortgage, charge or security over its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. ALTERNATE DIRECTORS 10. An alternate Director shall not be entitled as such to receive any remuneration from the Company, save that he may be paid by the Company such part (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct, and the first sentence of Regulation 66 of Table A shall be modified accordingly. DISQUALIFICATION OF DIRECTORS 11. A Director shall be required to vacate his office if he becomes incapable by reason of illness or injury of managing and administering his property and affairs and Regulation 81 of Table A shall be modified accordingly. PROCEEDINGS OF DIRECTORS 12. (a) At any meeting of the Directors or of any committee of the Directors subject to disclosing his interest therein a Director may vote on any resolution notwithstanding that it in anyway concerns or relates to a matter in which he has, directly or indirectly any kind of interest whatsoever, and if he shall vote on any such resolution as aforesaid his vote shall be counted; and in relation to any such resolution as aforesaid he shall (whether or not he shall vote on the same) be taken into account in calculating the quorum present at the Meeting. Regulations 94 to 98 inclusive of Table A shall be construed accordingly. (b) Any director or member of a committee of the Directors may participate in a meeting of the Directors or such committee by means of conference telephone or other means of telephone radio or televisual communication whereby all the persons participating in the meeting can hear each other and any Director or member of a committee participating in such a meeting will be deemed to be present in person at such meeting and shall be entitled to vote or be counted in the quorum accordingly. Such 12 meeting shall be deemed to take place where the largest group of those participating is assembled, or, if there is no such group, where the chairman of the meeting then is, and the word 'meeting' shall be construed accordingly. INDEMNITY 13. Subject to Section 31 0 of the Act and in addition to such indemnity as is contained in Regulation 118 of Table A every Director, officer or official of the Company shall be indemnified out of the funds of the Company or the proceeds of any insurance policy effected by the Company for such purpose against all costs charges losses expenses and liabilities incurred by him in the execution and discharge of his duties or in relation thereto. SHARE CERTIFICATES 14. In the second sentence of Regulation 6 of Table A the words 'shall be sealed with the seal and' shall be deleted. Each share certificate shall only be issued by authority of the directors, or of a committee of the directors authorised by the directors, and shall bear the signature of one director and the company secretary or a second director. COMPANY SEAL 15. Regulation 101 of Table A shall not apply to the Company. The Company shall not be required to, but may, at the discretion of the Directors, keep a common seal. If such a seal is kept, it shall only be used by the authority of the Directors, or of a committee of the Directors authorised by the Directors, and the Directors may determine who shall sign any instrument to which the seal is affixed and unless otherwise so determined it shall be signed by a director and the secretary or a second director. 13 - ----------------------------------------------------------------------------- Name and Address of Subscriber - ----------------------------------------------------------------------------- York Place Company Nominees Limited 12 York Place Leeds LS 1 2DS - ----------------------------------------------------------------------------- Dated 14 January 1999 Witness to the above signature Andrea Benito 7 The Ropewalk Nottingham NG1 5DU 14 EX-4.1 9 0009.txt FORM OF STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of January 4, 2001, is made by and among Nexsan Corporation, a Delaware corporation (the "Company"), the Company's wholly-owned subsidiary Nexsan Technologies Limited, a United Kingdom corporation ("Nexsan"), and Martin Boddy (the "Control Shareholder"), and the purchasers set forth on Schedule A hereto (each an "Investor" and, collectively, the "Investors"). W I T N E S S E T H: WHEREAS, the Investors have reviewed a copy of Nexsan's business plan dated December 14, 2000, a copy of which is attached hereto as Exhibit A (the "Business Plan"); and WHEREAS, on the basis of the information contained in the Business Plan, the Investors desire to acquire an equity interest in the Company; and WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Investors and the Investors desire to purchase from the Company an aggregate of 4,600,000 shares (each a "Share" and, collectively, the "Shares") of the Company's common stock, par value $.001 per share ("Common Stock"), representing 25.6% of the total number of Common Stock outstanding shares on the Closing Date (as hereafter defined) after giving effect to the sale of the Shares contemplated hereby, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties and agreements herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE OF SHARES 1.01 Purchase. At the Closing provided for and defined in Section 1.02 hereof, the Company shall issue and sell to the Investors, and the Investors shall purchase from the Company the Shares at a purchase price of $.66 per Share, and the Company shall issue to the Investors certificates evidencing the Shares. The number of Shares purchased by the Investors shall be equal to approximately 25.6% of the total number of shares of Common Stock outstanding after giving effect to the sale of the Shares. 1.02 Closing. Subject to the provisions of Articles VII and VIII hereof, the Closing of the transactions contemplated hereby shall take place at the offices of Rubin Baum LLP, 30 Rockefeller Plaza, New York, New York, on January 4, 2000 or at such other place or on such other day as the parties may mutually agree. At the Closing, the Company shall deliver to the Investors certificates representing the Shares to be purchased by said Investors pursuant to Section 1.01 hereof, free of all claims, liens and encumbrances whatsoever, and all other documents required to be delivered by the Company to the Investors as described herein, and all other documents required to be delivered hereby and each Investor shall deliver to the Company the aggregate amount required to be paid pursuant to Section 1.01 hereof for the Shares to be purchased in checks made payable to the Company, or in immediately available federal funds by wire transfer. ARTICLE II DEFINITIONS 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Adverse Consequences" means all claims, losses, damages, liabilities, fees and expenses, including, without limitation, settlement costs and any legal, accounting or other fees and expenses, suffered or incurred by the Investors in connection with any breach of this Agreement as provided in ARTICLE X hereof. The terms "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Balance Sheet" means the unaudited consolidated balance sheet of the Company referred to in Section 3.06(ii) of this Agreement. "Beechtree" means Beechtree Capital, Ltd. "Beechtree Consulting Agreement" means the consulting agreement between the Company and Beechtree referred to in section 5.07 hereof. "Business Plan" means the business plan prepared by the Company dated December 14, 2000, describing the business and financial condition of the Company and setting forth certain revenue and earnings projections of the Company, a copy of which is attached hereto as Exhibit A. "Closing" means the closing referred to in Section 1.02 of this Agreement. "Closing Date" means the date on which the Closing occurs. "Company" means Nexsan Technologies Incorporated, a corporation formed under the laws of the State of Delaware. "Company Affiliate" means each Affiliate of the Company. "Company Subsidiary" means any corporation of which the Company (a) directly or indirectly owns or controls at the time outstanding shares of stock which have in ordinary circumstances (not dependent upon the happening of a contingency) voting power to elect a majority of the board of directors of said corporation, or (b) of which shares of stock of the character described in the foregoing clause (a) shall at the time be owned or controlled directly or indirectly by the Company and one or more Company Subsidiaries as defined in the foregoing clause (a) or by one or more such Company Subsidiaries. "Control Shareholder" means Martin Boddy, the principal shareholder of Nexsan Technologies, Inc." "Direct" means Direct Brokerage Inc. "Direct Services Agreement" means the services agreement between the Company and Direct referred to in Section 5.12 hereof. "Disclosure Schedule" means the document delivered by the Company to the Investors simultaneously with the execution hereof containing the information required to be included therein pursuant to this Agreement. "Material" The word "material," when used herein in reference to the Company or any Company Subsidiaries, means material in respect of the Company and Company Subsidiaries taken as a whole and in each and every case is used as such word is used in the Federal securities laws. Inclusion of information on a schedule delivered pursuant to this Agreement does not constitute an admission or acknowledgment of the materiality of such information. "Material Adverse Effect" means any action or failure to act that either: (i) adversely affect the legality, validity or enforceability of this Agreement, (ii) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Company and the Company Subsidiaries, taken as a whole, or (iii) adversely impairs the Company's ability to perform fully on a timely basis its obligations under this Agreement. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Prospectus" means the prospectus included in the Registration Statement. "Registration Rights Agreement" means the Registration Rights Agreement entered into by the Company and the Investors dated the date hereof whereby the Company agrees to register the Shares for public resale under the Securities Act, a copy of which is attached hereto as Exhibit D. "Registration Statement" means the registration statement referred to in Section 5.13 of this Agreement. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Transactions Documents" means this Stock Purchase Agreement, the Registration Rights Agreement executed by the Company and the Investors simultaneous herewith, the Beechtree Consulting Agreement and the Direct Services Agreement. The plural of any defined term shall have a meaning correlative to such defined term. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY, NEXSAN AND THE CONTROL SHAREHOLDER The Company, Nexsan and the Control Shareholder hereby jointly and severally represent and warrant to the Investors as follows: 3.01 Corporate Organization; Etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to carry on its business as it is now being conducted and to own the properties and assets it now owns; is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions listed in Section 3.01 of the Disclosure Schedule, which are all the jurisdictions in which such qualification is required except jurisdictions in which the Company's failure to qualify to do business will have no "Material Adverse Effect" on the business, prospects, operations, properties, assets or condition (financial or otherwise) of the Company and the Company Subsidiaries. True and complete copies of the Certificate of Incorporation and By-Laws of the Company are attached hereto as Exhibits B and C, respectively. 3.02 Capitalization of the Company. As of the date of this Agreement, the authorized capital stock of the Company consists of 90,000,000 shares of Common Stock, $.001 par value per share, of which 9,050,000 shares are issued and outstanding, and 10,000,000 shares of blank check preferred stock, $.001 par value per share, of which no shares are outstanding, and no options to purchase shares of Common Stock issued pursuant to the Company's 2000 Share Option Plan. All issued and outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable. No shares of Common Stock are entitled to preemptive or similar rights, nor is any holder of the Common Stock entitled to preemptive or similar rights arising out of any agreement or understanding with the Company by virtue of any of the Transaction Documents. Except as disclosed in Schedule 3.02(a), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or, securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any Company Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. To the knowledge of the Company, except as specifically disclosed in Section 3.02(a) of the Disclosure Schedule, no Person beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act) or has the right to acquire by agreement with or by obligation binding upon the Company, beneficial ownership of in excess of 5% of the Common Stock. Except for the registration rights granted to the Investors and to the certain members of the Company's management named in the Registration Rights Agreement, there are no agreements or arrangements under which the Company or any Company Subsidiary is obligated to register the sale of any of their securities under the Securities Act. 3.03 Subsidiaries and Affiliates. Section 3.03(a) of the Disclosure Schedule sets forth the name, jurisdiction of incorporation and capitalization of each Company Subsidiary and the jurisdictions in which each Company Subsidiary is qualified to do business. Except as disclosed in Section 3.03(b) of the Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any business not listed in Section 3.03(a) of the Disclosure Schedule. Except as and to the extent set forth in Section 3.03(a) of the Disclosure Schedule, all the outstanding capital stock of each Company Subsidiary is owned directly or indirectly by the Company free and clear of all liens, options or encumbrances of any kind and all material claims or charges of any kind, and is validly issued, fully paid and nonassessable, and there are no outstanding options, rights or agreements of any kind relating to the issuance, sale or transfer of any capital stock or other equity securities of any such Company Subsidiary to any person except the Company. Each Company Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; and (ii) has full corporate power and authority to carry on its business as it is now being conducted and to own the properties and assets it now owns. Each Company Subsidiary is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction listed opposite the name of such Company Subsidiary in Section 3.03(a) of the Disclosure Schedule, which are the only jurisdictions in which the properties owned or leased or the nature of the business conducted by it makes such qualification necessary. The Company has heretofore delivered to Beechtree complete and correct copies of the certificate of incorporation and by-laws of each Company Subsidiary, as presently in effect. 3.04 Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly executed by the Company and when delivered in accordance with the terms hereof shall constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate of incorporation, by-laws or other charter documents. 3.05 No Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provision of the Certificate of Incorporation or By-Laws of the Company or any Company Subsidiary, or, except as specified in Section 3.05 of the Disclosure Schedule, violate, or be in conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or cause the acceleration of the maturity of any debt or obligation pursuant to, or result in the creation or imposition of any security interest, lien or other encumbrance upon any property or assets of the Company or any Company Subsidiary under, any agreement or commitment to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound, or to which the property of the Company or any Company Subsidiary is subject, or violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority. 3.06 Financial Statements. Attached hereto as Schedule B is: (i) an unaudited balance sheet of the Company's wholly-owned subsidiary, Nexsan Technologies Limited, a United Kingdom corporation as at March 31, 2000; and statements of income, changes in stockholders' equity and changes in financial position of Nexsan Technologies Limited for the fiscal year then ended; and (ii) an unaudited balance sheet of Nexsan Technologies Limited as at September 30, 2000 (the "Balance Sheet"), and unaudited consolidated statements of income, changes in stockholders' equity and changes in financial position of Nexsan Technologies Limited for the six (6) month period then ended. The financial statements set forth in Schedule B do not include financial information relating to the Company nor the Company's wholly-owned United States subsidiary, Nexsan Technologies Corp. The financial statements are prepared in British Pounds Sterling in accordance with United States generally accepted accounting principles. Such consolidated balance sheets and the notes thereto are true, complete and accurate and fairly present the consolidated assets, liabilities and financial condition of Nexsan Technologies Limited as at the respective dates thereof, and such statements of income, changes in stockholders' equity and changes in financial position and the notes thereto are true, complete and accurate and fairly present the results of operations for the periods therein referred to; all in accordance with United States generally accepted accounting principles consistently applied throughout the periods involved except, in the case of unaudited statements, for normally recurring year-end adjustments, which adjustments will not be material either individually or in the aggregate. 3.07. No Undisclosed Liabilities; Etc. Neither the Company nor any Company Subsidiary has any material liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) which were not fully reflected or reserved against in the Balance Sheet, except for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since the date thereof; and the reserves reflected in the Balance Sheet are adequate, appropriate and reasonable. 3.08 Accounts Receivable. All accounts receivable of the Company and each Company Subsidiary, whether reflected in the Balance Sheet or otherwise, represent sales actually made in the ordinary course of business, and are current and collectible net of any reserves shown on the Balance Sheet (which reserves are adequate and were calculated consistent with past practice). 3.09 Absence of Certain Changes. Except as set forth in Section 3.09 of the Disclosure Schedule, since the date of the Balance Sheet, neither the Company nor any Company Subsidiary has effected, suffered or granted (as the case may be): (a) any change in the assets, liabilities, financial condition or operating results from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting its assets, properties, financial condition, operations, results, prospects or business (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation, except in the ordinary course of business and that is not material to its assets, properties, financial condition, operating results or business (as such business is presently conducted and as it is proposed to be conducted); (e) any material change or amendment to a material contract or arrangement by which the Company or any Company Subsidiary or any of their respective assets or properties are bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any key officer; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer; (j) any mortgage, pledge, transfer of a security interest in, or lien, created, with respect to any material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made to or for the benefit of the employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (1) any declaration, setting aside or payment or other distribution in respect of any capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock; (m) to the best of the Company's knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company or any Company Subsidiary (as such business is presently conducted and as it is proposed to be conducted); or (n) any agreement or commitment by the Company or any Company Subsidiary to do any of the things described in this Section 3.09. 3.10 Title to Properties; Encumbrances. Each of the Company and the Company Subsidiaries has good, valid and marketable title to all the properties and assets which it purports to own (real, personal and mixed, tangible and intangible), including, without limitation, all the properties and assets reflected in the Balance Sheet (except for personal property having an aggregate book value not in excess of $10,000 sold since the date of the Balance Sheet in the ordinary course of business and consistent with past practice), and all the properties and assets purchased by the Company and Company Subsidiaries since the date of the Balance Sheet, which subsequently acquired properties and assets (other than inventory and short term investments) are listed in Section 3.10 of the Disclosure Schedule. All properties and assets reflected in the Balance Sheet have a fair market or realizable value at least equal to the value thereof as reflected therein, and all such properties and assets are free and clear of all title defects or objections, liens, claims, charges, security interests or other encumbrances of any nature whatsoever including, without limitation leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements, and are not, in the case of real property, subject to any rights of way, building use restrictions, exceptions, variances, reservations or limitations of any nature whatsoever except, with respect to all such properties and assets, (a) liens shown on the Balance Sheet as securing specified liabilities or obligations and liens incurred in connection with the purchase of property and/or assets, if such purchase was effected after the date of the Balance Sheet, with respect to which no default exists; (b) minor imperfections of title, if any, none of which are substantial in amount, materially detract from the value or impair the use of the property subject thereto, or impair the operations of the Company or any Company Subsidiary and which have arisen only in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; and (c) liens for current taxes not yet due. The rights, properties and other assets presently owned, leased or licensed by the Company and/or the Company Subsidiaries and described elsewhere in this Agreement include all rights, properties and other assets necessary to permit the Company and the Company Subsidiaries to conduct their businesses in all material respects in the same manner as their businesses have been conducted prior to the date hereof. 3.11 Plant and Equipment. The plants, structures and equipment of the Company and each Company Subsidiary are structurally sound with no known defects and are in good operating condition and repair and are adequate for the uses to which they are being put; and none of such plants, structures or equipment are in need of maintenance or repairs except for ordinary, routine maintenance and repairs which are not material in nature or cost. Except as set forth in Section 3.11 of the Disclosure Schedule, neither the Company nor any Company Subsidiary has received notification that it is in violation of any applicable building, zoning, anti-pollution, health or other law, ordinance or regulation in respect of its plants or structures or their operations and no such violation exists. 3.12 Patents, Trademarks, Trade Names, Etc. The Company and each Company Subsidiary has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted without any conflict with or infringement of the rights of others. Section 3.12 of the Disclosure Schedule contains an accurate and complete description of (a) all patents, trademarks, trade names and copyrights used or proposed to be used by the Company or any Company Subsidiary, all applications therefor, and a summary of the terms of all licenses and other agreements relating thereto and (b) a summary of the terms of all agreements relating to technology, know-how or processes which the Company or any Company Subsidiary is licensed or authorized to use by others. Except as set forth in Section 3.12 of the Disclosure Schedule, the Company and each Company Subsidiary has the sole and exclusive right to use the patents, trademarks, trade names, copyrights, technology, know-how and processes referred to in the Disclosure Schedule, and the consummation of the transactions contemplated hereby will not alter or impair any such rights; no claims have been asserted by any person to the use of any such patents, trademarks, trade names, copyrights, technology, know-how or processes or challenging or questioning the validity or effectiveness of any such license or agreement, and the Company does not know of any valid basis for any such claim; and the use of such patents, trademarks, trade names, copyrights, technology, know-how or processes by the Company or any Company Subsidiary does not infringe on the rights of any person. 3.13 Agreements in Full Force and Effect; Action. (a) Section 3.13 of the Disclosure Schedule sets forth a list of all contracts material to the business and operations of the Company and each Company Subsidiary. All contracts, agreements, plans, leases, policies and licenses referred to in the Disclosure Schedule are valid and in full force and effect, and true copies thereof have been initialed and heretofore delivered to Beechtree. (b) Except for agreements explicitly contemplated hereby and disclosed herein, there are no agreements, understandings or proposed transactions between the Company or any Company Subsidiary and any of their respective officers, directors, affiliates, or any affiliate thereof. (c) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any Company Subsidiary is a party or by which any of them is bound that may involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of, in the aggregate, $5,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any Company Subsidiary, or (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's or any Company Subsidiary's products or services, or (iv) indemnification by the Company or any Company Subsidiary with respect to infringements of proprietary rights. (d) Neither the Company nor any Company Subsidiary has (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $25,000 or, in the case of indebtedness and/or liabilities individually less than $5,000, in excess of $50,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (e) For the purposes of subsections (c) and (d) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (f) Neither the Company nor any Company Subsidiary is a party to nor are any of them bound by any contract, agreement or instrument, or subject to any restriction under their respective Certificates of Incorporation or By-Laws (or other organizational documents) that adversely affects their business as now conducted or as proposed to be conducted in the Business Plan, its properties or its financial condition. (g) Neither the Company nor any Company Subsidiary has engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company or any Company Subsidiary with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or any Company Subsidiary or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company or any Company Subsidiary is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution or winding up of the Company or any Company Subsidiary. 3.14 Related-Party Transactions. No employee, officer, or director of the Company or any Company Subsidiary or member of his or her immediate family is indebted to the Company or any Company Subsidiary, nor is the Company or any Company Subsidiary indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company or any Company Subsidiary is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate families may own, directly or indirectly, up to two percent (2%) of the issued and outstanding securities in companies, the securities of which are regularly traded on a national securities exchange or in the over-the-counter market, that may compete with the Company. No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company. 3.15 Permits. The Company and each Company Subsidiary has all franchises, permits, licenses and similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company or any Company Subsidiary, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. Neither the Company nor any Company Subsidiary is in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 3.16 Environmental and Safety Laws. To the best of its knowledge, neither the Company nor any Company Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the best of its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 3.17 Manufacturing and Marketing Rights. Except as Described in Section 3.17 of the Disclosure Schedule, neither the Company nor any Company Subsidiary has granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's or any Company Subsidiary's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 3.18 Use of Proceeds: The proceeds from the sale of the Shares shall be applied substantially as set forth in Section 3.18 of the Disclosure Schedule. 3.19 Business Plan. The Business Plan previously delivered to each Investor has been prepared in good faith by the Company and does not contain any untrue statement of a material fact nor does it omit to state a material fact necessary to make the statements made therein not misleading, except that with respect to projections contained in the Business Plan, the Company represents only that such projections were prepared in good faith and that the Company reasonably believes there is a reasonable basis for such projections. 3.20 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 3.21 Tax Returns. Payments and Elections. The Company and each Company Subsidiary has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company and each Company Subsidiary has paid all taxes and other assessments due, except those contested by it in good faith that are listed in Section 3.21 of the Schedule of Exceptions. The provision for taxes of the Company (and each Company Subsidiary) as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets. 3.22 Insurance. The Company and each Company Subsidiary has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. On the Closing Date, the Company will have in full force and effect term life insurance, payable to the Company, on the lives of each of Martin Boddy, Gary Watson and Diamond Lauffin in an amount of no less than $1,000,000 and no more than $3,000,000 for each such person. The Company has in full force and effect products liability and errors and omissions insurance in amounts customary for companies similarly situated. 3.23 Minute Books. The minute books of the Company and each Company Subsidiary have been delivered to Beechtree and contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 3.24 Labor Agreements and Actions. Neither the Company nor any Company Subsidiary is bound by or subject to (and none of their respective assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company or any Company Subsidiary. There is no strike or other labor dispute involving the Company or any Company Subsidiary pending, or to the best of the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company or any Company Subsidiary (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company or any Company Subsidiary, nor does the Company or any Company Subsidiary have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Company and any Company Subsidiary is terminable at the will of the Company. To the best of its knowledge, the Company and each Company Subsidiary has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. 3.25 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company or any Company Subsidiary that questions the validity of this Agreement or the Registration Rights Agreement, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company or any Company Subsidiary, financially or otherwise, or any change in the current equity ownership of the Company or any Company Subsidiary, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's or any Company Subsidiary's employees, their use in connection with the Company's or any Company Subsidiary's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. Neither the Company nor any Company Subsidiary is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any Company Subsidiary currently pending or that the Company or any Company Subsidiary intends to initiate. 3.26 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement. 3.27 Offering. Subject in part to the truth and accuracy of each Investor's representations set forth in Article IV of this Agreement, the offer, sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 3.28 Valid Issuance of Shares. The Shares that are being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable state and federal securities laws. 3.29 Compliance with Other Instruments. (a) Neither the Company nor any Company Subsidiary is in violation or default in any material respect of any provision of its Certificate of Incorporation or By-Laws or other organizational documents, as the case may be,, or in any material respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, to the best of its knowledge, of any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties. (b) The Company and each Company Subsidiary has avoided every condition, and has not performed any act, the occurrence of which would result in the Company's loss of any right granted under any license, distribution or other agreement. 3.30 Compliance with Law. The operations of the Company and the Company Subsidiaries have been conducted in accordance with all applicable laws, regulations and other requirements of all national governmental authorities, and of all states, municipalities and other political subdivisions and agencies thereof, having jurisdiction over the Company and the Company Subsidiaries, including, without limitation, all such laws, regulations and requirements relating to antitrust, consumer protection, currency exchange, equal opportunity, health, occupational safety, pension, securities and trading-with-the-enemy matters. Neither the Company nor any Company Subsidiary has received any notification of any asserted present or past failure by the Company or any Company Subsidiary to comply with such laws, rules or regulations. 3.31 Backlog. At November 30, 2000, the Company's backlog of firm orders for products and services was $146,311. 3.32 Brokers and Finders. Except for certain fees payable to Direct pursuant to the terms of a Placement Agency Agreement dated the date hereof between Direct and the Company, neither the Company nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. The Company agrees to indemnify and hold the Investors and their officers, directors, employees and agents harmless against any liability for commissions, fees or other compensation to any broker or financial advisor or other person or firm (and the costs and expenses of defending against such liability) for which the Company or any Company Subsidiary, or any of their respective employees or representatives, are responsible. 3.32 Disclosure. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Shares and all information that the Company believes is reasonably necessary to enable such Investor to make such decision. Neither this Agreement nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company, severally as to itself, as follows: 4.01 Organization; Authority. The Investor, if a corporation or other legal entity, was organized, and is validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement and to carry out its obligations hereunder. The acquisition of the Shares to be acquired hereunder by the Investor has been duly authorized by all necessary action on the part of the Investor. This Agreement has been duly executed and delivered by each Investor and constitutes the valid and legally binding obligation of the Investor, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. 4.02 Purchase Entirely for Own Account. This Agreement is made with each Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Shares to be received by the Investor will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same, without in any way limiting the Investors' right to resell the Shares pursuant to the Registration Statement. By executing this Agreement, the Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares. 4.03 Disclosure of Information. The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. Each Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Investors to rely thereon. 4.04 Brokers. No Investor has entered into an agreement for the payment of any broker's or finder's fee or commission in connection with the purchase or sale of the Shares. Each Investor agrees to indemnify and hold the Company and its officers, directors, employees and agents harmless against any liability for commissions, fees or other compensation in the nature of a broker's or finder's fee to any broker or other nature of a broker's or finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability) for which the Investor, or any of its employees or representatives, are responsible. 4.05 Private Placement. Each Investor understands that the Shares have not been registered under the Securities Act or registered or qualified under any state securities laws on the grounds that such Shares are being issued in a transaction exempt from the registration requirements of the Securities Act and the registration or qualification requirement of applicable state securities laws, and that the Shares must be held indefinitely unless Shares are subsequently registered under the Securities Act and qualified or registered under applicable state securities laws or an exemption from registration and qualification is available, and that, except as otherwise provided in this Agreement, the Company is under no obligation to register or qualify the Shares. The Company may require an opinion of the Investor's counsel prior to authorizing the registration of any transfer of the Shares in reliance on an exemption from registration or qualification to the effect that the transfer is exempt from such registration or qualification. Each Investor shall hold harmless the Company and its directors, officers, employees and agents against any loss or liability from any disposition of Shares by it in violation of this Section 4.05. 4.06 Accredited Investor. Each Investor is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment to be made hereunder by it and it is able to bear the economic risk of its investment. The Investor, as a corporation or partnership, has total assets in excess of $5,000,000 or each of its partners or shareholders has an individual net worth in excess of $1,000,000, (b) was not formed for the purpose of investing in the Shares, and (c) has business or investments other than the investment in the Shares. 4.07 Preexisting Relationship. Each Investor either (a) has a preexisting personal or business relationship with the Company or any of its officers, directors or controlling persons or an affiliate of the Company, or (b) by reason of its business or financial experience or the business or financial experience of its professional advisor(s) who is (are) unaffiliated with and who is (are) not compensated, directly or indirectly, by the Company, or any affiliate or selling agent of the Company, the Investor can reasonably by assumed to have the capacity to protect its own interests in connection with this transaction. 4.08 Confidentiality. Each Investor shall keep confidential and shall not use the trade secrets and other non-public information provided to it by the Company or its agents in connection with the transactions contemplated hereby. 4.09 Representations and Warranties at Closing. Except as expressly herein otherwise provided, the representations and warranties of the Investors set forth in this Agreement shall be true on and as of the Closing as though such representations and warranties were made on and as of such time. 4.10 Reliance. Each Investor understands and acknowledges that (i) the Shares to be acquired by it hereunder are being offered and sold to it without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption, depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and the Investor hereby consents to such reliance. The Company acknowledges and agrees that the Investors make no representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article IV. ARTICLE V OTHER AGREEMENTS OF THE PARTIES 5.01 Transfer Restrictions. (a) The Shares may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements thereof. In connection with any transfer of any Shares other than pursuant to an effective registration statement or to the Company, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register any transfer of Shares by an Investor to an Affiliate of the Investor, or any transfers among any such Affiliates the transferee certifies to the Company that it is an "accredited investor" as defined in Rule 501(a) under the Securities Act and that it is acquiring any such Shares in accordance with the representation provided by the original Investor in Article IV. Any Affiliate transferee shall have the rights of an Investor under this Agreement. (b) Each Investor agrees to the imprinting, so long as is required by this Section 5.01(b), of the following legend on the Securities: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS." The Company agrees that it will provide each Investor, upon request, with a certificate or certificates representing the Shares free from such legend at such time as such legend is no longer required hereunder. The Company may not make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions of transfer set forth in this Section 5.01(b). 5.02 Furnishing of Information. As long as any Investor owns Shares, the Company covenants that, after such time as it becomes subject to the reporting requirements of the Exchange Act, it shall timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. If at any time prior to the date on which an Investor may resell all of its Shares without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent for the benefit of and enforceable by the Investor) the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Investor and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as an Investor may reasonably request, all to the extent required from time to time to enable such person to sell Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including the legal opinion referenced above in this Section. Upon the request of any such person, the Company shall deliver to such person a written certification of a duly authorized officer as to whether it has complied with such requirements. In connection with any future access or diligence of the Company by an Investor, the Company agrees that its will not furnish to the Investor any non-public information unless it first discloses in writing that such information is of such character and the Investor thereafter agrees to receive such information. 5.03 Blue Sky Laws. In accordance with the Registration Rights Agreement, the Company shall qualify the Shares under the securities or Blue Sky laws of such jurisdictions as any Investor may request and shall continue such qualification at all times until the Investor notifies the Company in writing that it no longer owns Shares; provided, however, that neither the Company nor the Company Subsidiaries shall be required in connection therewith to qualify as a foreign corporation where they are not now so qualified or to take any action that would subject the Company to general service of process in any such jurisdiction where it is not then so subject. 5.04 Integration. The Company shall not and shall use its best efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Shares in a manner that would require the registration under the Securities Act of the issue or sale of the Shares to the Investor. 5.05 No Sales of Company Securities. The Company shall not, without the prior written consent of Beechtree, offer for sale or sell any securities until a date which is six months after the date upon which the SEC declares the Registration Statement effective. 5.06 Use of Proceeds. Unless otherwise agrees to in writing by Beechtree, the Company shall use all of the proceeds from the sale of the Shares as described in Section 3.18 of the Disclosure Schedule. Pending application of the proceeds derived from the sale of the Shares, the Company will invest such proceeds in interest bearing accounts and/or short-term, investment grade interest bearing securities. 5.07 Consulting Agreement with Beechtree Capital, Ltd. At the Closing, the Company will execute and deliver to Beechtree the form of Consulting Agreement, a copy of which is attached hereto as Exhibit E (the "Consulting Agreement"), pursuant to which the Company engages Beechtree to provide certain financial and business advisory services for a period of five years after the Closing Date for the compensation and on the other terms and conditions therein set forth. 5.08 Lock-Up of Outstanding Common Stock. On or before the Closing Date, the Company will have entered into a lock-up agreement with each person holding shares of Common Stock immediately prior to the Closing, a copy of the form of which is attached hereto as Exhibit F (the "Lock-Up Agreement"), pursuant to which such holder agrees, except as provided therein, to refrain from selling or otherwise disposing of his shares of Common Stock for a one-year period commencing on the Closing Date. The Company will deliver to Beechtree a copy of each such Lock-Up Agreement at the Closing. 5.09 Management Employment Agreements. On or before the Closing Date, the Company will have entered into an employment agreement, in form and substance reasonably satisfactory to the Company and Beechtree, with each of the persons named on Exhibit G hereto providing for the employment by the Company of such persons commencing upon the Closing. 5.10 Notice of Breaches. Each of the Company and the Investors shall give prompt written notice to the other of any breach by it of any representation, warranty or other agreement contained in the Transaction Documents, as well as any events or occurrences arising after the date hereof, which would reasonably be likely to cause any representation or warranty or other agreement of such party, as the case may be, contained in the Transaction Documents to be incorrect or breached as of such Closing Date. However, no disclosure by either party pursuant to this Section shall be deemed to cure any breach of any representation, warranty or other agreement contained in the Transaction Documents. Notwithstanding the generality of the foregoing, the Company shall promptly notify Beechtree of any notice or claim (written or oral) that it receives from any lender of the Company to the effect that the consummation of the transactions contemplated by the Transaction Documents violates or would violate any written agreement or understanding between the Investors and the Company, and the Company shall promptly furnish by facsimile to Beechtree a copy of any written statement in support of or relating to such claim or notice. 5.11 Board of Director and Committee Representation. (a) The Company shall use its best efforts to cause and maintain the election to the Board of Directors of one representative selected by Beechtree and one representative of Direct, should Direct so desire, for a period of five years after the Closing Date. To the extent permitted by law and the applicable exchange on which the Company's stock is trading, the Control Shareholder agrees to vote any and all shares of Common Stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Board. (b) The Company shall use its best efforts to appoint each of Beechtree's and Direct's respective nominees to the Board to serve on its Executive Committee of the Board of Directors, which such committee shall consist of up to five (5) persons, for a period of five (5) years. To the extent permitted by law and the applicable exchange on which the Company's stock is trading, the Control Shareholder agrees to vote any and all shares of Common Stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Executive Committee. (c) The Company shall use its best efforts to appoint each of Beechtree's and Direct's respective nominees to the Board to serve on its Audit Committee of the Board of Directors, which such committee shall consist of up to five (5) persons, for a period of five (5) years. To the extent permitted by law and the applicable exchange on which the Company's stock is trading, the Control Shareholder agrees to vote any and all shares of Common Stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Audit Committee. 5.12 Consulting Agreement with Direct. As soon as reasonably practicable after the Closing, the Company shall enter into a services agreement with Direct in the form attached hereto as Exhibit H. 5.13 No Registration of Other Securities. Except for the Shares and other "Registrable Securities" (as such term is defined in the Registration Rights Agreement) to be registered by the Company in the "Registration Statement" (as such term is defined in the Registration Rights Agreement) in accordance with the Registration Rights Agreement, the Company shall not, without the prior written consent of Beechtree, (i) issue or sell any of its or any of its Affiliates' equity or equity-equivalent securities pursuant to Regulation S promulgated under the Securities Act, or (ii) register for resale any securities of the Company for a period of not less than one year after the date that the Registration Statement covering the Registrable Securities is declared effective by the SEC. 5.14 Certain Securities Laws Disclosures; Publicity. (a) The Company shall timely file with the SEC a Form D promulgated under the Securities Act as required under Regulation D promulgated under the Securities Act and provide a copy thereof to each Investor promptly after the filing thereof. (b) In furtherance of and in addition to the obligation of the Company set forth in Section 5.14(a) above, the Company and Beechtree shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. 5.14 Review and Approval of Company Budget. One month prior to the conclusion of the 2000 calendar year, the Company shall furnish to Beechtree a copy of the Company's proposed budget for the 2001 calendar year. Beechtree, as representative of the Investors, shall have the right to review and approve said budget. Beechtree shall communicate its comments on said budget, if any, to the Company in writing two weeks prior to the conclusion of calendar year 2000. The Company shall deliver to Beechtree a revised budget for calendar year 2001 that reflects the changes requested by Beechtree one week prior to the conclusion of the 2000 calendar year. ARTICLE VI COVENANTS OF THE COMPANY The Company hereby covenants and agrees with each Investor as follows: 6.01 Full Access. The Company shall, and shall cause each Company Subsidiary to, afford to Beechtree, its counsel, accountants and other representatives full access to the plants, offices, warehouses, properties, books and records of the Company and each Company Subsidiary in order that Beechtree may have full opportunity to make such investigations as it shall desire to make of the affairs of the Company and the Company Subsidiaries; and the Company will cause its officers and accountants to furnish such additional financial and operating data and other information as the Investors' Representative shall from time to time request, provided, however, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with the operation of the businesses of the Company and the Company Subsidiaries. 6.02 Consents of Company Lenders, Etc. The Company shall, and shall cause each Company Subsidiary to, use its best efforts to obtain at the earliest practicable date and prior to the Closing all consents necessary to the consummation of the transactions contemplated hereby and will provide to Beechtree copies of each such consent promptly after it is obtained. 6.03 Other Transactions. Neither the Company nor its Board of Directors shall enter into any discussions concerning, or approve or recommend to the holders of any shares of its capital stock, any merger, consolidation, disposition of all or substantially all of its business, properties or assets (other than pursuant to this Agreement), any tender offer, acquisition or other business combination, or proposal therefor, or furnish or cause to be furnished any information concerning the business, properties or assets of the Company to any party in connection with any tender offer or other transaction involving the acquisition of the Company or all or any substantial part of its assets by any person other than the Investors or their duly authorized representatives. 6.04 Covenant to Satisfy Conditions. Each of the Company and the Company Subsidiaries will use its best efforts to insure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of any of them. 6.05 Certificates. At the Closing, the Company will furnish Beechtree with such certificates of its officers and others to evidence compliance with the covenants set forth in this Article VI as may be reasonably requested by Beechtree. ARTICLE VII CONDITIONS TO THE COMPANY'S OBLIGATIONS Each and every obligation of the Company under this Agreement to be performed on or before the Closing shall be subject to the satisfaction, on or before the Closing, of each of the following conditions, unless waived in writing by the Company: 7.01 Representations and Warranties True. The representations and warranties of each Investor contained herein shall be in all material respects true and accurate as of the date when made and at and as of the Closing as though such representations and warranties were made at and as of such date, except for changes expressly permitted or contemplated by the terms of this Agreement. 7.02 Performance. Each Investor shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing. 7.03 No Governmental Proceeding or Litigation. No suit, action, investigation, inquiry or other proceeding by any governmental body or other person or legal or administrative proceeding shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE INVESTORS Each and every obligation of the Investors under this Agreement to be performed on or before the Closing shall be subject to the satisfaction, on or before the Closing, of each of the following conditions, unless waived in writing by Beechtree: 8.01 Representations and Warranties True. The representations and warranties contained in Article III hereof, the Disclosure Schedule and in all certificates and other documents delivered and to be delivered by the Company, the Control Shareholder and each Company Subsidiary to the Investors or their representatives pursuant hereto or in connection with the transactions contemplated hereby shall be true, complete and accurate as of the date when made and at and as of the Closing Date as though such representations and warranties were made at and as of such date, except for changes expressly permitted or contemplated by the terms of this Agreement. 8.02 Performance. The Company and each Company Subsidiary shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing. 8.03 Investigations; Etc. Neither any investigation of the Company and the Company Subsidiaries by the Investors or Beechtree, nor the Disclosure Schedule or any supplement thereto nor any other document delivered to the Investors or Beechtree as contemplated by this Agreement, shall have revealed any facts or circumstances which, in the sole and exclusive judgment of any of the Investors or Beechtree, reflect in a material adverse way on the financial condition, assets, liabilities (absolute, accrued, contingent or otherwise), reserves, business, operations or prospects of the Company or any Company Subsidiary. 8.04 No Proceeding or Litigation. There shall not be threatened, instituted or pending any suit, action, investigation, inquiry or other proceeding by or before any United States or foreign court or governmental or other regulatory or administrative agency or commission requesting or looking toward an order, judgment or decree which (a) in the judgment of Beechtree might have a material adverse effect on the Investors or any of their affiliates or (b) in the sole and exclusive judgment of Beechtree might have a material adverse effect on the business or financial condition of the Company or any Company Subsidiary. 8.05 Material Change. From the date of the Balance Sheet to the Closing Date, neither the Company nor any Company Subsidiary shall have suffered any material adverse change (whether or not such change is referred to or described in any supplement to the Disclosure Schedule) in its business, prospects, financial condition, working capital, assets, liabilities (absolute, accrued, contingent or otherwise), reserves or operations. 8.06 Opinion of the Company's Counsel. The Company shall have delivered an opinion in favor of the Investors from each of Rubin Baum LLC, as to matters of United States law, and Flint Bishop & Barnett, as to matters of United Kingdom law, dated as of the Closing Date, comprising the matters set forth in Exhibit I hereto. 8.07 Consents Obtained. All consents referred to in Sections 3.05, 3.26 and 3.29 shall have been obtained. ARTICLE IX CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING Pending the Closing, and except as otherwise expressly consented to or approved by Beechtree in writing: 9.01. Regular Course of Business. Each of the Company and the Company Subsidiaries will carry on its respective business diligently and substantially in the same manner as heretofore conducted, and neither the Company nor any Company Subsidiary shall institute any new methods of manufacture, purchase, sale, lease, management, accounting or operation or engage in any transaction or activity, enter into any agreement or make any commitment, except in the ordinary course of business and consistent with past practice. 9.02. Amendments. No change or amendment shall be made in the Certificate of Incorporation or By-Laws of the Company or any Company Subsidiary. 9.03. Capital Changes; Dividends; Redemptions. Neither the Company nor any Company Subsidiary shall, for a period of one year after the Closing Date without the prior written consent of Beechtree, issue or sell any shares of its capital stock or other securities except pursuant to the valid conversion of securities or exercise of options described in Section 3.02, acquire directly or indirectly, by redemption or otherwise, any such capital stock, reclassify or split-up any such capital stock, declare or pay any dividends thereon in cash, securities or other property or make any other distribution with respect thereto, or grant or enter into any options, warrants, calls or commitments of any kind with respect thereto. 9.04. Subsidiaries. Neither the Company nor any Company Subsidiary will organize any new subsidiary, acquire any capital stock or other equity securities of any corporation or acquire any equity or ownership interest in any business. 9.05. Organization. Each of the Company and the Company Subsidiaries shall use its best efforts to preserve its corporate existence and business organization intact. 9.06. Certain Changes. Neither the Company nor any Company Subsidiary shall, without the prior written consent of Beechtree: (a) Borrow or agree to borrow any funds or incur, or assume or become subject to, whether directly or by way of guarantee or otherwise, any obligation or liability (absolute or contingent), except obligations and liabilities incurred in the ordinary course of business and consistent with past practice; (b) Pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities or obligations reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; (c) Permit or allow any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien or encumbrance, except for those of a kind permitted under Section 3.10 hereof; (e) Grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any officer or employee; (i) Pay, loan or advance any amount to, or sell transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any of its officers, directors agents or any affiliate or Associate of any of its officers, directors or agents, except for directors' fees and compensation to officers at rates not exceeding the rates of compensation paid during the fiscal year ended March 31, 2000. (k) Agree, whether in writing or otherwise, to do any of the foregoing. 9.07 Compliance With Laws. The Company and each Company Subsidiary shall duly comply with all laws applicable to it and its properties, operations, business and employees. ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES; BREACHES; INDEMNIFICATION BY NEXSAN; ARBITRATION 10.01. Investigations; Survival of Warranties. All of the representations and warranties of the Company, Nexsan and the Control Shareholder on the one hand, and the Investors, on the other hand, contained herein or in any certificates or other documents delivered prior to or at the Closing shall not be deemed waived or otherwise affected by any investigation made by any party hereto. Each and every such representation and warranty shall survive the Closing hereunder and continue in full force and effect for three years thereafter, even if the damaged party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing. 10.02. Indemnification by Nexsan. (a) Subject to the provisions of Sections 10.01, relating to the survival of the representations and warranties made by the Company, Nexsan and the Control Shareholder in this Agreement, and Sections 10.02(b) and 10.03, below, Nexsan shall indemnify and hold harmless the Investors in respect of any and all Adverse Consequences reasonably suffered or incurred by the Investors through and after the date of the claim for indemnification (including any Adverse Consequences the Investors may suffer after the end of the survival period set forth in Section 10.01, above,) in connection with each and all of the following: (i) the breach of any representation or warranty made by the Company, Nexsan and the Control Shareholder in this Agreement that results in a Material Adverse Effect; (ii) the breach of any covenant, agreement or obligation of the Company, Nexsan and the Control Shareholder in this Agreement that results in a Material Adverse Effect; and (iii) any misrepresentation contained in any statement or certificate furnished by the Company, Nexsan and the Control Shareholder in this Agreement that results in a Material Adverse Effect. (b) Claims for Indemnification. Whenever any claim shall arise for indemnification hereunder, the Investors shall promptly notify Nexsan in writing in accordance with Section 12.03 hereof, of the claim and, when known, the facts constituting the basis for such claim. In the event of any claim by a third party, the notice to the Company shall specify, if known, a reasonable estimate of the amount of the liability arising therefrom. 10.03. Arbitration. The determination as to whether any breach or alleged breach of this Agreement shall result in a Material Adverse Effect on the Company and the amount and nature of any remedy or dollar amount of indemnification shall be settled by arbitration before a single arbitrator in the City and State of New York, Borough of Manhattan, in accordance with the rules of the American Arbitration Association. The arbitrator's determination shall be final and binding on the parties. If the parties are unable to agree on an arbitrator within 30 days following notice of the dispute, then each of the parties shall select an arbitrator, and those two persons shall in turn, select the third arbitrator who shall act as the sole arbitrator of the dispute. Any judgment on the award rendered by the arbitrator in such arbitration proceeding may be entered in any court having jurisdiction thereof. The fees and expenses of the arbitration shall be borne as determined by the arbitrator. The arbitrator will not be authorized to award punitive damages. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ARTICLE XI TERMINATION AND ABANDONMENT 11.01. Methods of Termination. The transactions contemplated herein may be terminated and/or abandoned at any time but not later than the Closing: (a) By mutual consent of the respective Boards of Directors of the Company and Beechtree; or (b) By any of the Investors prior to January 4, 2000, or such later date as may be established pursuant to Section 1.02 hereof, if any of the conditions provided for in Article VIII of this Agreement shall not have been met or waived in writing by the Investors prior to such date; or (c) By the Board of Directors of the Company prior to January 4, 2000, or such later date as may be established pursuant to Section 1.02 hereof, if any of the conditions provided for in Article VII of this Agreement shall not have been met or waived in writing by the Company prior to such date. 11.02. Procedure Upon Termination. In the event of termination and abandonment by Beechtree or by the Board of Directors of the Company, or both, pursuant to Section 11.01 hereof, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated and/or abandoned, without further action by any Investor or the Company. If the transactions contemplated by this Agreement are terminated and/or abandoned as provided herein: (a) Each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; (b) No party hereto shall have any liability or further obligation to any other party to this Agreement except as stated in subparagraphs (a) and (b) of this Section 11.02, provided, however, that (i) if such termination and/or abandonment is a result of the failure of any condition set forth in Article VIII hereof, other than the condition set forth in Section 8.10, then Beechtree shall be entitled to recover from the Company all out-of-pocket costs which Beechtree has incurred (including reasonable attorney's fees and expenses). ARTICLE XII MISCELLANEOUS 12.01. Fees and Expenses. Upon the Closing, the Company shall pay to Beechtree and Direct, forthwith and without further notice (i) $15,000 for its legal fees and disbursements in connection with the preparation and negotiation of the Transaction Documents, (ii) $7,000 for their due diligence expenses and disbursements in connection with the transactions contemplated hereby and (iii) up to $50,000 for other expenses actually incurred by Beechtree and Direct in the Company's behalf. The Company agrees to pay to Beechtree and Direct any other expenses which they may incur in the Company's behalf upon the earlier of the sale by the Company of a minimum of $3.5 million of its securities or six (6) months from the date hereof. The Company's covenant and promise to repay Beechtree and Direct the fees and expenses incurred by them in its behalf shall be unconditional, irrevocable, without set-off or counterclaim and shall require no further notice on the part of Beechtree or Direct. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Shares pursuant hereto. The Investors shall be responsible for their own tax liability that may arise as a result of the investment hereunder or the transactions contemplated by this Agreement. 12.02. Entire Agreement; Amendments. This Agreement, together with the Exhibits and Schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. 12.03. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 4:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in the Purchase Agreement later than 4:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: If to the Company: Nexsan Corporation One Rockefeller Plaza Suite 1600 New York, NY 10020 Attn.: Cary Aminoff Facsimile No.: (212) 541-8463 With copies to: Rubin Baum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 Flint Bishop & Barnett 5 St. Michael's Court St. Michael's Lane Derby DE1 3JH England Attn.: Mr. Thomas Travers Facsimile no. 011 44 (0)1332 207601 If to an Investor: Beechtree Capital, Ltd. One Rockefeller Plaza Suite 1600 New York, NY 10020 Attn.: Chairman Facsimile No.: (212) 541-8463 With copies to (for communications to the Investor): Ruffa & Ruffa, P.C. 150 East 58th Street New York, New York 10155 Facsimile No.: Attn: William P. Ruffa, Esq. or such other address as may be designated in writing hereafter, in the same manner, by such Person. 12.04. Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and Beechtree; or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 12.05. Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 12.06. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor. No Investor may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company. The assignment by a party of this Agreement or any rights hereunder shall not affect the obligations of such party under this Agreement. 12.07. No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 12.08. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 12.09. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 12.10. Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state or local statute or law shall be deemed to also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The parties intend that each representation, warranty or covenant contained herein shall have independent significance. If any party has breached any representation, warranty or covenant herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty or covenant. 12.11. Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE COMPANY: NEXSAN CORPORATION By: /s/ Martin Boddy ______________________________ Martin Boddy, Chief Executive Officer CONTROL SHAREHOLDER: MARTIN BODDY /s/ Martin Boddy __________________________________ NEXSAN: NEXSAN TECHNOLOGIES, LTD. By: /s/ Martin Boddy ______________________________ AS TO SECTION 12.01: BEECHTREE CAPITAL, LTD. By: /s/ George Weiss ______________________________ INVESTOR SIGNATURE PAGE The undersigned hereby subscribes to purchase Shares at a price of $.66 per Share for an aggregate purchase price of $ . Payment of the aggregate purchase for the Shares (please check one of the following): ______ Is included herewith in the form of a bank, cashier's or certified check; or ______ Has been wire transferred to the escrow account referenced in Schedule A to the Offering Memorandum. FOR INDIVIDUALS: -------------------------------- Print Name -------------------------------- Dated: ___________, 2000 Signature -------------------------------- Print Name -------------------------------- Dated: ___________, 2000 Signature FOR CORPORATIONS: -------------------------------- Name of Company -------------------------------- Name of Executive Officer of Company Dated: ___________, 2000 -------------------------------- Signature of Executive Officer FOR PARTNERSHIPS: -------------------------------- Name of Partnership -------------------------------- Name of Authorized Partner Dated: ___________, 2000 -------------------------------- Signature of Authorized Partner FOR TRUSTS: -------------------------------- Name of Trust -------------------------------- Name of Authorized Trustee Dated: ___________, 2000 -------------------------------- Signature of Authorized Trustee SCHEDULE A INVESTORS Name, Address and Tax Identification No. Signature - ---------------------------------------- --------- EX-4.2 10 0010.txt FORM OF STOCK PURCHASE AGREEMENT REGULATION S STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of January , 2001, is made by and among Nexsan Corporation, a Delaware corporation (the "Company"), the Company's wholly-owned subsidiary Nexsan Technologies Limited, a United Kingdom corporation ("Nexsan"), and Martin Boddy (the "Control Shareholder"), and the purchasers set forth on Schedule A hereto (each an "Investor' and, collectively, the "Investors"). W I T N E S S E T H: WHEREAS, the Investors have reviewed a copy of Nexsan's business plan dated December 14, 2000, a copy of which is attached hereto as Exhibit A (the "Business Plan"); and WHEREAS, on the basis of the information contained in the Business Plan, the Investors desire to acquire an equity interest in the Company; and WHEREAS, the Company has made a separate offering under Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and desires to make this offering (the "Offering") pursuant to Regulation S under the Securities Act; and WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Investors and the Investors desire to purchase from the Company shares (each a "Share" and, collectively, the "Shares") of the Company's common stock, par value $.001 per share ("Common Stock"), on the Closing Date (as hereafter defined, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties and agreements herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE OF SHARES 1.01 Purchase. At the Closing provided for and defined in Section 1.02 hereof, the Company shall issue and sell to the Investors, and the Investors shall purchase from the Company the Shares at a purchase price of $.66 per Share, and the Company shall issue to the Investors certificates evidencing the Shares. 1.02 Closing. Subject to the provisions of Articles VII and VIII hereof, the Closing of the transactions contemplated hereby shall take place at the offices of Rubin Baum LLP, 30 Rockefeller Plaza, New York, New York, on January 4, 2000 or at such other place or on such other day as the parties may mutually agree. At the Closing, the Company shall deliver to the Investors certificates representing the Shares to be purchased by said Investors pursuant to Section 1.01 hereof, free of all claims, liens and encumbrances whatsoever, and all other documents required to be delivered by the Company to the Investors as described herein, and all other documents required to be delivered hereby and each Investor shall deliver to the Company the aggregate amount required to be paid pursuant to Section 1.01 hereof for the Shares to be purchased in checks made payable to the Company, or in immediately available federal funds by wire transfer. ARTICLE II DEFINITIONS 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Adverse Consequences" means all claims, losses, damages, liabilities, fees and expenses, including, without limitation, settlement costs and any legal, accounting or other fees and expenses, suffered or incurred by the Investors in connection with any breach of this Agreement as provided in ARTICLE X hereof. The term "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Balance Sheet" means the unaudited consolidated balance sheet of the Company referred to in Section 3.06(ii) of this Agreement. "Beechtree" means Beechtree Capital, Ltd. "Beechtree Consulting Agreement" means the consulting agreement between the Company and Beechtree referred to in section 5.07 hereof. "Business Plan" means the business plan prepared by the Company dated December 14, 2000, describing the business and financial condition of the Company and setting forth certain revenue and earnings projections of the Company, a copy of which is attached hereto as Exhibit A. 2 "Closing" means the closing referred to in Section 1.02 of this Agreement. "Closing Date" means the date on which the Closing occurs. "Company" means Nexsan Technologies Incorporated, a corporation formed under the laws of the State of Delaware. "Company Affiliate" means each Affiliate of the Company. "Company Subsidiary" means any corporation of which the Company (a) directly or indirectly owns or controls at the time outstanding shares of stock which have in ordinary circumstances (not dependent upon the happening of a contingency) voting power to elect a majority of the board of directors of said corporation, or (b) of which shares of stock of the character described in the foregoing clause (a) shall at the time be owned or controlled directly or indirectly by the Company and one or more Company Subsidiaries as defined in the foregoing clause (a) or by one or more such Company Subsidiaries. "Control Shareholder" means Martin Boddy, the principal shareholder of Nexsan Technologies, Inc." "Direct" means Direct Brokerage Inc. "Direct Services Agreement" means the services agreement between the Company and Direct referred to in Section 5.12 hereof. "Disclosure Schedule" means the document delivered by the Company to the Investors simultaneously with the execution hereof containing the information required to be included therein pursuant to this Agreement. "Material." The word "material," when used herein in reference to the Company or any Company Subsidiaries, means material in respect of the Company and Company Subsidiaries taken as a whole and in each and every case is used as such word is used in the Federal securities laws. Inclusion of information on a schedule delivered pursuant to this Agreement does not constitute an admission or acknowledgment of the materiality of such information. "Material Adverse Effect" means any action or failure to act that either: (i) adversely affect the legality, validity or enforceability of this Agreement, (ii) have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Company and the Company Subsidiaries, taken as a whole, or (iii) adversely impairs the Company's ability to perform fully on a timely basis its obligations under this Agreement. 3 "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Prospectus" means the prospectus included in the Registration Statement. "Registration Rights Agreement" means the Registration Rights Agreement entered into by the Company and the Investors dated the date hereof whereby the Company agrees to register the Shares for public resale under the Securities Act, a copy of which is attached hereto as Exhibit D. "Registration Statement" means the registration statement referred to in Section 5.13 of this Agreement. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Transactions Documents" means this Stock Purchase Agreement, the Registration Rights Agreement executed by the Company and the Investors simultaneous herewith, the Beechtree Consulting Agreement and the Direct Services Agreement. The plural of any defined term shall have a meaning correlative to such defined term. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY, NEXSAN AND THE CONTROL SHAREHOLDER The Company, Nexsan and the Control Shareholder hereby jointly and severally represent and warrant to the Investors as follows: 3.01 Corporate Organization; Etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to carry on its business as it is now being conducted and to own the properties and assets it now owns; is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions listed in Section 3.01 of the Disclosure Schedule, which are all the jurisdictions in which such qualification is required except jurisdictions in which the Company's failure to qualify to do business will have no "Material Adverse Effect" on the business, prospects, operations, properties, assets or condition (financial or otherwise) of the Company and 4 the Company Subsidiaries. True and complete copies of the Certificate of Incorporation and By-Laws of the Company are attached hereto as Exhibits B and C, respectively. 3.02 Capitalization of the Company. As of the date of this Agreement, the authorized capital stock of the Company consists of 90,000,000 shares of Common Stock, $.001 par value per share, of which 9,050,000 shares are issued and outstanding, and 10,000,000 shares of blank check preferred stock, $.001 par value per share, of which no shares are outstanding, and no options to purchase shares of Common Stock issued pursuant to the Company's 2000 Share Option Plan. All issued and outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable. No shares of Common Stock are entitled to preemptive or similar rights, nor is any holder of the Common Stock entitled to preemptive or similar rights arising out of any agreement or understanding with the Company by virtue of any of the Transaction Documents. Except as disclosed in Schedule 3.02(a), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or, securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any Company Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. To the knowledge of the Company, except as specifically disclosed in Section 3.02(a) of the Disclosure Schedule, no Person beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act) or has the right to acquire by agreement with or by obligation binding upon the Company, beneficial ownership of in excess of 5% of the Common Stock. Except for the registration rights granted to the Investors and to the certain members of the Company's management named in the Registration Rights Agreement, there are no agreements or arrangements under which the Company or any Company Subsidiary is obligated to register the sale of any of their securities under the Securities Act. 3.03 Subsidiaries and Affiliates. Section 3.03(a) of the Disclosure Schedule sets forth the name, jurisdiction of incorporation and capitalization of each Company Subsidiary and the jurisdictions in which each Company Subsidiary is qualified to do business. Except as disclosed in Section 3.03(b) of the Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any business not listed in Section 3.03(a) of the Disclosure Schedule. Except as and to the extent set forth in Section 3.03(a) of the Disclosure Schedule, all the outstanding capital stock of each Company Subsidiary is owned directly or indirectly by the Company free and clear of all liens, options or encumbrances of any kind and all material claims or charges of any kind, and is validly issued, fully paid and nonassessable, and there are no outstanding options, rights or agreements of any kind relating to the issuance, sale or transfer of any capital stock or other equity securities of any such Company Subsidiary to any person except the Company. Each Company Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; and (ii) has full corporate power and authority to carry on its business as it 5 is now being conducted and to own the properties and assets it now owns. Each Company Subsidiary is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction listed opposite the name of such Company Subsidiary in Section 3.03(a) of the Disclosure Schedule, which are the only jurisdictions in which the properties owned or leased or the nature of the business conducted by it makes such qualification necessary. The Company has heretofore delivered to Beechtree complete and correct copies of the certificate of incorporation and by-laws of each Company Subsidiary, as presently in effect. 3.04 Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly executed by the Company and when delivered in accordance with the terms hereof shall constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate of incorporation, by-laws or other charter documents. 3.05 No Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provision of the Certificate of Incorporation or By-Laws of the Company or any Company Subsidiary, or, except as specified in Section 3.05 of the Disclosure Schedule, violate, or be in conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or cause the acceleration of the maturity of any debt or obligation pursuant to, or result in the creation or imposition of any security interest, lien or other encumbrance upon any property or assets of the Company or any Company Subsidiary under, any agreement or commitment to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound, or to which the property of the Company or any Company Subsidiary is subject, or violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority. 3.06 Financial Statements. Attached hereto as Schedule B is: (i) an unaudited balance sheet of the Company's wholly-owned subsidiary, Nexsan Technologies Limited, a United Kingdom corporation as at March 31, 2000; and statements of income, changes in stockholders' 6 equity and changes in financial position of Nexsan Technologies Limited for the fiscal year then ended; and (ii) an unaudited balance sheet of Nexsan Technologies Limited as at September 30, 2000 (the "Balance Sheet"), and unaudited consolidated statements of income, changes in stockholders' equity and changes in financial position of Nexsan Technologies Limited for the six (6) month period then ended. The financial statements set forth in Schedule B do not include financial information relating to the Company nor the Company's wholly-owned United States subsidiary, Nexsan Technologies Corp. The financial statements are prepared in British Pounds Sterling in accordance with United States generally accepted accounting principles. Such consolidated balance sheets and the notes thereto are true, complete and accurate and fairly present the consolidated assets, liabilities and financial condition of Nexsan Technologies Limited as at the respective dates thereof, and such statements of income, changes in stockholders' equity and changes in financial position and the notes thereto are true, complete and accurate and fairly present the results of operations for the periods therein referred to; all in accordance with United States generally accepted accounting principles consistently applied throughout the periods involved except, in the case of unaudited statements, for normally recurring year-end adjustments, which adjustments will not be material either individually or in the aggregate. 3.07. No Undisclosed Liabilities; Etc. Neither the Company nor any Company Subsidiary has any material liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) which were not fully reflected or reserved against in the Balance Sheet, except for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since the date thereof; and the reserves reflected in the Balance Sheet are adequate, appropriate and reasonable. 3.08 Accounts Receivable. All accounts receivable of the Company and each Company Subsidiary, whether reflected in the Balance Sheet or otherwise, represent sales actually made in the ordinary course of business, and are current and collectible net of any reserves shown on the Balance Sheet (which reserves are adequate and were calculated consistent with past practice). 3.09 Absence of Certain Changes. Except as set forth in Section 3.09 of the Disclosure Schedule, since the date of the Balance Sheet, neither the Company nor any Company Subsidiary has effected, suffered or granted (as the case may be): (a) any change in the assets, liabilities, financial condition or operating results from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting its assets, properties, financial condition, operations, results, prospects or business (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation, except in the ordinary course of business and that is not 7 material to its assets, properties, financial condition, operating results or business (as such business is presently conducted and as it is proposed to be conducted); (e) any material change or amendment to a material contract or arrangement by which the Company or any Company Subsidiary or any of their respective assets or properties are bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any key officer; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer; (j) any mortgage, pledge, transfer of a security interest in, or lien, created, with respect to any material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made to or for the benefit of the employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (1) any declaration, setting aside or payment or other distribution in respect of any capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock; (m) to the best of the Company's knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company or any Company Subsidiary (as such business is presently conducted and as it is proposed to be conducted); or (n) any agreement or commitment by the Company or any Company Subsidiary to do any of the things described in this Section 3.09. 3.10 Title to Properties; Encumbrances. Each of the Company and the Company Subsidiaries has good, valid and marketable title to all the properties and assets which it purports to own (real, personal and mixed, tangible and intangible), including, without limitation, all the properties and assets reflected in the Balance Sheet (except for personal property having an aggregate book value not in excess of $10,000 sold since the 8 date of the Balance Sheet in the ordinary course of business and consistent with past practice), and all the properties and assets purchased by the Company and Company Subsidiaries since the date of the Balance Sheet, which subsequently acquired properties and assets (other than inventory and short term investments) are listed in Section 3.10 of the Disclosure Schedule. All properties and assets reflected in the Balance Sheet have a fair market or realizable value at least equal to the value thereof as reflected therein, and all such properties and assets are free and clear of all title defects or objections, liens, claims, charges, security interests or other encumbrances of any nature whatsoever including, without limitation leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements, and are not, in the case of real property, subject to any rights of way, building use restrictions, exceptions, variances, reservations or limitations of any nature whatsoever except, with respect to all such properties and assets, (a) liens shown on the Balance Sheet as securing specified liabilities or obligations and liens incurred in connection with the purchase of property and/or assets, if such purchase was effected after the date of the Balance Sheet, with respect to which no default exists; (b) minor imperfections of title, if any, none of which are substantial in amount, materially detract from the value or impair the use of the property subject thereto, or impair the operations of the Company or any Company Subsidiary and which have arisen only in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; and (c) liens for current taxes not yet due. The rights, properties and other assets presently owned, leased or licensed by the Company and/or the Company Subsidiaries and described elsewhere in this Agreement include all rights, properties and other assets necessary to permit the Company and the Company Subsidiaries to conduct their businesses in all material respects in the same manner as their businesses have been conducted prior to the date hereof. 3.11 Plant and Equipment. The plants, structures and equipment of the Company and each Company Subsidiary are structurally sound with no known defects and are in good operating condition and repair and are adequate for the uses to which they are being put; and none of such plants, structures or equipment are in need of maintenance or repairs except for ordinary, routine maintenance and repairs which are not material in nature or cost. Except as set forth in Section 3.11 of the Disclosure Schedule, neither the Company nor any Company Subsidiary has received notification that it is in violation of any applicable building, zoning, anti-pollution, health or other law, ordinance or regulation in respect of its plants or structures or their operations and no such violation exists. 3.12 Patents, Trademarks, Trade Names, Etc. The Company and each Company Subsidiary has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted without any conflict with or infringement of the rights of others. Section 3.12 of the Disclosure Schedule contains an accurate and complete description of (a) all patents, trademarks, trade names and copyrights used or proposed to be used by the Company or any Company Subsidiary, all applications therefor, and a summary of the terms of all licenses and other agreements relating thereto and (b) a summary of the terms of all agreements relating to technology, 9 know-how or processes which the Company or any Company Subsidiary is licensed or authorized to use by others. Except as set forth in Section 3.12 of the Disclosure Schedule, the Company and each Company Subsidiary has the sole and exclusive right to use the patents, trademarks, trade names, copyrights, technology, know-how and processes referred to in the Disclosure Schedule, and the consummation of the transactions contemplated hereby will not alter or impair any such rights; no claims have been asserted by any person to the use of any such patents, trademarks, trade names, copyrights, technology, know-how or processes or challenging or questioning the validity or effectiveness of any such license or agreement, and the Company does not know of any valid basis for any such claim; and the use of such patents, trademarks, trade names, copyrights, technology, know-how or processes by the Company or any Company Subsidiary does not infringe on the rights of any person. 3.13 Agreements in Full Force and Effect; Action. (a) Section 3.13 of the Disclosure Schedule sets forth a list of all contracts material to the business and operations of the Company and each Company Subsidiary. All contracts, agreements, plans, leases, policies and licenses referred to in the Disclosure Schedule are valid and in full force and effect, and true copies thereof have been initialed and heretofore delivered to Beechtree. (b) Except for agreements explicitly contemplated hereby and disclosed herein, there are no agreements, understandings or proposed transactions between the Company or any Company Subsidiary and any of their respective officers, directors, affiliates, or any affiliate thereof. (c) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any Company Subsidiary is a party or by which any of them is bound that may involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of, in the aggregate, $5,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any Company Subsidiary, or (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's or any Company Subsidiary's products or services, or (iv) indemnification by the Company or any Company Subsidiary with respect to infringements of proprietary rights. (d) Neither the Company nor any Company Subsidiary has (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $25,000 or, in the case of indebtedness and/or liabilities individually less than $5,000, in excess of $50,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 10 (e) For the purposes of subsections (c) and (d) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (f) Neither the Company nor any Company Subsidiary is a party to nor are any of them bound by any contract, agreement or instrument, or subject to any restriction under their respective Certificates of Incorporation or By-Laws (or other organizational documents) that adversely affects their business as now conducted or as proposed to be conducted in the Business Plan, its properties or its financial condition. (g) Neither the Company nor any Company Subsidiary has engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company or any Company Subsidiary with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or any Company Subsidiary or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company or any Company Subsidiary is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution or winding up of the Company or any Company Subsidiary. 3.14 Related-Party Transactions. No employee, officer, or director of the Company or any Company Subsidiary or member of his or her immediate family is indebted to the Company or any Company Subsidiary, nor is the Company or any Company Subsidiary indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company or any Company Subsidiary is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate families may own, directly or indirectly, up to two percent (2%) of the issued and outstanding securities in companies, the securities of which are regularly traded on a national securities exchange or in the over-the-counter market, that may compete with the Company. No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company. 3.15 Permits. The Company and each Company Subsidiary has all franchises, permits, licenses and similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company or any Company Subsidiary, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. Neither the Company nor any Company Subsidiary is in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 11 3.16 Environmental and Safety Laws. To the best of its knowledge, neither the Company nor any Company Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the best of its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 3.17 Manufacturing and Marketing Rights. Except as Described in Section 3.17 of the Disclosure Schedule, neither the Company nor any Company Subsidiary has granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's or any Company Subsidiary's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 3.18 Use of Proceeds. The proceeds from the sale of the Shares shall be applied substantially as set forth in Section 3.18 of the Disclosure Schedule. 3.19 Business Plan. The Business Plan previously delivered to each Investor has been prepared in good faith by the Company and does not contain any untrue statement of a material fact nor does it omit to state a material fact necessary to make the statements made therein not misleading, except that with respect to projections contained in the Business Plan, the Company represents only that such projections were prepared in good faith and that the Company reasonably believes there is a reasonable basis for such projections. 3.20 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 3.21 Tax Returns; Payments and Elections. The Company and each Company Subsidiary has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company and each Company Subsidiary has paid all taxes and other assessments due, except those contested by it in good faith that are listed in Section 3.21 of the Schedule of Exceptions. The provision for taxes of the Company (and each Company Subsidiary) as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets. 3.22 Insurance. The Company and each Company Subsidiary has in full force and effect fire and casualty insurance policies, with extended coverage, 12 sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. On the Closing Date, the Company will have in full force and effect term life insurance, payable to the Company, on the lives of each of Martin Boddy, Gary Watson and Diamond Lauffin in an amount of no less than $1,000,000 and no more than $3,000,000 for each such person. The Company has in full force and effect products liability and errors and omissions insurance in amounts customary for companies similarly situated. 3.23 Minute Books. The minute books of the Company and each Company Subsidiary have been delivered to Beechtree and contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 3.24 Labor Agreements and Actions. Neither the Company nor any Company Subsidiary is bound by or subject to (and none of their respective assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company or any Company Subsidiary. There is no strike or other labor dispute involving the Company or any Company Subsidiary pending, or to the best of the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company or any Company Subsidiary (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company or any Company Subsidiary, nor does the Company or any Company Subsidiary have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Company and any Company Subsidiary is terminable at the will of the Company. To the best of its knowledge, the Company and each Company Subsidiary has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. 3.25 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company or any Company Subsidiary that questions the validity of this Agreement or the Registration Rights Agreement, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company or any Company Subsidiary, financially or otherwise, or any change in the current equity ownership of the Company or any Company Subsidiary, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's or any Company Subsidiary's employees, their use in connection with the 13 Company's or any Company Subsidiary's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. Neither the Company nor any Company Subsidiary is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any Company Subsidiary currently pending or that the Company or any Company Subsidiary intends to initiate. 3.26 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement. 3.27 Offering. Subject in part to the truth and accuracy of each Investor's representations set forth in Article IV of this Agreement, the offer, sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 3.28 Valid Issuance of Shares. The Shares that are being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable state and federal securities laws. 3.29 Compliance with Other Instruments. (a) Neither the Company nor any Company Subsidiary is in violation or default in any material respect of any provision of its Certificate of Incorporation or By-Laws or other organizational documents, as the case may be,, or in any material respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, to the best of its knowledge, of any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties. (b) The Company and each Company Subsidiary has avoided every condition, and has not performed any act, the occurrence of which would result in 14 the Company's loss of any right granted under any license, distribution or other agreement. 3.30 Compliance with Law. The operations of the Company and the Company Subsidiaries have been conducted in accordance with all applicable laws, regulations and other requirements of all national governmental authorities, and of all states, municipalities and other political subdivisions and agencies thereof, having jurisdiction over the Company and the Company Subsidiaries, including, without limitation, all such laws, regulations and requirements relating to antitrust, consumer protection, currency exchange, equal opportunity, health, occupational safety, pension, securities and trading-with-the-enemy matters. Neither the Company nor any Company Subsidiary has received any notification of any asserted present or past failure by the Company or any Company Subsidiary to comply with such laws, rules or regulations. 3.31 Backlog. At November 30, 2000, the Company's backlog of firm orders for products and services was $146,311. 3.32 Brokers and Finders. Except for certain fees payable to Direct pursuant to the terms of a Placement Agency Agreement dated the date hereof between Direct and the Company, neither the Company nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. The Company agrees to indemnify and hold the Investors and their officers, directors, employees and agents harmless against any liability for commissions, fees or other compensation to any broker or financial advisor or other person or firm (and the costs and expenses of defending against such liability) for which the Company or any Company Subsidiary, or any of their respective employees or representatives, are responsible. 3.32 Disclosure. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Shares and all information that the Company believes is reasonably necessary to enable such Investor to make such decision. Neither this Agreement nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company, severally as to itself, as follows: 4.01 Organization; Authority. The Investor, if a corporation or other legal entity, was organized, and is validly existing and in good standing under the laws of 15 the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement and to carry out its obligations hereunder. The acquisition of the Shares to be acquired hereunder by the Investor has been duly authorized by all necessary action on the part of the Investor. This Agreement has been duly executed and delivered by each Investor and constitutes the valid and legally binding obligation of the Investor, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. 4.02 Purchase Entirely for Own Account. This Agreement is made with each Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Shares to be received by the Investor will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same, without in any way limiting the Investors' right to resell the Shares pursuant to the Registration Statement. By executing this Agreement, the Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares. 4.03 Disclosure of Information. The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. Each Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Investors to rely thereon. 4.04 Brokers. No Investor has entered into an agreement for the payment of any broker's or finder's fee or commission in connection with the purchase or sale of the Shares. Each Investor agrees to indemnify and hold the Company and its officers, directors, employees and agents harmless against any liability for commissions, fees or other compensation in the nature of a broker's or finder's fee to any broker or other nature of a broker's or finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability) for which the Investor, or any of its employees or representatives, are responsible. 4.05 No Registration. Each Investor is aware that the Offering has not been registered under the Securities Act, or any state securities laws or regulations in reliance upon exemptions pursuant to Regulation S under the Securities Act, and similar exemptions under state law. The Investor will not offer or sell the Shares in the United States unless they are registered or are exempt from registration under the Securities Act, and any applicable state securities laws or regulations. Other than as provided in the 16 Registration Rights Agreement, the Company has no obligation to register the Shares under the Securities Act. 4.06 Legend. Each Investor is also aware that a legend will be placed on any certificate or certificates evidencing the Shares stating that they have not been registered under the Securities Act and setting forth or referring to the restrictions on transfers and sales thereof. The Company will place stop transfer instructions against the Shares and the certificates therefor to restrict the transfer thereof, except as may be prescribed by the Securities Act. 4.07 Knowledge. Each Investor, or his adviser, has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of, and protecting his interests in connection with, an investment in the Shares. Each Investor is aware of the risks involved in his investment herein. 4.08 No Other Representations. Except as set forth in the Offering Documents or herein, no representations, assurances or warranties have been made to the Investor, or his adviser, by the Company or by the Placement Agent, or by any of their respective officers, directors, agents, employees or affiliates, nor anyone else on their behalf, concerning, among others, the future profitability of the Company or the Subscriber's investment in it, and in entering into this transaction the Subscriber is not relying upon any information, other than that contained in the Documents and the attachments thereto and representations herein, and the results of his, or his adviser's, own independent investigation. 4.09 Reoffer. The Investor will not offer or sell the Shares (which term shall include any pre-arrangement for a purchase by a U.S. person or other person in the U.S.) directly or indirectly, in the United States or to any natural person who is a resident of the United States or to any other "U.S. person" (as defined in Section 4.10 below) or for the account or benefit of any "U.S. person" (other than a "distributor", as defined in Regulation S) at any time on or prior to one year following the Closing and thereafter only if registered under the Securities Act and all applicable state laws or an exemption from the registration requirements of the Securities Act and similar state laws is available. 4.10 Not a U.S. Person. The Investor is neither a U.S. person nor acquiring the Shares for the account or benefit of any U.S. person. An Investor, if other than a natural person, was not formed for the purpose of acquiring the Notes, the Shares. The Investor understands that a "U.S. person", as defined by Regulation S in Rules 901 through 905 promulgated under the Securities Act ("Regulation S"), includes any natural person resident in the United States; any partnership or corporation organized or incorporated under the laws of the United States; any estate of which any executor or administrator is a "U.S. person"; any trust of which any trustee is a "U.S. person"; any agency or branch of a foreign entity located in the United States; any non-discretionary account or 17 similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a "U.S. person"; any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and any partnership or corporation organized or incorporated under the laws of a jurisdiction other than the United States which was formed by a "U.S. person" principally for the purpose of investing in securities not registered under the Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) of Regulation D promulgated under the Act) who are not natural persons, estates or trusts. 4.11 Situs. The Investor is making this subscription from his residence or offices at the address set forth below. The Investor understands that the exemption afforded by Regulation S requires that the purchasers of the securities not be in the United States when the offer is made. The purchase of the Shares hereunder by the Investor is in accordance with all securities and other laws of the jurisdiction in which it is incorporated or legally resident. This Agreement has not been executed or delivered by the Subscriber in the United States. 4.12 Preexisting Relationship. Each Investor either (a) has a preexisting personal or business relationship with the Company or any of its officers, directors or controlling persons or an affiliate of the Company, or with Direct, or (b) by reason of his business or financial experience or the business or financial experience of his professional advisor(s) who is (are) unaffiliated with and who is (are) not compensated, directly or indirectly, by the Company, or any affiliate or selling agent of the Company, or with Direct, the Investor can reasonably by assumed to have the capacity to protect its own interests in connection with this transaction. 4.13 Confidentiality. Each Investor shall keep confidential and shall not use the trade secrets and other non-public information provided to him by the Company or its agents in connection with the transactions contemplated hereby. 4.14 Representations and Warranties at Closing. Except as expressly herein otherwise provided, the representations and warranties of the Investors set forth in this Agreement shall be true on and as of the Closing as though such representations and warranties were made on and as of such time. 4.15 Reliance. Each Investor understands and acknowledges that (i) the Shares to be acquired by him hereunder are being offered and sold to him without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption, depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and the Investor hereby consents to such reliance. The Company acknowledges and agrees that the Investors make no representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article IV. 18 ARTICLE V OTHER AGREEMENTS OF THE PARTIES 5.01 Transfer Restrictions. (a) The Shares may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements thereof. In connection with any transfer of any Shares other than pursuant to an effective registration statement or to the Company, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register any transfer of Shares by an Investor to an Affiliate of the Investor, or any transfers among any such Affiliates the transferee certifies to the Company that it is an "accredited investor" as defined in Rule 501(a) under the Securities Act and that it is acquiring any such Shares in accordance with the representation provided by the original Investor in Article IV. Any Affiliate transferee shall have the rights of an Investor under this Agreement. (b) Each Investor agrees to the imprinting, so long as is required by this Section 5.01(b), of the following legend on the Securities: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND REGULATION S THEREUNDER, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS." The Company agrees that it will provide each Investor, upon request, with a certificate or certificates representing the Shares free from such legend at such time as such legend is no longer required hereunder. The Company may not make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions of transfer set forth in this Section 5.01(b). 5.02 Furnishing of Information. As long as any Investor owns Shares, the Company covenants that, after such time as it becomes subject to the reporting requirements of the Exchange Act, it shall timely file (or obtain extensions in respect 19 thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. If at any time prior to the date on which an Investor may resell all of its Shares without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent for the benefit of and enforceable by the Investor) the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Investor and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as an Investor may reasonably request, all to the extent required from time to time to enable such person to sell Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including the legal opinion referenced above in this Section. Upon the request of any such person, the Company shall deliver to such person a written certification of a duly authorized officer as to whether it has complied with such requirements. In connection with any future access or diligence of the Company by an Investor, the Company agrees that its will not furnish to the Investor any non-public information unless it first discloses in writing that such information is of such character and the Investor thereafter agrees to receive such information. 5.03 Blue Sky Laws. In accordance with the Registration Rights Agreement, the Company shall qualify the Shares under the securities or Blue Sky laws of such jurisdictions as any Investor may request and shall continue such qualification at all times until the Investor notifies the Company in writing that it no longer owns Shares; provided, however, that neither the Company nor the Company Subsidiaries shall be required in connection therewith to qualify as a foreign corporation where they are not now so qualified or to take any action that would subject the Company to general service of process in any such jurisdiction where it is not then so subject. 5.04 Integration. The Company shall not and shall use its best efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Shares in a manner that would require the registration under the Securities Act of the issue or sale of the Shares to the Investor. 5.05 No Sales of Company Securities. The Company shall not, without the prior written consent of Beechtree, offer for sale or sell any securities until a date which is six months after the date upon which the SEC declares the Registration Statement effective. 20 5.06 Use of Proceeds. Unless otherwise agrees to in writing by Beechtree, the Company shall use all of the proceeds from the sale of the Shares as described in Section 3.18 of the Disclosure Schedule. Pending application of the proceeds derived from the sale of the Shares, the Company will invest such proceeds in interest bearing accounts and/or short-term, investment grade interest bearing securities. 5.07 Consulting Agreement with Beechtree Capital, Ltd. At the Closing, the Company will execute and deliver to Beechtree the form of Consulting Agreement, a copy of which is attached hereto as Exhibit E (the "Consulting Agreement"), pursuant to which the Company engages Beechtree to provide certain financial and business advisory services for a period of five years after the Closing Date for the compensation and on the other terms and conditions therein set forth. 5.08 Lock-Up of Outstanding Common Stock. On or before the Closing Date, the Company will have entered into a lock-up agreement with each person holding shares of Common Stock immediately prior to the Closing, a copy of the form of which is attached hereto as Exhibit F (the "Lock-Up Agreement"), pursuant to which such holder agrees, except as provided therein, to refrain from selling or otherwise disposing of his shares of Common Stock for a one-year period commencing on the Closing Date. The Company will deliver to Beechtree a copy of each such Lock-Up Agreement at the Closing. 5.09 Management Employment Agreements. On or before the Closing Date, the Company will have entered into an employment agreement, in form and substance reasonably satisfactory to the Company and Beechtree, with each of the persons named on Exhibit G hereto providing for the employment by the Company of such persons commencing upon the Closing. 5.10 Notice of Breaches. Each of the Company and the Investors shall give prompt written notice to the other of any breach by it of any representation, warranty or other agreement contained in the Transaction Documents, as well as any events or occurrences arising after the date hereof, which would reasonably be likely to cause any representation or warranty or other agreement of such party, as the case may be, contained in the Transaction Documents to be incorrect or breached as of such Closing Date. However, no disclosure by either party pursuant to this Section shall be deemed to cure any breach of any representation, warranty or other agreement contained in the Transaction Documents. Notwithstanding the generality of the foregoing, the Company shall promptly notify Beechtree of any notice or claim (written or oral) that it receives from any lender of the Company to the effect that the consummation of the transactions contemplated by the Transaction Documents violates or would violate any written agreement or understanding between the Investors and the Company, and the Company shall promptly furnish by facsimile to Beechtree a copy of any written statement in support of or relating to such claim or notice. 21 5.11 Board of Director and Committee Representation. (a) The Company shall use its best efforts to cause and maintain the election to the Board of Directors of one representative selected by Beechtree and one representative of Direct, should Direct so desire, for a period of five years after the Closing Date. To the extent permitted by law and the applicable exchange on which the Company's stock is trading, the Control Shareholder agrees to vote any and all shares of Common Stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Board. (b) The Company shall use its best efforts to appoint each of Beechtree's and Direct's respective nominees to the Board to serve on its Executive Committee of the Board of Directors, which such committee shall consist of up to five (5) persons, for a period of five (5) years. To the extent permitted by law and the applicable exchange on which the Company's stock is trading, the Control Shareholder agrees to vote any and all shares of Common Stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Executive Committee. (c) The Company shall use its best efforts to appoint each of Beechtree's and Direct's respective nominees to the Board to serve on its Audit Committee of the Board of Directors, which such committee shall consist of up to five (5) persons, for a period of five (5) years. To the extent permitted by law and the applicable exchange on which the Company's stock is trading, the Control Shareholder agrees to vote any and all shares of Common Stock and other voting securities of the Company registered in his name in favor of Beechtree's and Direct's respective nominees to the Audit Committee. 5.12 Consulting Agreement with Direct. As soon as reasonably practicable after the Closing, the Company shall enter into a services agreement with Direct in the form attached hereto as Exhibit H. 5.13 No Registration of Other Securities. Except for the Shares and other "Registrable Securities" (as such term is defined in the Registration Rights Agreement) to be registered by the Company in the "Registration Statement" (as such term is defined in the Registration Rights Agreement) in accordance with the Registration Rights Agreement, the Company shall not, without the prior written consent of Beechtree, (i) issue or sell any of its or any of its Affiliates' equity or equity-equivalent securities pursuant to Regulation S promulgated under the Securities Act, or (ii) register for resale any securities of the Company for a period of not less than one year after the date that the Registration Statement covering the Registrable Securities is declared effective by the SEC. 5.14 Certain Securities Laws Disclosures; Publicity. The Company and Beechtree shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other, which consent shall not be unreasonably withheld 22 or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. 5.14 Review and Approval of Company Budget. One month prior to the conclusion of the 2000 calendar year, the Company shall furnish to Beechtree a copy of the Company's proposed budget for the 2001 calendar year. Beechtree, as representative of the Investors, shall have the right to review and approve said budget. Beechtree shall communicate its comments on said budget, if any, to the Company in writing two weeks prior to the conclusion of calendar year 2000. The Company shall deliver to Beechtree a revised budget for calendar year 2001 that reflects the changes requested by Beechtree one week prior to the conclusion of the 2000 calendar year. ARTICLE VI COVENANTS OF THE COMPANY The Company hereby covenants and agrees with each Investor as follows: 6.01 Full Access. The Company shall, and shall cause each Company Subsidiary to, afford to Beechtree, its counsel, accountants and other representatives full access to the plants, offices, warehouses, properties, books and records of the Company and each Company Subsidiary in order that Beechtree may have full opportunity to make such investigations as it shall desire to make of the affairs of the Company and the Company Subsidiaries; and the Company will cause its officers and accountants to furnish such additional financial and operating data and other information as the Investors' Representative shall from time to time request, provided, however, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with the operation of the businesses of the Company and the Company Subsidiaries. 6.02 Consents of Company Lenders, Etc. The Company shall, and shall cause each Company Subsidiary to, use its best efforts to obtain at the earliest practicable date and prior to the Closing all consents necessary to the consummation of the transactions contemplated hereby and will provide to Beechtree copies of each such consent promptly after it is obtained. 6.03 Other Transactions. Neither the Company nor its Board of Directors shall enter into any discussions concerning, or approve or recommend to the holders of any shares of its capital stock, any merger, consolidation, disposition of all or substantially all of its business, properties or assets (other than pursuant to this Agreement), any tender offer, acquisition or other business combination, or proposal therefor, or furnish or cause to be furnished any information concerning the business, properties or assets of the Company to any party in connection with any tender offer or other transaction involving the acquisition of the Company or all or any substantial part of its assets by any person other than the Investors or their duly authorized representatives. 23 6.04 Covenant to Satisfy Conditions. Each of the Company and the Company Subsidiaries will use its best efforts to insure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of any of them. 6.05 Certificates. At the Closing, the Company will furnish Beechtree with such certificates of its officers and others to evidence compliance with the covenants set forth in this Article VI as may be reasonably requested by Beechtree. ARTICLE VII CONDITIONS TO THE COMPANY'S OBLIGATIONS Each and every obligation of the Company under this Agreement to be performed on or before the Closing shall be subject to the satisfaction, on or before the Closing, of each of the following conditions, unless waived in writing by the Company: 7.01 Representations and Warranties True. The representations and warranties of each Investor contained herein shall be in all material respects true and accurate as of the date when made and at and as of the Closing as though such representations and warranties were made at and as of such date, except for changes expressly permitted or contemplated by the terms of this Agreement. 7.02 Performance. Each Investor shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing. 7.03 No Governmental Proceeding or Litigation. No suit, action, investigation, inquiry or other proceeding by any governmental body or other person or legal or administrative proceeding shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE INVESTORS Each and every obligation of the Investors under this Agreement to be performed on or before the Closing shall be subject to the satisfaction, on or before the Closing, of each of the following conditions, unless waived in writing by Beechtree: 8.01 Representations and Warranties True. The representations and warranties contained in Article III hereof, the Disclosure Schedule and in all certificates and other documents delivered and to be delivered by the Company, the Control Shareholder and each Company Subsidiary to the Investors or their representatives pursuant hereto or in connection with the transactions contemplated hereby shall be true, complete and accurate as of the date when made and at and as of the Closing Date as 24 though such representations and warranties were made at and as of such date, except for changes expressly permitted or contemplated by the terms of this Agreement. 8.02 Performance. The Company and each Company Subsidiary shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing. 8.03 Investigations; Etc. Neither any investigation of the Company and the Company Subsidiaries by the Investors or Beechtree, nor the Disclosure Schedule or any supplement thereto nor any other document delivered to the Investors or Beechtree as contemplated by this Agreement, shall have revealed any facts or circumstances which, in the sole and exclusive judgment of any of the Investors or Beechtree, reflect in a material adverse way on the financial condition, assets, liabilities (absolute, accrued, contingent or otherwise), reserves, business, operations or prospects of the Company or any Company Subsidiary. 8.04 No Proceeding or Litigation. There shall not be threatened, instituted or pending any suit, action, investigation, inquiry or other proceeding by or before any United States or foreign court or governmental or other regulatory or administrative agency or commission requesting or looking toward an order, judgment or decree which (a) in the judgment of Beechtree might have a material adverse effect on the Investors or any of their affiliates or (b) in the sole and exclusive judgment of Beechtree might have a material adverse effect on the business or financial condition of the Company or any Company Subsidiary. 8.05 Material Change. From the date of the Balance Sheet to the Closing Date, neither the Company nor any Company Subsidiary shall have suffered any material adverse change (whether or not such change is referred to or described in any supplement to the Disclosure Schedule) in its business, prospects, financial condition, working capital, assets, liabilities (absolute, accrued, contingent or otherwise), reserves or operations. 8.06 Opinion of the Company's Counsel. The Company shall have delivered an opinion in favor of the Investors from each of Rubin Baum LLC, as to matters of United States law, and Flint Bishop & Barnett, as to matters of United Kingdom law, dated as of the Closing Date, comprising the matters set forth in Exhibit I hereto. 8.07 Consents Obtained. All consents referred to in Sections 3.05, 3.26 and 3.29 shall have been obtained. 25 ARTICLE IX CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING Pending the Closing, and except as otherwise expressly consented to or approved by Beechtree in writing: 9.01. Regular Course of Business. Each of the Company and the Company Subsidiaries will carry on its respective business diligently and substantially in the same manner as heretofore conducted, and neither the Company nor any Company Subsidiary shall institute any new methods of manufacture, purchase, sale, lease, management, accounting or operation or engage in any transaction or activity, enter into any agreement or make any commitment, except in the ordinary course of business and consistent with past practice. 9.02. Amendments. No change or amendment shall be made in the Certificate of Incorporation or By-Laws of the Company or any Company Subsidiary. 9.03. Capital Changes; Dividends; Redemptions. Neither the Company nor any Company Subsidiary shall, for a period of one year after the Closing Date without the prior written consent of Beechtree, issue or sell any shares of its capital stock or other securities except pursuant to the valid conversion of securities or exercise of options described in Section 3.02, acquire directly or indirectly, by redemption or otherwise, any such capital stock, reclassify or split-up any such capital stock, declare or pay any dividends thereon in cash, securities or other property or make any other distribution with respect thereto, or grant or enter into any options, warrants, calls or commitments of any kind with respect thereto. 9.04. Subsidiaries. Neither the Company nor any Company Subsidiary will organize any new subsidiary, acquire any capital stock or other equity securities of any corporation or acquire any equity or ownership interest in any business. 9.05. Organization. Each of the Company and the Company Subsidiaries shall use its best efforts to preserve its corporate existence and business organization intact. 9.06. Certain Changes. Neither the Company nor any Company Subsidiary shall, without the prior written consent of Beechtree: (a) Borrow or agree to borrow any funds or incur, or assume or become subject to, whether directly or by way of guarantee or otherwise, any obligation or liability (absolute or contingent), except obligations and liabilities incurred in the ordinary course of business and consistent with past practice; (b) Pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities or obligations reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; 26 (c) Permit or allow any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien or encumbrance, except for those of a kind permitted under Section 3.10 hereof; (e) Grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any officer or employee; (i) Pay, loan or advance any amount to, or sell transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any of its officers, directors agents or any affiliate or Associate of any of its officers, directors or agents, except for directors' fees and compensation to officers at rates not exceeding the rates of compensation paid during the fiscal year ended March 31, 2000. (k) Agree, whether in writing or otherwise, to do any of the foregoing. 9.07 Compliance With Laws. The Company and each Company Subsidiary shall duly comply with all laws applicable to it and its properties, operations, business and employees. ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES; BREACHES; INDEMNIFICATION BY NEXSAN; ARBITRATION 10.01. Investigations; Survival of Warranties. All of the representations and warranties of the Company, Nexsan and the Control Shareholder on the one hand, and the Investors, on the other hand, contained herein or in any certificates or other documents delivered prior to or at the Closing shall not be deemed waived or otherwise affected by any investigation made by any party hereto. Each and every such representation and warranty shall survive the Closing hereunder and continue in full force and effect for three years thereafter, even if the damaged party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing. 10.02. Indemnification by Nexsan. (a) Subject to the provisions of Sections 10.01, relating to the survival of the representations and warranties made by the Company, Nexsan and the Control Shareholder in this Agreement, and Sections 10.02(b) and 10.03, below, Nexsan shall indemnify and hold harmless the Investors in respect of any and all Adverse Consequences reasonably suffered or incurred by the Investors through and after the date of the claim for indemnification (including any Adverse Consequences the Investors may suffer after the end of the survival period set forth in Section 10.01, above,) in connection with each and all of the following: 27 (i) the breach of any representation or warranty made by the Company, Nexsan and the Control Shareholder in this Agreement that results in a Material Adverse Effect; (ii) the breach of any covenant, agreement or obligation of the Company, Nexsan and the Control Shareholder in this Agreement that results in a Material Adverse Effect; and (iii) any misrepresentation contained in any statement or certificate furnished by the Company, Nexsan and the Control Shareholder in this Agreement that results in a Material Adverse Effect. (b) Claims for Indemnification. Whenever any claim shall arise for indemnification hereunder, the Investors shall promptly notify Nexsan in writing in accordance with Section 12.03 hereof, of the claim and, when known, the facts constituting the basis for such claim. In the event of any claim by a third party, the notice to the Company shall specify, if known, a reasonable estimate of the amount of the liability arising therefrom. 10.03. Arbitration. The determination as to whether any breach or alleged breach of this Agreement shall result in a Material Adverse Effect on the Company and the amount and nature of any remedy or dollar amount of indemnification shall be settled by arbitration before a single arbitrator in the City and State of New York, Borough of Manhattan, in accordance with the rules of the American Arbitration Association. The arbitrator's determination shall be final and binding on the parties. If the parties are unable to agree on an arbitrator within 30 days following notice of the dispute, then each of the parties shall select an arbitrator, and those two persons shall in turn, select the third arbitrator who shall act as the sole arbitrator of the dispute. Any judgment on the award rendered by the arbitrator in such arbitration proceeding may be entered in any court having jurisdiction thereof. The fees and expenses of the arbitration shall be borne as determined by the arbitrator. The arbitrator will not be authorized to award punitive damages. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 28 ARTICLE XI TERMINATION AND ABANDONMENT 11.01. Methods of Termination. The transactions contemplated herein may be terminated and/or abandoned at any time but not later than the Closing: (a) By mutual consent of the respective Boards of Directors of the Company and Beechtree; or (b) By any of the Investors prior to January 4, 2000, or such later date as may be established pursuant to Section 1.02 hereof, if any of the conditions provided for in Article VIII of this Agreement shall not have been met or waived in writing by the Investors prior to such date; or (c) By the Board of Directors of the Company prior to January 4, 2000, or such later date as may be established pursuant to Section 1.02 hereof, if any of the conditions provided for in Article VII of this Agreement shall not have been met or waived in writing by the Company prior to such date. 11.02. Procedure Upon Termination. In the event of termination and abandonment by Beechtree or by the Board of Directors of the Company, or both, pursuant to Section 11.01 hereof, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated and/or abandoned, without further action by any Investor or the Company. If the transactions contemplated by this Agreement are terminated and/or abandoned as provided herein: (a) Each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; (b) No party hereto shall have any liability or further obligation to any other party to this Agreement except as stated in subparagraphs (a) and (b) of this Section 11.02, provided, however, that (i) if such termination and/or abandonment is a result of the failure of any condition set forth in Article VIII hereof, other than the condition set forth in Section 8.10, then Beechtree shall be entitled to recover from the Company all out-of-pocket costs which Beechtree has incurred (including reasonable attorney's fees and expenses). ARTICLE XII MISCELLANEOUS 12.01. Fees and Expenses. Upon the Closing, the Company shall pay to Beechtree and Direct, forthwith and without further notice (i) $15,000 for its legal fees and disbursements in connection with the preparation and negotiation of the Transaction Documents, (ii) $7,000 for their due diligence expenses and disbursements in connection with the transactions contemplated hereby and (iii) up to $50,000 for other expenses actually incurred by Beechtree and Direct in the Company's behalf. The Company agrees to pay to Beechtree and Direct any other expenses which they may incur in the 29 Company's behalf upon the earlier of the sale by the Company of a minimum of $3.5 million of its securities or six (6) months from the date hereof. The Company's covenant and promise to repay Beechtree and Direct the fees and expenses incurred by them in its behalf shall be unconditional, irrevocable, without set-off or counterclaim and shall require no further notice on the part of Beechtree or Direct. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Shares pursuant hereto. The Investors shall be responsible for their own tax liability that may arise as a result of the investment hereunder or the transactions contemplated by this Agreement. 12.02. Entire Agreement; Amendments. This Agreement, together with the Exhibits and Schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. 12.03. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 4:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in the Purchase Agreement later than 4:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: If to the Company: Nexsan Corporation One Rockefeller Plaza Suite 1600 New York, NY 10020 Attn.: Cary Aminoff Facsimile No.: (212) 541-8463 With copies to: Rubin Baum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 Flint Bishop & Barnett 5 St. Michael's Court St. Michael's Lane Derby DE1 3JH England 30 Attn.: Mr. Thomas Travers Facsimile no. 011 44 (0)1332 207601 If to an Investor: Beechtree Capital, Ltd. One Rockefeller Plaza Suite 1600 New York, NY 10020 Attn.: Chairman Facsimile No.: (212) 541-8463 With copies to (for communications to the Investor): Ruffa & Ruffa, P.C. 150 East 58th Street New York, New York 10155 Facsimile No.: Attn: William P. Ruffa, Esq. or such other address as may be designated in writing hereafter, in the same manner, by such Person. 12.04. Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and Beechtree; or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 12.05. Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 12.06. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor. No Investor may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company. The assignment by a party of this Agreement or any rights hereunder shall not affect the obligations of such party under this Agreement. 12.07. No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 31 12.08. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 12.09. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 12.10. Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state or local statute or law shall be deemed to also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The parties intend that each representation, warranty or covenant contained herein shall have independent significance. If any party has breached any representation, warranty or covenant herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty or covenant. 12.11. Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 32 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE COMPANY: NEXSAN CORPORATION By: /s/ Martin Boddy ------------------------------------- Martin Boddy, Chief Executive Officer CONTROL SHAREHOLDER: MARTIN BODDY /s/ Martin Boddy ----------------------------------------- NEXSAN: NEXSAN TECHNOLOGIES, LTD. By: /s/ Martin Boddy ------------------------------------- AS TO SECTION 12.01: BEECHTREE CAPITAL, LTD. By: /s/ George Weiss ------------------------------------- 33 INVESTOR SIGNATURE PAGE The undersigned hereby subscribes to purchase ______ Shares at a price of $.66 per Share for an aggregate purchase price of $______ . Payment of the aggregate purchase for the Shares (please check one of the following): ______ Is included herewith in the form of a bank, cashier's or certified check; or ______ Has been wire transferred to the escrow account referenced in Schedule A to the Offering Memorandum. FOR INDIVIDUALS: -------------------------------- Print Name -------------------------------- Dated: ___________, 2000 Signature -------------------------------- Print Name -------------------------------- Dated: ___________, 2000 Signature FOR CORPORATIONS: -------------------------------- Name of Company -------------------------------- Name of Executive Officer of Company Dated: ___________, 2000 ________________________________ Signature of Executive Officer FOR PARTNERSHIPS: -------------------------------- Name of Partnership -------------------------------- Name of Authorized Partner Dated: ___________, 2000 ________________________________ Signature of Authorized Partner FOR TRUSTS: -------------------------------- Name of Trust -------------------------------- Name of Authorized Trustee Dated: ___________, 2000 ________________________________ Signature of Authorized Trust 34 SCHEDULE A INVESTORS Name, Address and Tax Identification No. Signature ---------------------------------------- --------- EX-4.3 11 0011.txt FORM OF REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated January 4, 2000, is made by and among Nexsan Technologies Incorporated, a Delaware corporation (the "Company"), and the persons named on Schedule A hereto (each an "Investor' and, collectively, the "Investors"). W I T N E S S E T H: WHEREAS, the Company and the Investors are parties to certain Stock Purchase Agreement dated the date hereof (the "Stock Purchase Agreement"); and WHEREAS, in order to induce the Company to enter into the Stock Purchase Agreement, and to induce the Investors to invest funds in the Company pursuant to the Stock Purchase Agreement, the Investors and the Company hereby agree that this Agreement shall govern the rights of the Investors to cause the Company to register the shares of Common Stock purchased by the Investors and certain other matters set forth herein. NOW, THEREFORE, THE PARTIES HERBY AGREE AS FOLLOWS: ARTICLE I CERTAIN DEFINITIONS 1.01 Definitions. For purposes of this Agreement, the following terms shall have the meaning ascribed to them below: The terms "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government actions to close. "Effectiveness Date" means the 120th day following the Closing Date. "Effectiveness Period" shall have the meaning set forth in Section 2.01(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Filing Date" means the 45th day following the Closing Date. "Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities. "Holders' Representative" means the Beechtree Capital, Ltd. the entity acting as the representative of the Holders in connection with negotiating this Agreement. "Indemnified Party" shall have the meaning set forth in Section 2.05(c). "Indemnifying Party" shall have the meaning set forth in Section 2.05(c). "Losses" shall have the meaning set forth in Section 2.05(a). "New York Courts" shall have the meaning set forth in Section 4.09. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Registrable Securities" means (a) the Shares of Common Stock issuable to the Investors as contemplated hereby, and (b) up to 413,000 shares of Common Stock which may be registered by the Company and/or the certain persons named in Schedule B hereto "Registration Statement" means the registration statement contemplated by Section 2.01(a), including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Special Counsel" means one law firm acting as counsel to the Holders, for which the Holders will be reimbursed by the Company pursuant to Section 5.01. "Transactions Documents" means this Registration Rights Agreement and the Stock Purchase Agreement heretofore defined. The plural of any defined term shall have a meaning correlative to such defined term. ARTICLE II REGISTRATION RIGHTS 2.01 Registration of Shares. (a) On or prior to the Filing Date the Company shall prepare and file with the SEC a Registration Statement covering all Registrable Securities. The Registration Statement shall be on Form SB-2 (or, if, for any reason, the Company does not register the resale of the Registrable Securities on Form SB-2, the Registration Statement shall be on such other appropriate form in accordance herewith as the Holders owning a majority in interest of the Registrable Securities may consent). The Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date which is two years after the date that such Registration Statement is declared effective by the SEC or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent (the "Effectiveness Period"); provided, however, that the Company shall not be deemed to have used its best efforts to keep the Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in the Holders not being able to sell the Registrable Securities covered by such Registration Statement during the Effectiveness Period, unless such action is required under applicable law or the Company has filed a post-effective amendment to the Registration Statement and the SEC has not declared it effective. (b) Right to Postpone or Interrupt the Effective Date of the Registration Statement. The Company will be entitled to postpone or interrupt the effective date of the Registration Statement filed in connection with such registration (and the use of the prospectus contained therein) if the Company determines, in its best judgment, after consultation with counsel, that such Registration Statement would require the premature announcement of any material financing, acquisition, corporate reorganization or other material corporate transaction or development involving the Company which, in the Company's reasonable determination, would be materially detrimental to the interests of the Company and all of its stockholders. Any such postponement or interruption will be for a minimum period reasonably required to avoid such premature disclosure. The Company promptly will give the Holders written notice of such postponement or interruption. 2.02 Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) Prepare and file with the SEC on or prior to the Filing Date, a Registration Statement (and any additional Registration Statements as may be required) in accordance with Section 2.01, and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than five (5) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to the Holders and their Special Counsel, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders and their Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the opinion of respective counsel to such Holders, to conduct a reasonable investigation within the meaning of the Securities Act (subject to customary confidentiality arrangements in the event that any such investigation requests the release of material non-public information concerning the Company, its business or operations). The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities or their Special Counsel shall reasonably object on a timely basis. (b)(i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as practicable to any comments received from the SEC with respect to the Registration Statement or any amendment thereto and promptly provide the Holders true and complete copies of all correspondence from and to the SEC relating to the Registration Statement; and (iv) comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. (c) Notify the Holders of Registrable Securities to be sold and their Special Counsel immediately (and, in the case of (i)(A) below, not less than five (5) days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day: (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the SEC notifies the Company whether there will be a "review" of such Registration Statement and whenever the SEC comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders) and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceeding for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in the Transaction Documents or in any agreement contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (e) Furnish to each Holder and their Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent reasonably requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the SEC. (f) Promptly deliver to each Holder and their Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders and any underwriters in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (g) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and their Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject. (h) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such managing underwriters or Holders may request at least three Business Days prior to any sale of Registrable Securities. (i) Upon the occurrence of any event contemplated by Section 2.02(c)(vi), as promptly as practicable, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (j) Use its best efforts to cause all Registrable Securities relating to such Registration Statement to be quoted on the over-the-counter bulletin board and, at such time as it meets listing criteria, use its best efforts to cause all Registrable Securities relating to such Registration Statement to be listed on the American Stock Exchange. (k) Make available for inspection by the selling Holders, a representative of such Holders, and an attorney or accountant retained by such selling Holders or underwriters, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the officers, directors, agents and employees of the Company and its subsidiaries to supply all information in each case requested by any such Holder, representative, attorney or accountant in connection with the Registration Statement; provided, however, that any information that is determined in good faith by the Company in writing to be of a confidential nature at the time of delivery of such information shall be kept confidential by such Persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities; (ii) disclosure of such information, in the opinion of counsel to such Person, is required by law; (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by such Person; or (iv) such information becomes available to such Person from a source other than the Company and such source is not known by such Person to be bound by a confidentiality agreement with the Company. (l) Comply with all applicable rules and regulations of the SEC and any state securities authority. (m) The Company may require each selling Holder to furnish to the Company such information regarding the distribution of such Registrable Securities and the beneficial ownership of Common Stock held by such selling Holder as is required by law to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by its acquisition of such Registrable Securities that (i) it will not offer or sell any Registrable Securities under the Registration Statement until it has received copies of the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that such Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 2.02(c) and (ii) it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 2.02(c)(ii), 2.02(c)(iii), 2.02(c)(iv), 2.02(c)(v) or 2.02(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Securities until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 2.03(i), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. 2.03 Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The Investors' Representative and Direct Brokerage Inc. shall pay all of said fees directly in the Company's behalf as they become due; provided, however, that the Company shall repay the Investors' Representative the entire amount of the fees incurred by it in the Company's behalf upon the earlier of (i) the sale by the Company of a minimum of $4 million of its securities or six (6) months from the date hereof. The fees and expenses referred to in this Section shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the OTC electronic bulletin board. and each other securities exchange or market on which Registrable Securities are required hereunder to be listed and (B) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the managing underwriters, if any, or by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for the Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. The Company's covenant and promise to repay the Investors' Representative the fees and expenses incurred in behalf of the Company shall be unconditional, irrevocable, without set-off or counterclaim and shall require no further notice on the part of the Investors' Representative. 2.04 Reports under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the Registration Statement filed by the Company for the offering of the Registrable Securities; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the effective date of the Registration Statement; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the Registration Statement), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 2.05 Indemnification (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents (including any underwriters retained by such Holder in connection with the offer and sale of Registrable Securities), brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, settlements, judgments, costs (including, without limitation, costs of preparation and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by or on behalf of such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registerable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within 10 Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) Contribution. If a claim for indemnification under Section 2.05(a) or 2.05(b) is unavailable to an Indemnified Party because of a failure or refusal f a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 2.05(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.05(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 2.05(d), the Holders shall not be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by the Investors from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that the Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. (e) The obligations of the Company and the Holders under this Section 2.05 shall survive the completion of any offering of Registerable Securities in a registration statement under this Article II, and otherwise. 2.06 Assignment of Registration Rights. The rights of a Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by such Holder to any assignee or transferee of all or a portion of the Shares referenced in the definition of Registrable Securities without the consent of the Company if: (i) such Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to such registration rights are being transferred or assigned, (iii) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (iv) such transfer shall have been made in accordance with the applicable requirements of the Stock Purchase Agreements. The rights to assignment shall apply to the Holders' (and to subsequent) successors and assigns. 2.07 No Registration of Other Securities. Except for the Registrable Securities, the Company shall not, without the prior written consent of the Holders holding not less than fifty percent (50%) of the then outstanding Shares, register for resale any securities of the Company for a period of not less than 90 days after the date that the Registration Statement is declared effective by the SEC. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to each Holder as follows: 3.01 Corporate Organization; Etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to carry on its business as it is now being conducted and to own the properties and assets it now owns; is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions listed in Section 3.01 of the Disclosure Schedule, which are all the jurisdictions in which such qualification is required except jurisdictions in which the Company's failure to qualify to do business will have no material adverse effect on the business, prospects, operations, properties, assets or condition (financial or otherwise) of the Company or any of its subsidiaries. 3.02 Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly executed by the Company and when delivered in accordance with the terms hereof shall constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate of incorporation, by-laws or other charter documents. 3.03 No Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provision of the Certificate of Incorporation or By-Laws of the Company or any subsidiary of the Company ("Company Subsidiary"), or violate, or be in conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or cause the acceleration of the maturity of any debt or obligation pursuant to, or result in the creation or imposition of any security interest, lien or other encumbrance upon any property or assets of the Company or any Company Subsidiary under, any agreement or commitment to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound, or to which the property of the Company or any Company Subsidiary is subject, or violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority. ARTICLE IV COVENANTS OF THE COMPANY 4.01 Delivery of Financial Statements. The Company shall deliver to each Holder: (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with United States generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, schedule as to the sources and application of funds for such fiscal quarter and an unaudited balance sheet and a statement of shareholder's equity as of the end of such fiscal quarter and a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto, all in sufficient detail as to permit the Holder to calculate its percentage equity ownership in the Company. (c) within thirty (30) days of the end of each month, an unaudited income statement and schedule as to the sources and application of funds and balance sheet for and as of the end of such month, in reasonable detail; (d) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets and sources and applications of unds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; (e) with respect to the financial statements called for in subsections (b) and (c) of this Section 3.01, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financial statements were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; (f) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Holder or any assignee of the Holder may from time to time request, provided, however, that the Company shall not be obligated under this subsection (f) or any other subsection of Section 4.01 to provide information which it deems in good faith to be a trade secret or similar confidential information. 4.02 Inspection. The Company shall permit each Holder, at such Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; provided, however, that the Company shall not be obligated pursuant to this Section 4.02 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 4.03 Termination of Information and Inspection Covenants. The covenants set forth in subsections 4.01(c), (d) and (f) and Section 4.02 shall terminate as to Holders and be of no further force or effect when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act. 4.04 Negative Covenants. So long as not less than twenty percent (20%) of the Shares are still outstanding in the hands of the Holders, the Company shall not, without the prior written consent of the Holders holding not less than fifty one percent (51%) of such outstanding Shares: (a) Authorize or issue any other class or series of stock in addition to Common Stock; (b) Declare or pay any dividends on Common Stock; (c) Make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company; (d) Make, or permit any subsidiary to make, any loan or advance to any person, including, without limitation, any employee, officer, agent or director of the Company or any Company Subsidiary. 4.05 Key-Man Insurance. The Company shall obtain and maintain in full force and effect, term life insurance on the lives of Martin Boddy, and Gary Watson and Diamond Lauffin, in an amount of no less than $1,000,000 and no more than $3,000,000, as may be determined by the Board of Directors of the Company, with proceeds payable to the Company until such time as the Board of Directors determines that such insurance should be discontinued. 4.06 Positive Covenants. So long as not less than twenty percent (20%) of the Shares remain outstanding in the hands of the Holders, the Company agrees as follows: (a) The Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments, and governmental charges or levies imposed upon the income, profits, property, or business of the Company or any subsidiary; provided, however, that any such tax, assessment, charge, or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereof, and provided further, that the Company will pay all such taxes, assessments, charges, or levies forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. The Company will promptly pay or cause to be paid when due, or in conformance with customary trade terms, all other indebtedness incident to the operations of the Company; (b) The Company will keep its properties and those of its subsidiaries in good repair, working order, and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions, and improvements thereto; and the Company and its subsidiaries will at all times comply with the provisions of all material leases to which any of them is a party or under which any of them occupies property so as to prevent any loss or forfeiture thereof or thereunder; (c) The Company will keep its assets and those of its subsidiaries that are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, extended coverage, and explosion insurance in amounts customary for companies in similar businesses similarly situated; and the Company will maintain, with financially sound and reputable insurers, insurance against other hazards, risks, and liabilities to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated; (d) The Company will keep true records and books of account in which full, true, and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis; (e) The Company and all its subsidiaries shall duly observe and conform to all valid requirements of governmental authorities relating to the conduct of their businesses or to their property or assets; and (f) The Company shall maintain in full force and effect its corporate existence, rights, and franchises and all licenses and other rights to use patents, processes, licenses, trademarks, trade names, or copyrights owned or possessed by it or any subsidiary and deemed by the Company to be necessary to the conduct of its business. (g) The Company will retain independent public accountants of recognized national standing who shall certify the Company's financial statements at the end of each fiscal year. In the event the services of the independent public accountants so selected, or any firm of independent public accountants hereafter employed by the Company are terminated, the Company will promptly thereafter notify the Holders and will request the firm of independent public accountants whose services are terminated to deliver to the Holders a letter from such firm setting forth the reasons for the termination of their services. In the event of such termination, the Company will promptly thereafter engage another firm of independent public accountants of recognized national standing. In its notice to the Holders the Company shall state whether the change of accountants was recommended or approved by the Board of Directors of the Company or any committee thereof. (h) The Company and all its subsidiaries shall duly observe and conform to all valid requirements of governmental authorities relating to the conduct of their businesses or to their properties or assets. (i) The Company will cause each person now or hereafter employed by it or any subsidiary with access to confidential information to enter into a proprietary information and inventions agreement substantially in the form approved by the Board of Directors. ARTICLE V MISCELLANEOUS 5.01 Aggregation of Stock. All shares of Registrable Securities held or acquired by persons who are Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.02 Entire Agreement; Amendments. This Agreement, together with the Exhibits and Schedules hereto, contains the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. 5.03 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 4:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in the Purchase Agreement later than 4:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: If to the Company: Nexsan Technologies Incorporated One Rockefeller Plaza Suite 1600 New York, NY 10020 Attn.: Cary Aminoff Facsimile No.: (212) 541-8463 With copies to: Rubin Baum LLP 30 Rockefeller Plaza New York, New York 10112 Facsimile No.: (212) 698-7825 Attn.: Michael Emont, Esq. Flint Bishop & Barnett 5 St. Michael's Court St. Michael's Lane Derby DE1 3JH England Attn.: Mr. Thomas Travers Facsimile no. 011 44 (0)1332 207601 Ruffa & Ruffa, P.C. 150 East 58th Street New York, New York 10155 Attn.: William P. Ruffa, Esq. Facsimile No.: (212) 759-7696 If to a Holder: To the address set forth on Exhibit A With copies to Beechtree Capital, LLC One Rockefeller Plaza Suite 1600 New York, NY 10020 Attn. George Weiss, Esq. Facsimile No.: (212) 541-8463 or such other address as may be designated in writing hereafter, in the same manner, by such Person. 5.04 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and the Investors; or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 5.05 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 5.06 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each of the Investors. Except as set forth in Section 3.1(a), neither Investor may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company. The assignment by a party of this Agreement or any rights hereunder shall not affect the obligations of such party under this Agreement. 5.07 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and, other than with respect to permitted assignees under Section 4.6, is not for the benefit of, nor may any provision hereof be enforced by, any other person. 5.08 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan (the "New York Courts"), for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 5.09 Survival. The representations, warranties, agreements and covenants contained in this Agreement shall survive the Closing. 5.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 5.11 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affecting or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE TO FOLLOW.] IN WITNESS WHEREOF, the parties set their hands hereunto as of the date first above written. NEXSAN TECHNOLOGIES INCORPORATED By: /s/ Martin Boddy ---------------------------- AS TO SECTION 2.03: BEECHTREE CAPITAL, LTD. By: /s/ George Weiss ---------------------------- SCHEDULE A LIST OF INVESTORS Name(s) and Address Signature No. of Shares ------------------- --------- ------------- - --------------------------- Print name - --------------------------- Signature - --------------------------- Address - --------------------------- - --------------------------- - --------------------------- Print name - --------------------------- Signature - --------------------------- Address - --------------------------- - --------------------------- SCHEDULE B OTHER PERSONS ENTITLED TO REGISTER SECURITIES IN THE REGISTRATION STATEMENT Name and Address No. of Shares Martin Boddy 230,000 ________________________ 5 Duck Island Signature Tamworth Street Duffield, Derby DE56 4EZ United Kingdom Gary Watson 183,000 ________________________ 25 Wharfedale Road Signature Nottingham, NG10 3HG United Kingdom EX-4.4 12 0012.txt 2001 STOCK OPTION PLAN NEXSAN TECHNOLOGIES INCORPORATED 2001 STOCK PLAN 1. Purposes of the Plan. The purposes of this Stock Plan are to attract and -------------------- retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. This Plan is intended to be a written compensatory plan within the meaning of Rule 701 promulgated under the Securities Act. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees as shall be ------------- administering the Plan in accordance with Section 4 hereof. (b)"Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a committee of Directors appointed by the Board in --------- accordance with Section4 hereof. (f) "Common Stock" means the common stock, par value $0.001 per share, of ------------ the Company. (g) "Company" means Nexsan Technologies Incorporated, a Delaware ------- corporation. (h) "Consultant" means any person who is engaged by the Company or any ---------- Parent or Subsidiary to render consulting or advisory services to such entity. (i) "Director" means a member of the Board of Directors of the Company. -------- (j)"Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code, or if otherwise defined in any agreement between the Company and the Service Provider, as so defined. (k) "Employee" means any person, including Officers and Directors, employed -------- by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i)any leave of absence approved by the Company or (ii)transfers between locations of the Company or between the Company, its Parent, any Subsidiary or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless re-employment upon expiration of such leave is guaranteed by statute or contract. If re-employment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ (m) "Fair Market Value" means, as of any date, the value of Common Stock ----------------- determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii)If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii)In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section422 of the Code. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as ------------------------- an Incentive Stock Option. (p) "Officer" means a person who is an officer of the Company within the ------- meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. ------ -2- (r) "Option Agreement" means a written or electronic agreement between the ---------------- Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. The Option Agreement will contain such representations and agreements regarding Optionees investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. (s) "Option Exchange Program" means a program whereby outstanding Options ----------------------- are exchanged for Options with a lower exercise price. (t) "Optioned Stock" means the Common Stock subject to an Option or a Stock -------------- Purchase Right. (u) "Optionee" means the holder of an outstanding Option or Stock Purchase -------- Right granted under the Plan. (v) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (w) "Plan" means this 2001 Stock Plan. ---- (x) "Restricted Stock" means shares of Common Stock acquired pursuant to a ---------------- grant of a Stock Purchase Right under Section 11 below. (y) "Securities Act" means the Securities Act of 1933, as amended. -------------- (z) "Service Provider" means an Employee, Director or Consultant. ---------------- (aa) "Share" means a share of the Common Stock, as adjusted in accordance ----- with Section 12 below. (bb) "Stock Purchase Right" means a right to purchase Common Stock pursuant -------------------- to Section 11 below. (cc) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is seven million five hundred seventy two thousand two hundred twenty two (7,572,222) Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the -3- unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. --------------------------- (a) Administrator. The Plan shall be administered by the Board or a ------------- Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan and, --------------------------- in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) below instead of Common Stock; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (viii) to initiate an Option Exchange Program; -4- (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xi) to extend the vesting period beyond the term set forth in any Option Agreement or Stock Purchase Right agreement. (xii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and ---------------------------------- interpretations of the Administrator shall be final and binding on all Optionees. 5. Eligibility. ----------- (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. -5- 6. Term of Plan. The Plan shall become effective upon its adoption by the ------------ Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be stated in the Option -------------- Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten (10%) percent of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant; and (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may be paid: (i) in cash; or by check; or by a promissory note; (ii) by cancellation of indebtedness of the Company owed to Optionee; (iii) by surrender of shares that:(1) either (x) have been owned by Optionee for more than six (6) months and have been paid for within the meaning of Exchange Act Rule 144 (and if such shares were purchased from the Company by use of a promissory note, such -6- note has been fully paid with respect to such shares), or (y) were obtained by Optionee in the public market and (2) are clear of all liens, claims, encumbrances or security interests; (iv) by tender of a promissory note having such terms as may be approved by the Administrator and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Optionees who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the exercise price or the purchase price, as the case may be, equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law; (v) by waiver of compensation due or accrued to the Optionee from the Company for services rendered; (vi) with respect only to purchases upon exercise of an Option and provided that a public market for the Shares exists: (1) through a >same day sale= commitment from the Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an ANASD Dealer@) whereby the Optionee irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay the total exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total exercise price directly to the Company; or (2) through >margin= commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably elects to exercise the option in the amount of the total exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total exercise price directly to the Company; or (vii) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted ---------------------- hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder to Officers and Directors -7- shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option; such notice shall include (x) the number of Shares being purchased, (y) the restriction imposed on the Shares under the Option Agreement, if any, and (z) such representations and agreements regarding Optionee=s investment intent and access to information and other matters, if any, as may be required or desirable by Company to comply with applicable securities laws; and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ------------------------------------------------- ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (which shall be at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider ---------------------- as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (which shall be at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the -8- Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Termination for Cause. Notwithstanding any other provision of the Plan, --------------------- if an Optionee is terminated for Cause, then Optionee=s Options or Stock Purchase Right shall expire on such termination date, or on such conditions as are determined by the Administrator. ACause@ has the meaning set forth in any agreement between the Company and the Optionee, or absent such agreement, means termination of a Service Provider=s term with the Company because of (i) any willful, material violation by the Optionee of any law or regulation applicable to the business of the Company or a Parent or a Subsidiary of the Company, the Optionee=s conviction for, or guilty plea - or nolo contendere - to, a felony or a crime involving moral turpitude, (ii) the Optionee=s commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iii) any material breach by the Optionee of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Optionee regarding the terms of the Optionee=s service as a Service Provider, including any contract of employment, (iv) the Optionee=s violation of any of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or any Parent or Subsidiary of the Company, or (v) any other misconduct by the Optionee which is materially injurious to the financial condition or business reputation of, or is otherwise injurious to, the Company or a Parent or a Subsidiary of the Company. (e) Death of Optionee. If an Optionee dies while a Service Provider, the ----------------- Option may be exercised within such period of time as is specified in the Option Agreement (which shall be at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (f) Buyout Provisions. The Administrator may at any time offer to buy out ----------------- for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (h) Right of First Refusal. At the discretion of the Administrator, the ---------------------- Company may reserve to itself the right of first refusal, in any of the Option Agreements, to purchase all Shares that an Optionee may propose to transfer to a third party, provided that the right of first refusal terminates upon the Company=s initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act. 10. Non-Transferability of Options and Stock Purchase Rights. Except as -------------------------------------------------------- otherwise provided in the applicable Option Agreement or Restricted Stock purchase agreement, the Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Stock Purchase Rights. --------------------- (a) Right of First Refusal. At the discretion of the Administrator, ---------------------- the Company may reserve to itself the right of first refusal, in any of the Restricted Stock purchase agreements, to purchase all Shares that a Service Provider may propose to transfer to a third party, provided that the right of first refusal terminates upon the Company=s initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act. (b) Rights to Purchase. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. (c) Repurchase Option. Unless the Administrator determines otherwise, ----------------- the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. (d) Other Provisions. The Restricted Stock purchase agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Stockholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his -10- or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale. ---------------------------------------------------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, -11- the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, alter, ------------------------- suspend or terminate the Plan. (b) Stockholder Approval. The Board shall obtain stockholder approval -------------------- of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, ---------------------------------- suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options or Stock Purchase Rights granted under the Plan prior to the date of such termination. -12- 15. Conditions Upon Issuance of Shares. ---------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant to the ---------------- exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an -------------------------- Option, the Administrator may require the person exercising such Option to represent and warrant in the Option Agreement and/or at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required or recommended. 16. Inability to Obtain Authority. The inability of the Company to obtain ----------------------------- authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Shares. The Company, during the term of this Plan, shall --------------------- at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. Stockholder Approval. The Plan shall be subject to approval by the -------------------- stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. EX-4.5 13 0013.txt STOCK OPTION NEXSAN CORPORATION. STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT (the "OPTION AGREEMENT"), dated as of January 4, 2001, between Nexsan Corporation, a Delaware corporation (the "COMPANY"), and Martin Boddy (the "OPTIONEE"), an employee of the Company. The Company's Board of Directors has determined that the objectives of the Company's 2001 Stock Plan (the "PLAN"), a copy of which has been delivered to the Optionee, will be furthered by granting to the Optionee a stock option pursuant to the Plan and pursuant to the Employment Agreement, dated the date hereof, between the Optionee and the Company (the "EMPLOYMENT AGREEMENT"). Capitalized terms used herein without definition shall have the meaning as described thereto in the Plan. In consideration of the foregoing and of the mutual undertakings set forth in this Option Agreement and the Consulting Agreement, the Company and the Optionee hereby agree as follows: SECTION 1 Grant of Option --------------- The Company hereby grants to the Optionee a stock option (the "OPTION") to purchase 1,111,111 shares (the "SHARES") of common stock of the Company ("COMMON STOCK") exercisable at a price equal to the price at which Common Stock is sold to investors in the next offering of Common Stock by the Company in which at least $5,000,000 of Common Stock is sold (the "EXERCISE PRICE"). SECTION 2 Exercisability -------------- The Option shall become exercisable, if at all, as follows: Options as to 555,555 Shares shall become exercisable if, and only if, EBITDA (as defined below) as for any Rolling Period (as defined below) shall equal at least $15,000,000, and Options as to the remaining 555,556 Shares shall become exercisable if, and only if, EBITDA for any Rolling Period shall equal at least $27,000,000, provided, in each case, that Executive is employed by the Company or any Affiliate on the last day of such Rolling Period. Unless earlier terminated pursuant to the provisions of the Plan, the unexercised portion of the Option shall expire and cease to be exercisable at 11:59 p.m. on the day immediately preceding the 10th anniversary of the date hereof. "EBITDA" means the sum, without duplication, of (1) the net income of the Company and its subsidiaries on a consolidated basis, plus (2) the amount deducted in determining net income for such period for provision for (a) taxes based on the income or profits of the Company and its subsidiaries, (b) interest expense, and (c) amortization and depreciation of assets. "Rolling Period" means any twelve (12) month period ending on the last day of any month from January 2002 to December 2005, inclusive. SECTION 3 Method of Exercise ------------------ The Option (an Option may not be exercised for a fraction of a share) shall be deemed exercised when the Company receives: (a) written or electronic notice of exercise on such form and in such manner as the Committee shall prescribe and (b) payment of the full purchase price for the number of shares being purchased. Such payment may be made by one or a combination of the following methods: (1) by cash, (2) check, (3) other shares which (i) in the case of shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares to which the Option shall be exercised and (4) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan. It shall be a condition precedent to the issuance of Shares upon exercise of the Option that the Optionee shall remit to the Company an amount sufficient to satisfy all applicable withholding tax requirements. The date of exercise of the Option shall be the date on which written notice of exercise is hand delivered to the Company, during normal business hours, at its address as provided in Section 12 of this Agreement, or, if sent electronically the date on which it is actually transmitted, during normal business hours, or if mailed, the date on which it is postmarked, provided such notice is actually received. SECTION 4 Death ----- If the Optionee dies during the period in which the Option is exercisable, the Option shall be exercisable by the Optionee's estate or by a person who acquires the right to exercise the option by bequest or inheritance only until the earlier of the expiration date of the Option (specified in Section 2 of this Agreement) or six months after the Optionee's death. SECTION 5 Investment Representations -------------------------- The Optionee hereby represents and warrants to and agrees with the Company as follows: SECTION 5.1 Acquisition of Shares for Own Account. The Optionee will acquire the Shares, if at all, pursuant to this Agreement with the Optionee's own funds, and not with the funds of anyone else. The Shares will be acquired, if at all, for the Optionee's own account, not as a nominee or agent and not for the account of any other person or firm. No one else has or will have on any exercise of the Option or any portion thereof any interest, beneficial or otherwise, in any of the Shares to be acquired on such exercise. The Optionee is not, and prior to any exercise of the Option will not be, obligated to transfer any of the Shares or any interest therein to anyone else and the Optionee does not and will not have any agreement or understandings to do so. The Optionee does not, and on any exercise of the Option will not, intend to subdivide the Optionee's acquisition of any Shares with anyone. SECTION 5.2 Shares May Be "Restricted Securities"; Certificates Representing Shares May Be Legended The Optionee understands and agrees that: SECTION 5.2.1 The Shares, if and when issued, may be "restricted securities," as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the "ACT"), and, accordingly, the Optionee may be required to hold the Shares indefinitely unless they are registered under the Act or an exemption from such registration is available; SECTION 5.2.2 The Company is not under any obligation to register the Shares under the Act or to comply with any exemption thereunder; and SECTION 5.2.3 The Company shall cause legends set forth below or legends substantially equivalent thereto, to be placed upon any certificates representing any Shares received by the Optionee on exercise of the Option, which legend restricts the sale, transfer or disposition of the Shares otherwise than in accordance with this Option Agreement, as well as any other legends as the Company may deem appropriate or that may be required by the Company or by the applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT. IN ADDITION, SALE, TRANSFER, ENCUMBRANCE, HYPOTHECATION, GIFT OR OTHER DISPOSITION OR ALIENATION OF SUCH SHARES OR ANY INTEREST THEREIN IS RESTRICTED BY AND SUBJECT TO A STOCK OPTION AGREEMENT A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE ISSUER AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE. SECTION 5.3 Agreement to Refrain from Resales. The Optionee agrees that, notwithstanding any provision hereof or in the Plan to the contrary, the Optionee shall in no event make any disposition of all or any part of or interest in the Shares and that such Shares shall not be encumbered, pledged, hypothecated, sold or transferred by the Optionee nor shall the Optionee receive any consideration for such Shares or for any interest therein from any person, unless and until prior to any proposed transfer, encumbrance, disposition, pledge, hypothecation or sale of any Shares, either (1) a registration statement on form S-1 or S-8 (or any other form replacing such form or appropriate for the purpose under the Act) with respect to such shares proposed to be transferred or otherwise disposed of shall be then effective or (2) (i) the Optionee shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Optionee shall have furnished the Company with an opinion of counsel in form and substance satisfactory to the Company to the effect that such disposition will not require registration of any such Shares under the Act or qualification of any such shares under any other securities law, (iii) such opinion of counsel shall have been concurred in by counsel for the Company and (iv) the Company shall have advised the Optionee of such concurrence. SECTION 6 Right of First Refusal. Before any Shares acquired upon exercise of its Option held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). SECTION 6.1 Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). SECTION 6.2 Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. SECTION 6.3 Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. SECTION 6.4 Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. SECTION 6.5 Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. SECTION 6.6 Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the Purchaser's Immediate Family or a trust for the benefit of one or more members of the Purchaser's Immediate Family or to a trust, partnership, limited liability company, custodianship or other fiduciary account for the benefit of the Purchaser or one or more members of the Purchaser's Immediate Family, or the disbursement therefrom to Purchaser or one or more members of his Immediate Family, shall be exempt from the provisions of this Section, provided that the Purchaser notifies the Company in writing within thirty (30) days of said transfer. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Agreement and there shall be no further transfer of such Shares except in accordance with the terms of this Section. SECTION 6.7 Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. SECTION 7 Lock-Up Period. Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee (or any transferee) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. SECTION 8 Nonassignability ---------------- The Option shall not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, voluntarily or involuntarily, other than by will or by the laws of descent and distribution. The Option shall be exercisable during the lifetime of the Optionee only by the Optionee and thereafter by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. SECTION 9 No Right of Employment ---------------------- Nothing in this Agreement shall confer upon the Optionee the right to employment by or engagement as a Service Provider of the Company or affect any right which the Company may have to terminate any such employment or engagement. SECTION 10 421(b) Disqualifying Disposition Notice --------------------------------------- With respect to the transfer or other disposition of Shares issued pursuant to the exercise of any "incentive stock options" granted hereunder, the Optionee shall notify the Company of any such transfer of disposition made under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions). Such notice shall be delivered to the Company in accordance with the provisions of Section 11 below within 10 days of such transfer or other disposition. SECTION 11 Plan Provisions to Prevail -------------------------- This Option Agreement is subject to all of the terms and provisions of the Plan. Without limiting the generality of the foregoing, by entering into this Option Agreement the Optionee agrees that no member of the Board or the Committee nor any employee of the Company, Parent Corporation or any of the Company's subsidiaries shall be liable for any action or determination made in good faith with respect to the Plan or this Option Agreement. In the event that there is any inconsistency between the provisions of this Agreement and of the Plan, the provisions of the Plan shall govern. SECTION 12 Notices ------- Any notice to be given to the Company hereunder shall be in writing and shall be addressed to Nexsan Corporation, or at such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section 12. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at the address set forth beneath the Optionee's signature hereto, or by electronic means if any facsimile number is provided beneath the Optionee's signature hereto or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or, if mailed by registered or certified mail to the party entitled to receive it, five days after the date the notice was so mailed, or if sent electronically, on the day on which it is actually transmitted. SECTION 13 Successors and Assigns ---------------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent consistent with Section 4 of this Option Agreement and with the Plan, the heirs and personal representatives of the Optionee. SECTION 14 Governing Law ------------- This Option Agreement shall be interpreted, construed and administered in accordance with the laws of the State of New York as they apply to contracts made, delivered and performed entirely within such state. SECTION 15 Severability ------------ If any provision of this Option Agreement (including any provision of the Plan that is incorporated herein by reference) shall hereafter be held to be invalid, unenforceable or illegal in whole or in part, in any jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the benefits to the parties provided by, this Option Agreement and the Plan or (ii) if such provision cannot be so reformed, such provision shall be severed from this Option Agreement and an equitable adjustment shall be made to this Option Agreement (including, without limitation, addition of necessary further provisions to this Option Agreement) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall affect or impair the legality, validity or enforceability of any other provision of this Option Agreement or the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Stock Option Agreement as of the date and year first written above. NEXSAN CORPORATION /s/ Martin Boddy ----------------------------- By: Martin Boddy Title: CEO OPTIONEE: /s/ Martin Boddy ----------------------------- Address: 5 Duck Island ------------------------ Duffield, Derby DE56 4EZ ------------------------ ------------------------ EX-4.6 14 0014.txt STOCK OPTION NEXSAN CORPORATION. STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT (the "OPTION AGREEMENT"), dated as of January 4, 2001, between Nexsan Corporation, a Delaware corporation (the "COMPANY"), and Gary Watson (the "OPTIONEE"), an employee of the Company. The Company's Board of Directors has determined that the objectives of the Company's 2001 Stock Plan (the "PLAN"), a copy of which has been delivered to the Optionee, will be furthered by granting to the Optionee a stock option pursuant to the Plan and pursuant to the Employment Agreement, dated the date hereof, between the Optionee and the Company (the "EMPLOYMENT AGREEMENT"). Capitalized terms used herein without definition shall have the meaning as described thereto in the Plan. In consideration of the foregoing and of the mutual undertakings set forth in this Option Agreement and the Consulting Agreement, the Company and the Optionee hereby agree as follows: SECTION 1 Grant of Option The Company hereby grants to the Optionee a stock option (the "OPTION") to purchase 1,111,111 shares (the "SHARES") of common stock of the Company ("COMMON STOCK") exercisable at a price equal to the price at which Common Stock is sold to investors in the next offering of Common Stock by the Company in which at least $5,000,000 of Common Stock is sold (the "EXERCISE PRICE"). SECTION 2 Exercisability The Option shall become exercisable, if at all, as follows: Options as to 555,555 Shares shall become exercisable if, and only if, EBITDA (as defined below) as for any Rolling Period (as defined below) shall equal at least $15,000,000, and Options as to the remaining 555,556 Shares shall become exercisable if, and only if, EBITDA for any Rolling Period shall equal at least $27,000,000, provided, in each case, that Executive is employed by the Company or any Affiliate on the last day of such Rolling Period. Unless earlier terminated pursuant to the provisions of the Plan, the unexercised portion of the Option shall expire and cease to be exercisable at 11:59 p.m. on the day immediately preceding the 10th anniversary of the date hereof. "EBITDA" means the sum, without duplication, of (1) the net income of the Company and its subsidiaries on a consolidated basis, plus (2) the amount deducted in determining net income for such period for provision for (a) taxes based on the income or profits of the Company and its subsidiaries, (b) interest expense, and (c) amortization and depreciation of assets. "Rolling Period" means any twelve (12) month period ending on the last day of any month from January 2002 to December 2005, inclusive. SECTION 3 Method of Exercise The Option (an Option may not be exercised for a fraction of a share) shall be deemed exercised when the Company receives: (a) written or electronic notice of exercise on such form and in such manner as the Committee shall prescribe and (b) payment of the full purchase price for the number of shares being purchased. Such payment may be made by one or a combination of the following methods: (1) by cash, (2) check, (3) other shares which (i) in the case of shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares to which the Option shall be exercised and (4) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan. It shall be a condition precedent to the issuance of Shares upon exercise of the Option that the Optionee shall remit to the Company an amount sufficient to satisfy all applicable withholding tax requirements. The date of exercise of the Option shall be the date on which written notice of exercise is hand delivered to the Company, during normal business hours, at its address as provided in Section 12 of this Agreement, or, if sent electronically the date on which it is actually transmitted, during normal business hours, or if mailed, the date on which it is postmarked, provided such notice is actually received. SECTION 4 Death If the Optionee dies during the period in which the Option is exercisable, the Option shall be exercisable by the Optionee's estate or by a person who acquires the right to exercise the option by bequest or inheritance only until the earlier of the expiration date of the Option (specified in Section 2 of this Agreement) or six months after the Optionee's death. SECTION 5 Investment Representations The Optionee hereby represents and warrants to and agrees with the Company as follows: SECTION 5.1 Acquisition of Shares for Own Account. The Optionee will acquire the Shares, if at all, pursuant to this Agreement with the Optionee's own funds, and not with the funds of anyone else. The Shares will be acquired, if at all, for the Optionee's own account, not as a nominee or agent and not for the account of any other person or firm. No one else has or will have on any exercise of the Option or any portion thereof any interest, beneficial or otherwise, in any of the Shares to be acquired on such exercise. The Optionee is not, and prior to any exercise of the Option will not be, obligated to transfer any of the Shares or any interest therein to anyone else and the Optionee does not and will not have any agreement or understandings to do so. The Optionee does not, and on any exercise of the Option will not, intend to subdivide the Optionee's acquisition of any Shares with anyone. SECTION 5.2 Shares May Be "Restricted Securities"; Certificates Representing Shares May Be Legended The Optionee understands and agrees that: SECTION 5.2.1 The Shares, if and when issued, may be "restricted securities," as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the "ACT"), and, accordingly, the Optionee may be required to hold the Shares indefinitely unless they are registered under the Act or an exemption from such registration is available; SECTION 5.2.2 The Company is not under any obligation to register the Shares under the Act or to comply with any exemption thereunder; and SECTION 5.2.3 The Company shall cause legends set forth below or legends substantially equivalent thereto, to be placed upon any certificates representing any Shares received by the Optionee on exercise of the Option, which legend restricts the sale, transfer or disposition of the Shares otherwise than in accordance with this Option Agreement, as well as any other legends as the Company may deem appropriate or that may be required by the Company or by the applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT. IN ADDITION, SALE, TRANSFER, ENCUMBRANCE, HYPOTHECATION, GIFT OR OTHER DISPOSITION OR ALIENATION OF SUCH SHARES OR ANY INTEREST THEREIN IS RESTRICTED BY AND SUBJECT TO A STOCK OPTION AGREEMENT A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE ISSUER AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE. SECTION 1.1 Agreement to Refrain from Resales. The Optionee agrees that, notwithstanding any provision hereof or in the Plan to the contrary, the Optionee shall in no event make any disposition of all or any part of or interest in the Shares and that such Shares shall not be encumbered, pledged, hypothecated, sold or transferred by the Optionee nor shall the Optionee receive any consideration for such Shares or for any interest therein from any person, unless and until prior to any proposed transfer, encumbrance, disposition, pledge, hypothecation or sale of any Shares, either (1) a registration statement on form S-1 or S-8 (or any other form replacing such form or appropriate for the purpose under the Act) with respect to such shares proposed to be transferred or otherwise disposed of shall be then effective or (2) (i) the Optionee shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Optionee shall have furnished the Company with an opinion of counsel in form and substance satisfactory to the Company to the effect that such disposition will not require registration of any such Shares under the Act or qualification of any such shares under any other securities law, (iii) such opinion of counsel shall have been concurred in by counsel for the Company and (iv) the Company shall have advised the Optionee of such concurrence. SECTION 6 Right of First Refusal Before any Shares acquired upon exercise of its Option held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). SECTION 6.1 Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). SECTION 6.2 Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. SECTION 6.3 Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. SECTION 6.4 Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. SECTION 6.5 Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. SECTION 6.6 Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the Purchaser's Immediate Family or a trust for the benefit of one or more members of the Purchaser's Immediate Family or to a trust, partnership, limited liability company, custodianship or other fiduciary account for the benefit of the Purchaser or one or more members of the Purchaser's Immediate Family, or the disbursement therefrom to Purchaser or one or more members of his Immediate Family, shall be exempt from the provisions of this Section, provided that the Purchaser notifies the Company in writing within thirty (30) days of said transfer. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Agreement and there shall be no further transfer of such Shares except in accordance with the terms of this Section. SECTION 6.7 Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. SECTION 7 Lock-Up Period Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee (or any transferee) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. SECTION 8 Nonassignability The Option shall not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, voluntarily or involuntarily, other than by will or by the laws of descent and distribution. The Option shall be exercisable during the lifetime of the Optionee only by the Optionee and thereafter by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. SECTION 9 No Right of Employment Nothing in this Agreement shall confer upon the Optionee the right to employment by or engagement as a Service Provider of the Company or affect any right which the Company may have to terminate any such employment or engagement. SECTION 10 421(b) Disqualifying Disposition Notice With respect to the transfer or other disposition of Shares issued pursuant to the exercise of any "incentive stock options" granted hereunder, the Optionee shall notify the Company of any such transfer of disposition made under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions). Such notice shall be delivered to the Company in accordance with the provisions of Section 11 below within 10 days of such transfer or other disposition. SECTION 11 Plan Provisions to Prevail This Option Agreement is subject to all of the terms and provisions of the Plan. Without limiting the generality of the foregoing, by entering into this Option Agreement the Optionee agrees that no member of the Board or the Committee nor any employee of the Company, Parent Corporation or any of the Company's subsidiaries shall be liable for any action or determination made in good faith with respect to the Plan or this Option Agreement. In the event that there is any inconsistency between the provisions of this Agreement and of the Plan, the provisions of the Plan shall govern. SECTION 12 Notices Any notice to be given to the Company hereunder shall be in writing and shall be addressed to Nexsan Corporation, or at such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section 12. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at the address set forth beneath the Optionee's signature hereto, or by electronic means if any facsimile number is provided beneath the Optionee's signature hereto or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or, if mailed by registered or certified mail to the party entitled to receive it, five days after the date the notice was so mailed, or if sent electronically, on the day on which it is actually transmitted. SECTION 13 Successors and Assigns This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent consistent with Section 4 of this Option Agreement and with the Plan, the heirs and personal representatives of the Optionee. SECTION 14 Governing Law This Option Agreement shall be interpreted, construed and administered in accordance with the laws of the State of New York as they apply to contracts made, delivered and performed entirely within such state. SECTION 15 Severability If any provision of this Option Agreement (including any provision of the Plan that is incorporated herein by reference) shall hereafter be held to be invalid, unenforceable or illegal in whole or in part, in any jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the benefits to the parties provided by, this Option Agreement and the Plan or (ii) if such provision cannot be so reformed, such provision shall be severed from this Option Agreement and an equitable adjustment shall be made to this Option Agreement (including, without limitation, addition of necessary further provisions to this Option Agreement) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall affect or impair the legality, validity or enforceability of any other provision of this Option Agreement or the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Stock Option Agreement as of the date and year first written above. NEXSAN CORPORATION /s/ Martin Boddy ------------------------------- By: Martin Boddy Title: CEO OPTIONEE: /s/ Gary Watson -------------------------------- Address: 25 Wharfedale Road Long Eaton, Nottingham EX-4.7 15 0015.txt STOCK OPTION NEXSAN CORPORATION. STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT (the "OPTION AGREEMENT"), dated as of January 4, 2001, between Nexsan Corporation, a Delaware corporation (the "COMPANY"), and Paul Coxon (the "OPTIONEE"), an employee of the Company. The Company's Board of Directors has determined that the objectives of the Company's 2001 Stock Plan (the "PLAN"), a copy of which has been delivered to the Optionee, will be furthered by granting to the Optionee a stock option pursuant to the Plan and pursuant to the Employment Agreement, dated the date hereof, between the Optionee and the Company (the "EMPLOYMENT AGREEMENT"). Capitalized terms used herein without definition shall have the meaning as described thereto in the Plan. In consideration of the foregoing and of the mutual undertakings set forth in this Option Agreement and the Consulting Agreement, the Company and the Optionee hereby agree as follows: SECTION 1 Grant of Option The Company hereby grants to the Optionee a stock option (the "OPTION") to purchase 75,000 shares (the "SHARES") of common stock of the Company ("COMMON STOCK") exercisable at $0.66 per share (the "EXERCISE PRICE"). SECTION 2 Exercisability The Option shall become exercisable as to 15,000 Shares on each of the first through fifth anniversaries of the date hereof. Unless earlier terminated pursuant to the provisions of the Plan, the unexercised portion of the Option shall expire and cease to exercisable at 11:59 p.m. on the day immediately preceding the 10th anniversary of the date hereof. SECTION 3 Method of Exercise The Option (an Option may not be exercised for a fraction of a share) shall be deemed exercised when the Company receives: (a) written or electronic notice of exercise on such form and in such manner as the Committee shall prescribe and (b) payment of the full purchase price for the number of shares being purchased. Such payment may be made by one or a combination of the following methods: (1) by cash, (2) check, (3) other shares which (i) in the case of shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares to which the Option shall be exercised and (4) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan. It shall be a condition precedent to the issuance of Shares upon exercise of the Option that the Optionee shall remit to the Company an amount sufficient to satisfy all applicable withholding tax requirements. The date of exercise of the Option shall be the date on which written notice of exercise is hand delivered to the Company, during normal business hours, at its address as provided in Section 12 of this Agreement, or, if sent electronically the date on which it is actually transmitted, during normal business hours, or if mailed, the date on which it is postmarked, provided such notice is actually received. SECTION 4 Death If the Optionee dies during the period in which the Option is exercisable, the Option shall be exercisable by the Optionee's estate or by a person who acquires the right to exercise the option by bequest or inheritance only until the earlier of the expiration date of the Option (specified in Section 2 of this Agreement) or six months after the Optionee's death. SECTION 5 Investment Representations The Optionee hereby represents and warrants to and agrees with the Company as follows: SECTION 5.1 Acquisition of Shares for Own Account. The Optionee will acquire the Shares, if at all, pursuant to this Agreement with the Optionee's own funds, and not with the funds of anyone else. The Shares will be acquired, if at all, for the Optionee's own account, not as a nominee or agent and not for the account of any other person or firm. No one else has or will have on any exercise of the Option or any portion thereof any interest, beneficial or otherwise, in any of the Shares to be acquired on such exercise. The Optionee is not, and prior to any exercise of the Option will not be, obligated to transfer any of the Shares or any interest therein to anyone else and the Optionee does not and will not have any agreement or understandings to do so. The Optionee does not, and on any exercise of the Option will not, intend to subdivide the Optionee's acquisition of any Shares with anyone. SECTION 5.2 Shares May Be "Restricted Securities"; Certificates Representing Shares May Be Legended The Optionee understands and agrees that: SECTION 5.2.1 The Shares, if and when issued, may be "restricted securities," as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the "ACT"), and, accordingly, the Optionee may be required to hold the Shares indefinitely unless they are registered under the Act or an exemption from such registration is available; SECTION 5.2.2 The Company is not under any obligation to register the Shares under the Act or to comply with any exemption thereunder; and SECTION 5.2.3 The Company shall cause legends set forth below or legends substantially equivalent thereto, to be placed upon any certificates representing any Shares received by the Optionee on exercise of the Option, which legend restricts the sale, transfer or disposition of the Shares otherwise than in accordance with this Option Agreement, as well as any other legends as the Company may deem appropriate or that may be required by the Company or by the applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT. IN ADDITION, SALE, TRANSFER, ENCUMBRANCE, HYPOTHECATION, GIFT OR OTHER DISPOSITION OR ALIENATION OF SUCH SHARES OR ANY INTEREST THEREIN IS RESTRICTED BY AND SUBJECT TO A STOCK OPTION AGREEMENT A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE ISSUER AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE. SECTION 5.3 Agreement to Refrain from Resales. The Optionee agrees that, notwithstanding any provision hereof or in the Plan to the contrary, the Optionee shall in no event make any disposition of all or any part of or interest in the Shares and that such Shares shall not be encumbered, pledged, hypothecated, sold or transferred by the Optionee nor shall the Optionee receive any consideration for such Shares or for any interest therein from any person, unless and until prior to any proposed transfer, encumbrance, disposition, pledge, hypothecation or sale of any Shares, either (1) a registration statement on form S-1 or S-8 (or any other form replacing such form or appropriate for the purpose under the Act) with respect to such shares proposed to be transferred or otherwise disposed of shall be then effective or (2) (i) the Optionee shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Optionee shall have furnished the Company with an opinion of counsel in form and substance satisfactory to the Company to the effect that such disposition will not require registration of any such Shares under the Act or qualification of any such shares under any other securities law, (iii) such opinion of counsel shall have been concurred in by counsel for the Company and (iv) the Company shall have advised the Optionee of such concurrence. SECTION 6 Right of First Refusal Before any Shares acquired upon exercise of its Option held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). SECTION 6.1 Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). SECTION 6.2 Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. SECTION 6.3 Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. SECTION 6.4 Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. SECTION 6.5 Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. SECTION 6.6 Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the Purchaser's Immediate Family or a trust for the benefit of one or more members of the Purchaser's Immediate Family or to a trust, partnership, limited liability company, custodianship or other fiduciary account for the benefit of the Purchaser or one or more members of the Purchaser's Immediate Family, or the disbursement therefrom to Purchaser or one or more members of his Immediate Family, shall be exempt from the provisions of this Section, provided that the Purchaser notifies the Company in writing within thirty (30) days of said transfer. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Agreement and there shall be no further transfer of such Shares except in accordance with the terms of this Section. SECTION 6.7 Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. SECTION 7 Lock-Up Period Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee (or any transferee) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. SECTION 8 Nonassignability The Option shall not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, voluntarily or involuntarily, other than by will or by the laws of descent and distribution. The Option shall be exercisable during the lifetime of the Optionee only by the Optionee and thereafter by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. SECTION 9 No Right of Employment Nothing in this Agreement shall confer upon the Optionee the right to employment by or engagement as a Service Provider of the Company or affect any right which the Company may have to terminate any such employment or engagement. SECTION 10 421(b) Disqualifying Disposition Notice With respect to the transfer or other disposition of Shares issued pursuant to the exercise of any "incentive stock options" granted hereunder, the Optionee shall notify the Company of any such transfer of disposition made under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions). Such notice shall be delivered to the Company in accordance with the provisions of Section 11 below within 10 days of such transfer or other disposition. SECTION 11 Plan Provisions to Prevail This Option Agreement is subject to all of the terms and provisions of the Plan. Without limiting the generality of the foregoing, by entering into this Option Agreement the Optionee agrees that no member of the Board or the Committee nor any employee of the Company, Parent Corporation or any of the Company's subsidiaries shall be liable for any action or determination made in good faith with respect to the Plan or this Option Agreement. In the event that there is any inconsistency between the provisions of this Agreement and of the Plan, the provisions of the Plan shall govern. SECTION 12 Notices Any notice to be given to the Company hereunder shall be in writing and shall be addressed to Nexsan Corporation, or at such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section 12. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at the address set forth beneath the Optionee's signature hereto, or by electronic means if any facsimile number is provided beneath the Optionee's signature hereto or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or, if mailed by registered or certified mail to the party entitled to receive it, five days after the date the notice was so mailed, or if sent electronically, on the day on which it is actually transmitted. SECTION 13 Successors and Assigns This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent consistent with Section 4 of this Option Agreement and with the Plan, the heirs and personal representatives of the Optionee. SECTION 14 Governing Law This Option Agreement shall be interpreted, construed and administered in accordance with the laws of the State of New York as they apply to contracts made, delivered and performed entirely within such state. SECTION 15 Severability If any provision of this Option Agreement (including any provision of the Plan that is incorporated herein by reference) shall hereafter be held to be invalid, unenforceable or illegal in whole or in part, in any jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the benefits to the parties provided by, this Option Agreement and the Plan or (ii) if such provision cannot be so reformed, such provision shall be severed from this Option Agreement and an equitable adjustment shall be made to this Option Agreement (including, without limitation, addition of necessary further provisions to this Option Agreement) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall affect or impair the legality, validity or enforceability of any other provision of this Option Agreement or the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Stock Option Agreement as of the date and year first written above. NEXSAN CORPORATION /s/ Martin Boddy --------------------------- By: Martin Boddy Title: CEO OPTIONEE: /s/ Paul Coxson --------------------------- Address: 6 Bramcote Drive, Beeston Nottingham, NG91AW United Kingdom EX-4.8 16 0016.txt RESTRICTED STOCK PURCHASE AGREEMENT PROMISSORY NOTE $1,320.00 January 4, 2001 - --------- New York, New York FOR VALUE RECEIVED, the undersigned, DIAMOND LAUFFIN, (the "Payor"), with an address at 32 South Wendy Drive, Newbury Park, CA 91320, promises to pay to the order of NEXSAN CORPORATION, a Delaware corporation ("Payee") with offices at c/o Beechtree Capital, Ltd., 1 Rockefeller Plaza, New York, NY 10020, the principal amount of One Million Three Hundred Twenty Thousand ($1,320,000) Dollars, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest thereon at the rate of 5.61% per annum. Interest accrued hereunder shall be due and payable on the stated or any accelerated maturity date, and the principal amount hereof, together with all accrued but unpaid interest thereon, shall be paid on the fifth anniversary of the date hereof. This Note is issued by the Payor as payment in connection with the purchase by the Payor of two million (200,000,000) shares of the common stock ("Common Stock") of the Payee pursuant to a Restricted Stock Purchase Agreement dated the date hereof and is entitled to the benefits thereof. 1. Events of Default. a. Upon the occurrence of any of the following events (hereinafter called "Events of Default") which shall have occurred and be continuing: (i) The Payor shall default in any payment of principal or interest due under this Note and fail to cure such default within ten days after notice thereof; (ii) (1) The Payor shall commence any proceeding or other action relating to him in bankruptcy or seek readjustment of his debts, receivership, composition or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (2) the Payor shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (3) the Payor makes a general assignment for the benefit of his creditors; (iii) (1) The commencement of any proceedings or the taking of any other action against the Payor in bankruptcy or seeking the reorganization, arrangement or readjustment of his debts, or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for sixty (60) days undismissed, unbonded or undischarged; or (2) the issuance of a warrant of attachment, execution or similar process against substantially all of the property of the Payor and the continuance of such event for thirty (30) days undismissed, unbonded and undischarged; or (iv) (1)The Payor voluntarily elects to terminate his or her employment agreement with, or his or her arrangement for the provision of services to, the Payee, or (2) the Payee elects to terminate the Payor's employment or service agreement for Cause, as such term is defined in the Option Plan, then, and in any such event, the Payee may, by written notice to the Payor, declare the entire unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, due and payable, and the same shall forthwith become due and payable upon without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. b. Non-Waiver and Other Remedies. No course of dealing or delay on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver thereof or otherwise prejudice the rights of the holder of this Note. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 2. Security. (a) Pledge Agreement. This Note is secured by a Pledge Agreement between the Payor and the Payee, dated of even date herewith (the "Pledge Agreement"), pursuant to which the Payor has pledged the Common Stock as collateral for payment hereunder. (b) Recourse. No recourse under or upon any obligation, covenant or agreement of this Note, or for any claim based hereon or otherwise in respect hereof, shall be had against the Payor or his assigns, except (i) for accrued and unpaid interest, and (ii) in the event the amount actually applied to the payment of principal of this Note after payment of costs and expenses and accrued but unpaid interest hereon upon any sale by the Payee of the Common Stock (or any other collateral held as security for this Note) pursuant to Section 3 of the Pledge Agreement, or otherwise, is less than the original principal amount hereof, then this Note shall be with recourse to the Payor as to not more than thirty three and one-third percent (33 1/3 %) of the principal remaining unpaid immediately prior to such application. 3. Prepayment. The indebtedness evidenced by this Note may be prepaid by the Payor at any time in whole or in part from time to time, without premium or penalty, provided that any prepayment of any portion of the outstanding principal amount hereof shall be accompanied by all accrued but unpaid interest thereon. 4. Lost Documents. Upon receipt by the Payor of evidence reasonably satisfactory to him of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to him, and upon reimbursement to the Payor of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Note, if mutilated, the Payor will make and deliver to the Payee in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of this Note. 5. No Presentment, etc. The Payor and any endorsers, sureties and guarantors of this Note waive presentment for payment, demand, protest, notice of protest and notice of dishonor hereof, and all other notices to which they may be entitled. 6. Miscellaneous. a. Parties in Interest. All covenants, agreements and undertakings in this Note by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective permitted successors and assigns of the parties hereto whether so expressed or not. b. Notices. All notices, requests, consents and demands shall be made in writing and shall be sent, and deemed delivered, in the manner prescribed in Paragraph 12 of the Pledge Agreement. c. Waiver. The failure of the Payee to exercise any right or remedy granted to him hereunder on any one or more instances, shall not constitute a waiver of any default by the Payee, and all such rights and remedies shall remain continuously in force. No delay or omission in the exercise or enforcement by the Payee of any rights or remedies shall be construed as a waiver of any right or remedy of the Payee; and no exercise or enforcement of any such right or remedy shall be held to exhaust any other right or remedy of the Payee. d. Illegality. If any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provisions of this Note and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. e. Amendment. This Note may not be changed orally, but only by an instrument in writing duly executed by the party against which enforcement of any waiver, change, modification or discharge is sought. f. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York. IN WITNESS WHEREOF, this Note has been executed and delivered by the Payor on the date specified above. By: /s/ Diamond Lauffin ------------------------------- Diamond Lauffin, as Payor ACCEPTED: NEXSAN CORPORATION By: /s/ Martin Boddy ---------------- Name: Martin Boddy Title: CEO NEXSAN CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, capitalized terms defined in the 2001 Stock Plan (the "Plan") of Nexsan Corporation (the "Company") shall have the same meanings when used in this Restricted Stock Purchase Agreement (the "Agreement"). I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT --------------------------------------- DIAMOND LAUFFIN ( the "Purchaser") You have been granted the right to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement (the "Agreement"), as follows: Grant Number 1 - Date of Grant ------------- Exercise Price Per Share $0.66 ------------- Total Number of Shares Subject to This Stock Purchase Right ("Shares") 2,000,000 ------------- Non-Transferability of Stock Purchase Right. This Stock Purchase Right may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Purchaser only by Purchaser. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Purchaser. II. AGREEMENT --------- 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase the number of Shares set forth above in the Notice of Grant of Stock Purchase Right, at the exercise price per share set forth in the Notice of Grant of Stock Purchase Right (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall prevail. 2. Payment of Purchase Price. Purchaser herewith (i) delivers to the Company the aggregate Exercise Price for the Shares by promissory note ("Note") in the form of Exhibit A hereto, (ii) pledges the Shares to the Company to secure the Note pursuant to a Pledge Agreement in the form of Exhibit B attached hereto and (iii) assigns the Shares pursuant to an Assignment Separate From Certificate in the form of Exhibit B-1. 3. Purchaser's Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Stock Purchase Right is exercised, the Purchaser shall, if required by the Company, concurrently with the exercise of all or any portion of this Stock Purchase Right, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C. 4. Repurchase Option. (a) In the event the Purchaser's continuous status as an employee and/or independent contractor (collectively "Service Provider") terminates for any or no reason (including death or Disability), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company), have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unvested Shares (as defined in Section 5) at the Exercise Price per share, plus interest at the rate of interest set forth in the Note (the "Repurchase Price"). (b) The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 8)) and, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company. (c) Whenever the Company shall have the right to repurchase the Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's Repurchase Option to purchase all or a part of the Unvested Shares. If the Fair Market Value of the Unvested Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the Unvested Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of Unvested Shares to be purchased. 2 (d) If the Company or its assignee does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within sixty (60) days following Purchaser's termination as a Service Provider, the Repurchase Option shall terminate. 5. Release of Shares From Repurchase Option (Vesting). (a) Shares purchased pursuant to this Agreement shall be released from the Repurchase Option (sometimes hereafter referred to as "vest" or "vesting") not earlier than the second anniversary of the Date of Grant. Notwithstanding anything to the contrary in this Agreement, Shares not vested before December 31, 2005 shall never thereafter vest and shall, subject to Section 4(d) above, always remain subject to the Repurchase Option. The determination of whether any Shares shall vest shall be made as of the last day of each month ending on or after the second anniversary of the Date of Grant and on or before the fifth anniversary of the Date of Grant based upon on the respective amounts (the "Target") of Sales (defined below) achieved by the Company during the Rolling Period (defined below) ended on such day. In the event that the term of the Employment Agreement, dated as of the date hereof, between the Purchaser and the Company (the "Employment Agreement") is extended beyond the initial five-year term, then the determination of whether any Shares vest shall be made as of the last day of each month during such extended term or terms. The number of Shares (expressed in one-sixteenth (1/16) denominations of the total number of Shares subject to this Agreement) in which Purchaser shall vest is set forth immediately to the left of the corresponding Target. The Company shall be considered to have achieved a Target if Sales of the Company for any Rolling Period equal or exceed the amount thereof set forth in the same row as the Target in the table below. The Purchaser shall be entitled to vest in the number of Shares set forth to the left of the highest Target achieved. Once vested, Shares shall not cease to be vested even if the Company fails to achieve a Target that was achieved in a prior Rolling Period. For purposes of this Section 5, the Date of Grant shall be deemed to be the January 1, 2001. Illustration: upon the Company achieving Sales of $70,000,000 (i.e., Target 1) for a Rolling Period, the Purchaser will vest in two-sixteenths (2/16) of the total number of Shares subject to this Agreement, at the close of such Rolling Period (provided, however, that the close of such Rolling Period is after the second anniversary of the Agreement). Should the Company achieve Sales of $150,000,000 (i.e., Target 4) for a subsequent Rolling Period, the Purchaser will vest in an additional four-sixteenths (4/16) of the total number of Shares subject to this Agreement, so as to be vested on a cumulative basis in six-sixteenths (6/16) of the total number of Shares subject to this Agreement, at the close of the subsequent Rolling Period (provided, however, that the close of such subsequent Rolling Period is after the second anniversary of this Agreement). 3 --------------------------------------------------------------------- Stock to Vest Target Sales ('000s) Cumulative Vested Stock --------------------------------------------------- 2/16 Target 1 $ 70,000 2/16 --------------------------------------------------- 1/16 Target 2 $110,000 3/16 --------------------------------------------------- 1/16 Target 3 $130,000 4/16 --------------------------------------------------- 2/16 Target 4 $150,000 6/16 --------------------------------------------------- 1/16 Target 5 $170,000 7/16 --------------------------------------------------- 1/16 Target 6 $180,000 8/16 --------------------------------------------------- 1/16 Target 7 $190,000 9/16 --------------------------------------------------- 3/16 Target 8 $200,000 12/16 --------------------------------------------------- 1/16 Target 9 $225,000 13/16 --------------------------------------------------- 1/16 Target 10 $250,000 14/16 --------------------------------------------------- 1/16 Target 11 $275,000 15/16 --------------------------------------------------- 1/16 Target 12 $300,000 16/16 --------------------------------------------------- Total Stock to Vest 100% --------------------------------------------------------------------- "Rolling Period" means, as of the last day of any month beginning on the second anniversary of the Date of Grant and ending before the later of the (i) fifth anniversary of the Date of Grant, or (ii) the extended term of the Employment Agreement, the immediately preceding twelve (12) month period ending on such day. "Sales" means the total amount of sales, net of returns, discounts and allowances, of the Company . All determinations of Sales shall be based on the regularly prepared financial statements of the Company, which need not be audited; provided, that if an audit of the Company's financial statements results in a change to any unaudited statements, the audited statements shall control for purposes of this Agreement. (b) Any of the Shares which have not yet been released from the Company's Repurchase Option are referred to herein as "Unvested Shares." (c) The Shares which have been released from the Company's Repurchase Option shall be delivered to the Purchaser at the Purchaser's request (see Section 8). (d) In the event that Purchaser's relationship as a Service Provider with the Company, and/or any of its Parent or Subsidiary companies, shall terminate prior to the vesting of all Shares purchased under this Agreement all Unvested Shares shall cease to vest pursuant to this Agreement. 4 (e) Notwithstanding section (a) above, should the Purchaser's death or Disability occur while he or she is a Service Provider, (i) prior to the first anniversary of the Date of Grant, and the product of (x) the aggregate Sales as shown in the Company's financial statements for the three full calendar months ended immediately prior to the date of death or Disability, multiplied by (y) four (4), is equal to or is in excess of $20 million US Dollars, then and only then, the Company shall, at its sole option, either cause the Purchaser to vest in one-sixteenth (1/16) of the total number of Shares subject to this Agreement, or pay to the Purchaser, or to his personal representatives, $312,500 US Dollars in cash; (ii) at any time between the first and second anniversaries of the Date of Grant, and Target 1 has been reached, then and only then, the Purchaser will vest in two-sixteenths (2/16) of the total number of Shares subject to this Agreement; the Company shall have the option, exercisable upon written notice within sixty (60) days after the date of death or Disability, to purchase one-sixteenth (1/16) of the total number of Shares subject to this Agreement, for an amount equal to the Fair Market Value at the date of death or Disability; payable to the Purchaser, or his or her lawful representatives, in three consecutive equal annual installments beginning on the first anniversary of the date of death or Disability, together with interest at the rate of seven percent (7%) per annum on the unpaid balance; (iii) at any time between the second and fifth anniversaries of the Date of Grant, the Company shall have the option, exercisable upon written notice within sixty (60) days after the date of death or Disability the Company, to repurchase all vested Shares vested for an amount equal to the Fair Market Value at the date of death or Disability, payable in four consecutive equal annual installments beginning on the first anniversary of the date of death or Disability, together with interest at the rate of seven percent (7%) per annum on the unpaid balance. 6. Put Option. (a) Grant of Option. The Company irrevocably grants to the Purchaser the right (the "Put Option") to require the Company, upon a Change of Control, to purchase all of the vested and unvested Shares then held by the Purchaser. The Put Option may be exercised by the Purchaser in respect of all, and only all, of the vested and unvested Shares, and by delivery of written notice of exercise of the Put Option, within the later of (i) fifteen (15) days before the consummation of the Change of Control and (ii) fifteen (15) days after the Company has given the Purchaser notice of the principal terms of the Change of Control (the "Option Notice"). "Change of Control" means a sale of all or substantially all of the Company's assets or a merger, consolidation, reorganization or similar event or sale or exchange of all of the Company's outstanding capital stock if after such transaction stockholders of the Company immediately before the transaction own less than 50% of the voting securities of the purchaser or surviving or continuing entity. 5 (b) Expiration. The Put Option shall be exercisable only if the Change of Control is consummated prior to the fifth anniversary of the Date of Grant, provided, that if the Employment Agreement is extended beyond its initial five-year term, then the Put Option shall be exercisable during the extended term or terms. (c) Determination of Put Price. The consideration to be paid to the Purchaser upon exercise of the Put Option (the "Put Price") shall be equal to: (i) the product of five percent (5%) of the Excess Value, at the time of Change of Control, should such Change of Control occur prior to the second anniversary of the Date of Grant, multiplied by ten-sixteenths (10/16); (ii) the product of ten percent (10%) of the Excess Value, at the time of Change of Control, should such Change of Control occur subsequent to the second and prior to the third anniversary of the Date of Grant, multiplied by ten-sixteenths (10/16); (iii) the product of sixteen percent (16%) of the Excess Value, at the time of Change of Control, should such Change of Control occur subsequent to the third anniversary of the Date of Grant, multiplied by multiplied by ten-sixteenths (10/16). "Excess Value" means the excess over $30,000,000 (thirty million) US Dollars of the Fair Market Value of all equity interests in the Company. (d) Put Closing. At the closing of the transaction contemplated by the exercise of the Put Option, (i) the Purchaser shall deliver to the Company his or her certificates, representing all his or her vested and unvested Shares, free and clear from all liens, claims and encumbrances, with duly executed instruments of assignment attached, and (ii) Purchaser shall make such customary representations and warranties, as the Company may reasonably request; and (iii) the Company shall deliver to the Purchaser in cash or by wire transfer the purchase price of the vested and unvested Shares, provided that if the consideration received by the stockholders of the Company, with respect to the Change of Control, is other than cash, the Company shall be entitled to pay the Purchaser the Put Price by delivery to the Purchaser of the Fair Market Value of such other consideration, and the Purchaser shall become a party to, and bound by, any restriction imposed upon the Company's stockholders with respect to the consideration received in connection with the Change of Control . The Put Closing shall occur within thirty (30) days of the later of (x) Change of Control or (y) delivery of the Put Notice to the Company, at the offices of the Company, or at such other place the Company and the Purchaser mutually agree. 7. Restriction on Transfer. Except for the escrow described in Section 8 of this Agreement or transfer of the Shares to the Company or its assignees contemplated by this Agreement or the Pledge Agreement (in the form attached hereto as Exhibit B), none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and 6 distribution; provided, however, that Purchaser may transfer shares in conformance with Section 9(f) of this Agreement. 8. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unvested Shares upon exercise of the Repurchase Option by the Company, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") and reasonably acceptable to the Purchaser the share certificates representing the Unvested Shares, together with the Assignment Separate from Certificate (the "Stock Assignment") duly endorsed in blank, in the form attached hereto as Exhibit D. The Unvested Shares and Stock Assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser in the form attached as Exhibit E hereto, until such time as the Company's Repurchase Option expires. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unvested Shares in escrow and while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises its Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Repurchase Option has been exercised or expires unexercised, and a portion of the Shares has been released from such Repurchase Option, the Escrow Holder shall promptly upon request, but not more frequently than once each year, cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's Repurchase Option. 9. Company's Right of First Refusal. Before any Shares held by Purchaser or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall 7 have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be (i) the Offered Price in the case of Shares that are vested or (ii) in the case of Shares that are Unvested Shares, the lower of the Offered Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. 8 (f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the Purchaser's Immediate Family or a trust for the benefit of one or more members of the Purchaser's Immediate Family or to a trust, partnership, limited liability company, custodianship or other fiduciary account for the benefit of the Purchaser or one or more members of the Purchaser's Immediate Family, or the disbursement therefrom to Purchaser or one or more members of his Immediate Family, shall be exempt from the provisions of this Section, provided that the Purchaser notifies the Company in writing within thirty (30) days of said transfer. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Agreement, including but not limited to this Section and Section 4, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 10. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer. (a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH 9 TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i)to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 11. Lock-Up Period. Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser (or any transferee under Section 8 of this Agreement) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 12. Tax Consequences. Set forth below is a brief summary as of the date of grant of this Stock Purchase Right of some of the federal tax consequences of exercise of this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. (a) Exercise of Stock Purchase Right. Generally, no income will be recognized by Purchaser in connection with the exercise of the stock purchase right for shares subject to the Repurchase Option, unless an election under Section 83(b) of the Code is filed with the Internal Revenue Service within 30 days of the date of exercise of the right to purchase stock. The form for making this election is attached as Exhibit F hereto. Otherwise, as the Company's repurchase right lapses, Purchaser will recognize compensation income in an amount equal to the difference between the Fair Market Value of the stock at the time the Company's repurchase right lapses and the amount paid for the stock, if any (the "Spread"). If Purchaser is a Service Provider or former Service Provider, the Spread will be subject to tax withholding by the Company, and 10 the Company will be entitled to a tax deduction in the amount at the time the Purchaser recognizes ordinary income with respect to a Stock Purchase Right. (b) Disposition of Shares. Upon disposition of the Shares, any gain or loss is treated as capital gain or loss. If the Shares are held for more than one year, any gain realized on disposition of the shares will be treated as long-term capital gain for federal income tax purposes. Long-term capital gains are grouped and netted by holding periods. Net capital gains on assets held for more than 12 months is capped at 20%. Capital losses are allowed in full against capital gains, and up to $3,000 against other income. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 13. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO PARAGRAPH 5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AND THE COMPANY ACHIEVING CERTAIN TARGETS (AS DEFINED) (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL. 14. Notices. Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and may be delivered by hand, by nationally recognized private courier, or by certified mail. Notices delivered by hand or by nationally recognized private courier shall be deemed given when delivered personally to the addressee or to the courier, or if given by certified mail when deposited in the U.S. mail, certified and with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party not sending the notice. 15. No Waiver. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. 11 16. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Purchaser and his or her heirs, executors, administrators, successors and assigns. 17. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Purchaser or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 18. Governing Law; Severability. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of New York. 19. Entire Agreement. The Plan is incorporated herein by reference. This Agreement (including the exhibits referenced herein), the Plan and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions 12 arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Stock Purchase Right. DIAMOND LAUFFIN NEXSAN CORPORATION Address: Address: 32 South Wendy Drive C/o Beechtree Capital, Ltd. Newbury Park, CA 91320 1 Rockefeller Plaza Suite 1600 New York, NY 10020 By: /s/ Martin Boddy ------------------------------ /s/ Diamond Lauffin Name Printed: Martin Boddy - ---------------------------- Title: Signature Diamond Lauffin - ---------------------------- Print Name 13 EXHIBIT B --------- PLEDGE AGREEMENT THE PLEDGE AGREEMENT (the "Agreement"), entered into as of ____________, 2001, by and between Nexsan Corporation ("Secured Party") and __________ (the "Pledgor"). W I T N E S S E T H: WHEREAS, Pledgor has purchased from the Secured Party ______________shares ("Shares") of the common stock of Nexsan Corporation, a Delaware corporation (the "Corporation"), pursuant to the Restricted Stock Purchase Agreement and exhibits thereto (collectively the "Agreement"), dated the date hereof between Pledgor and the Secured Party ("Stock Purchase Agreement"); and WHEREAS, Pledgor has agreed to pledge the Shares as security for the Promissory Note of even date herewith, made by Pledgor to the order of the Secured Party pursuant to the Stock Purchase Agreement (the "Note"). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Warranty and Covenant. Pledgor represents and warrants to the Secured Party that except for the security interest created hereby, and except for restrictions imposed by the Restricted Stock Purchase Agreement, he owns the Shares free and clear of all liens, charges and encumbrances and that he has the unencumbered right to pledge such Shares pursuant to the terms hereof. 2. Pledge. As security for the prompt payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all indebtedness and all other liabilities and obligations, whether now existing or hereafter arising, of Pledgor to the Secured Party under or arising out of the Note (collectively, the "Obligations"), Pledgor hereby delivers, pledges and assigns to Secured Party and creates in Secured Party a perfected first security interest in all of Pledgor's right, title and interest in, to and under all of the Shares, together with (subject to the terms of Section 3 hereof) all rights and privileges of Pledgor with respect thereto, all proceeds, income and profits thereof and all property received in addition thereto, in exchange thereof or in substitution therefor and in any other property or assets of equal value as may from time to time be substituted by mutual agreement of the parties hereto as collateral security hereunder (all such property of Pledgor being hereinafter referred to collectively as the "Collateral"). 3. Rights of Pledgor. So long as no Default has occurred and is continuing (as used, herein, the term "Default" shall mean and include (i) the failure of Pledgor to perform any of her Obligations when due, (ii) any material misrepresentation by Pledgor in or with respect to any provision of the Agreement or the Note, or (iii) any attachment of the Collateral at any time pursuant to any court order or other legal process), (a) Pledgor shall be entitled to vote or consent with respect to the Collateral in any manner not inconsistent with the Agreement or the Note, and (b) all cash distributions with respect to the Shares shall, anything in Section 2 or elsewhere herein to the contrary notwithstanding, be the sole and exclusive property of Pledgor. 4. Event of Default. In the event of the occurrence of an Event of Default, as such term is defined in the Note, and the continuation of such Event of Default uncured beyond any applicable notice or other grace period, Secured Party may sell or otherwise dispose of the Collateral at a public or private sale or make other commercially reasonable disposition of the Collateral or any portion thereof after twenty-one (21) calendar days' notice to the Pledgor. Any proceeds of the disposition of the Collateral in excess of the then outstanding Obligations shall promptly be remitted to Pledgor by the Secured Party. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Collateral, or any partial disposition of the Collateral, Pledgor agrees to execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use her reasonable best efforts to secure the same. Pledgor further agrees to use her reasonable best efforts (without incurring any additional cost or expense) to secure such sale or other disposition of the Collateral as the Secured Party may deem necessary pursuant to the terms of the Agreement 5. Additional Rights of the Secured Party. In addition to its rights and privileges under the Agreement, the Secured Party shall have all the rights, powers and privileges of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction. 6. Binding Agreement. The Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York applicable to agreements made and to be performed wholly within the State of New York. The Agreement, together with all documents referred to herein, constitutes the entire agreement between the parties with respect to the matters addressed herein and may not be modified except by a writing executed by Pledgor and the Secured Party. 7. Covenants. The Secured Party covenants that, provided no Default or Event of Default (as defined in the Note) shall exist and be continuing, it shall release Shares from the pledge created hereby upon payment of a pro rata portion of the Note and accrued interest; provided, that such Shares shall be delivered by Secured Party to the Escrow Holder (as defined in the Stock Purchase Agreement) to be held and disposed of in accordance with the terms of the Stock Purchase Agreement. 2 8. Termination. The Agreement shall continue in full force and effect until all the Obligations shall have been fully and indefeasibly paid in full. The Collateral shall be delivered to the Escrow Holder upon full payment, satisfaction and termination of all of the Obligations, to be held and disposed of in accordance with the terms of the Agreement. 9. Further Assurances. Pledgor shall at any time and from time to time upon the written request of the Secured Party, execute and deliver such further documents and do such further acts and things as the Secured Party may reasonably request in order to effect the purposes of the Agreement. 10. Severability. If any paragraph herein, or part thereof, shall for any reason be held or adjudged to be invalid, illegal or unenforceable by any court of competent jurisdiction, such paragraph or part thereof so adjudicated invalid, illegal or unenforceable shall be deemed separate, distinct and independent, and the remainder of the Agreement shall remain in full force and effect and shall not be affected by such holding or adjudication. 11. Successors and Assigns. The Agreement, and the terms and conditions hereof, shall be binding upon and shall inure to the benefit of the Pledgor and his or her successors and assigns, and the Secured Party and his or her successors and assigns; provided that Pledgor may not assign or delegate his or her obligations hereunder without the prior written consent of the Secured Party and any purported assignment or delegation by Pledgor of his or her obligations hereunder in the absence of such written consent shall be void. 12. Notices. All notices and other communication provided for herein shall be in writing and mailed, by registered or certified mail, return receipt requested, or delivered by overnight courier or by hand, to the intended recipient at the "Address for Notices" specified below intended recipient's name on the signature page hereof; or, as to either party, at such other address as shall hereafter be designated by such party in a notice to the other party. Except as otherwise provided in the Agreement, all notices and other communications hereunder shall be deemed to have been duly given when received by the intended recipient. 13. Counterparts. The Agreement may be executed in any number of counterpart copies, each of which shall be deemed an original, but which together shall constitute a single instrument. 14. Headings. Descriptive headings appearing herein are included solely for convenience of reference and are not intended to affect the meaning or construction of any of the provisions of the Agreement. [The remainder of this page is intentionally blank.] 3 IN WITNESS WHEREOF, the undersigned parties hereto have executed the Agreement, as of the day and year first above written. ------------------------------------------------- ---------------------------, as Pledgor Address for Notices: ------------------------ ------------------------ NEXSAN CORPORATION By:------------------------------------------ Name Printed: ------------------- Title:--------------------------- 4 EXHIBIT B-1 ----------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED the undersigned, __________________________, does hereby sell, assign and transfer unto ________________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Pledge Agreement between Nexsan Corporation and the undersigned dated _________________. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 5 EXHIBIT C --------- INVESTMENT REPRESENTATION STATEMENT PURCHASER: ------------------------------- COMPANY: Nexsan Corporation SECURITY: COMMON STOCK AMOUNT: -------------------- shares DATE: ----------------------- In connection with the purchase of the above-listed shares of common stock (the "Securities"), the undersigned Purchaser represents to the Company the following: Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Purchaser is acquiring these Securities for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Purchaser further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Securities. Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of Delaware and any other legend required under applicable state securities laws. Purchaser is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Stock Purchase Right to the Purchaser, the exercise will be exempt from 1 registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three (3) month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Stock Purchase Right, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one (1) year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two (2) years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. Purchaser further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Purchaser understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Purchaser: - -------------------------------- Print Name:-------------------- Date: ------------------------ 2 EXHIBIT D --------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, __________________________, does hereby sell, assign and transfer unto ________________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between Nexsan Corporation and the undersigned dated ______________, ____. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 1 EXHIBIT E --------- JOINT ESCROW INSTRUCTIONS -------------------, ----- Mr. -------------------- Secretary, Nexsan Corporation - ---------------------------- - ---------------------------- Dear Sir: As Escrow Agent for both Nexsan Corporation, a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: a. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement (the "Repurchase Option"), the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. b. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Repurchase Option. c. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions to and substitutions for said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph (c), Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 1 d. Once per calendar year and upon termination of this escrow, unless the Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Repurchase Option. Within ninety (90) days after cessation of Purchaser's continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Repurchase Option. e. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. f. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. g. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. h. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. i. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. j. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. k. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 2 l. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. m. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. n. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten (10) days' advance written notice to each of the other parties hereto. COMPANY: Nexsan Corporation -------------------- -------------------- PURCHASER: -------------------- -------------------- -------------------- ESCROW AGENT: -------------------- -------------------- -------------------- -------------------- o. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. p. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. 3 q. The Restricted Stock Purchase Agreement is incorporated herein by reference. These Joint Escrow Instructions, the 2001 Stock Plan, and the Restricted Stock Purchase Agreement (including the exhibits referenced therein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Escrow Agent, the Purchaser and the Company with respect to the subject matter hereof, and 3 may not be modified except by means of a writing signed by the Escrow Agent, the Purchaser and the Company. r. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Very truly yours, Nexsan Corporation By: ---------------------------------------- Printed Name: ------------------- Title: -------------------------- PURCHASER: ------------------------------------------- (Signature) ------------------------------------------- (Typed or Printed Name) ESCROW AGENT: - ------------------------------- - ------------------------------- 4 EXHIBIT F --------- ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below: a. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: ADDRESS: IDENTIFICATION NO.: TAXABLE YEAR: 2001 b. The property with respect to which the election is made is described as follows: ___________________shares (the "Shares") of the Common Stock of Nexsan Corporation (the "Company"). c. The date on which the property was transferred is: ________, 2001. d. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, on certain events. This repurchase right lapses with regard to a portion of the Shares based on the achievement by the Company of certain performance targets while the undersigned is a service provider of the Company. e. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $ ____________ per share. f. The amount (if any) paid for such property is: $ ____________per share. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. 1 The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: --------------------,--------- - -------------------------------, Taxpayer Printed Name: --------------------------------- 2 EX-4.9 17 0017.txt RESTRICTED STOCK PURCHASE AGREEMENT NEXSAN CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, capitalized terms defined in the 2001 Stock Plan (the "Plan") of Nexsan Corporation (the "Company") shall have the same meanings when used in this Restricted Stock Purchase Agreement (the "Agreement"). I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT JAMES MOLENDA (the "Purchaser") You have been granted the right to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement (the "Agreement"), as follows: Grant Number 2 - Date of Grant ------------------ Exercise Price Per Share $0.66 ----- Total Number of Shares Subject to This Stock Purchase Right ("Shares") 1,200,000 ------------------ Non-Transferability of Stock Purchase Right. This Stock Purchase Right may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Purchaser only by Purchaser. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Purchaser. II. AGREEMENT 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase the number of Shares set forth above in the Notice of Grant of Stock Purchase Right, at the exercise price per share set forth in the Notice of Grant of Stock Purchase Right (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall prevail. 2. Payment of Purchase Price. Purchaser herewith (i) delivers to the Company the aggregate Exercise Price for the Shares by promissory note ("Note") in the form of Exhibit A hereto, (ii) pledges the Shares to the Company to secure the Note pursuant to a Pledge Agreement in the form of Exhibit B attached hereto and (iii) assigns the Shares pursuant to an Assignment Separate From Certificate in the form of Exhibit B-1. 3. Purchaser's Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Stock Purchase Right is exercised, the Purchaser shall, if required by the Company, concurrently with the exercise of all or any portion of this Stock Purchase Right, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C. 4. Repurchase Option. (a) In the event the Purchaser's continuous status as an employee and/or independent contractor (collectively "Service Provider") terminates for any or no reason (including death or Disability), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company), have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unvested Shares (as defined in Section 5) at the Exercise Price per share, plus interest at the rate of interest set forth in the Note (the "Repurchase Price"). (b) The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 8)) and, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company. (c) Whenever the Company shall have the right to repurchase the Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's Repurchase Option to purchase all or a part of the Unvested Shares. If the Fair Market Value of the Unvested Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the Unvested Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of Unvested Shares to be purchased. -2- (d) If the Company or its assignee does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within sixty (60) days following Purchaser's termination as a Service Provider, the Repurchase Option shall terminate. 5. Release of Shares From Repurchase Option (Vesting). (a) Shares purchased pursuant to this Agreement shall be released from the Repurchase Option (sometimes hereafter referred to as "vest" or "vesting") not earlier than the second anniversary of the Date of Grant. Notwithstanding anything to the contrary in this Agreement, Shares not vested before December 31, 2005 shall never thereafter vest and shall, subject to Section 4(d) above, always remain subject to the Repurchase Option. The determination of whether any Shares shall vest shall be made as of the last day of each month ending on or after the second anniversary of the Date of Grant and on or before the fifth anniversary of the Date of Grant based upon on the respective amounts (the "Target") of Sales (defined below) achieved by the Company during the Rolling Period (defined below) ended on such day. In the event that the term of the Employment Agreement, dated as of the date hereof, between the Purchaser and the Company (the "Employment Agreement") is extended beyond the initial five-year term, then the determination of whether any Shares vest shall be made as of the last day of each month during such extended term or terms. The number of Shares (expressed in one-sixteenth (1/16) denominations of the total number of Shares subject to this Agreement) in which Purchaser shall vest is set forth immediately to the left of the corresponding Target. The Company shall be considered to have achieved a Target if Sales of the Company for any Rolling Period equal or exceed the amount thereof set forth in the same row as the Target in the table below. The Purchaser shall be entitled to vest in the number of Shares set forth to the left of the highest Target achieved. Once vested, Shares shall not cease to be vested even if the Company fails to achieve a Target that was achieved in a prior Rolling Period. For purposes of this Section 5, the Date of Grant shall be deemed to be the January 1, 2001. Illustration: upon the Company achieving Sales of $70,000,000 (i.e., Target 1) for a Rolling Period, the Purchaser will vest in two-sixteenths (2/16) of the total number of Shares subject to this Agreement, at the close of such Rolling Period (provided, however, that the close of such Rolling Period is after the second anniversary of the Agreement). Should the Company achieve Sales of $150,000,000 (i.e., Target 4) for a subsequent Rolling Period, the Purchaser will vest in an additional four-sixteenths (4/16) of the total number of Shares subject to this Agreement, so as to be vested on a cumulative basis in six-sixteenths (6/16) of the total number of Shares subject to this Agreement, at the close of the subsequent Rolling Period (provided, however, that the close of such subsequent Rolling Period is after the second anniversary of this Agreement). -3- - -------------------------------------------------------------------------------- Stock to Vest Target Sales ('000s) Cumulative Vested Stock ---------------------------------------------- 2/16 Target 1 $70,000 2/16 ---------------------------------------------- 1/16 Target 2 $110,000 3/16 ---------------------------------------------- 1/16 Target 3 $130,000 4/16 ---------------------------------------------- 2/16 Target 4 $150,000 6/16 ---------------------------------------------- 1/16 Target 5 $170,000 7/16 ---------------------------------------------- 1/16 Target 6 $180,000 8/16 ---------------------------------------------- 1/16 Target 7 $190,000 9/16 ---------------------------------------------- 3/16 Target 8 $200,000 12/16 ---------------------------------------------- 1/16 Target 9 $225,000 13/16 ---------------------------------------------- 1/16 Target 10 $250,000 14/16 ---------------------------------------------- 1/16 Target 11 $275,000 15/16 ---------------------------------------------- 1/16 Target 12 $300,000 16/16 ---------------------------------------------- Total Stock to Vest 100% - -------------------------------------------------------------------------------- "Rolling Period" means, as of the last day of any month beginning on the second anniversary of the Date of Grant and ending before the later of the (i) fifth anniversary of the Date of Grant, or (ii) the extended term of the Employment Agreement, the immediately preceding twelve (12) month period ending on such day. "Sales" means the total amount of sales, net of returns, discounts and allowances, of the Company . All determinations of Sales shall be based on the regularly prepared financial statements of the Company, which need not be audited; provided, that if an audit of the Company's financial statements results in a change to any unaudited statements, the audited statements shall control for purposes of this Agreement. (b) Any of the Shares which have not yet been released from the Company's Repurchase Option are referred to herein as "Unvested Shares." (c) The Shares which have been released from the Company's Repurchase Option shall be delivered to the Purchaser at the Purchaser's request (see Section 8). (d) In the event that Purchaser's relationship as a Service Provider with the Company, and /or any of its Parent or Subsidiary companies, shall terminate prior to the vesting of all Shares purchased under this Agreement all Unvested Shares shall cease to vest pursuant to this Agreement. -4- (e) Notwithstanding section (a) above, should the Purchaser's death or Disability occur while he or she is a Service Provider, (i) prior to the first anniversary of the Date of Grant, and the product of (x) the aggregate Sales as shown in the Company's financial statements for the three full calendar months ended immediately prior to the date of death or Disability, multiplied by (y) four (4), is equal to or is in excess of $20 million US Dollars, then and only then, the Company shall, at its sole option, either cause the Purchaser to vest in one-sixteenth (1/16) of the total number of Shares subject to this Agreement, or pay to the Purchaser, or to his personal representatives, $187,500 US Dollars in cash; (ii) at any time between the first and second anniversaries of the Date of Grant, and Target 1 has been reached, then and only then, the Purchaser will vest in two-sixteenths (2/16) of the total number of Shares subject to this Agreement; the Company shall have the option, exercisable upon written notice within sixty (60) days after the date of death or Disability, to purchase one-sixteenth (1/16) of the total number of Shares subject to this Agreement, for an amount equal to the Fair Market Value at the date of death or Disability; payable to the Purchaser, or his or her lawful representatives, in three consecutive equal annual installments beginning on the first anniversary of the date of death or Disability, together with interest at the rate of seven percent (7%) per annum on the unpaid balance; (iii) at any time between the second and fifth anniversaries of the Date of Grant, the Company shall have the option, exercisable upon written notice within sixty (60) days after the date of death or Disability the Company, to repurchase all vested Shares vested for an amount equal to the Fair Market Value at the date of death or Disability, payable in four consecutive equal annual installments beginning on the first anniversary of the date of death or Disability, together with interest at the rate of seven percent (7%) per annum on the unpaid balance. 6. Put Option. (a) Grant of Option. The Company irrevocably grants to the Purchaser the right (the "Put Option") to require the Company, upon a Change of Control, to purchase all of the vested and unvested Shares then held by the Purchaser. The Put Option may be exercised by the Purchaser in respect of all, and only all, of the vested and unvested Shares, and by delivery of written notice of exercise of the Put Option, within the later of (i) fifteen (15) days before the consummation of the Change of Control and (ii) fifteen (15) days after the Company has given the Purchaser notice of the principal terms of the Change of Control (the "Option Notice"). "Change of Control" means a sale of all or substantially all of the Company's assets or a merger, consolidation, reorganization or similar event or sale or exchange of all of the Company's outstanding capital stock if after such transaction stockholders of the Company immediately before the transaction own less than 50% of the voting securities of the purchaser or surviving or continuing entity. -5- (b) Expiration. The Put Option shall be exercisable only if the Change of Control is consummated prior to the fifth anniversary of the Date of Grant, provided, that if the Employment Agreement is extended beyond its initial five-year term, then the Put Option shall be exercisable during the extended term or terms. (c) Determination of Put Price. The consideration to be paid to the Purchaser upon exercise of the Put Option (the "Put Price") shall be equal to: (i) the product of five percent (5%) of the Excess Value, at the time of Change of Control, should such Change of Control occur prior to the second anniversary of the Date of Grant, multiplied by six-sixteenths (6/16); (ii) the product of ten percent (10%) of the Excess Value, at the time of Change of Control, should such Change of Control occur subsequent to the second and prior to the third anniversary of the Date of Grant, multiplied by six-sixteenths (6/16); (iii) the product of sixteen percent (16%) of the Excess Value, at the time of Change of Control, should such Change of Control occur subsequent to the third anniversary of the Date of Grant, multiplied by multiplied by six-sixteenths (6/16). "Excess Value" means the excess over $30,000,000 (thirty million) US Dollars of the Fair Market Value of all equity interests in the Company. (d) Put Closing. At the closing of the transaction contemplated by the exercise of the Put Option, (i) the Purchaser shall deliver to the Company his or her certificates, representing all his or her vested and unvested Shares, free and clear from all liens, claims and encumbrances, with duly executed instruments of assignment attached, and (ii) Purchaser shall make such customary representations and warranties, as the Company may reasonably request; and (iii) the Company shall deliver to the Purchaser in cash or by wire transfer the purchase price of the vested and unvested Shares, provided that if the consideration received by the stockholders of the Company, with respect to the Change of Control, is other than cash, the Company shall be entitled to pay the Purchaser the Put Price by delivery to the Purchaser of the Fair Market Value of such other consideration, and the Purchaser shall become a party to, and bound by, any restriction imposed upon the Company's stockholders with respect to the consideration received in connection with the Change of Control . The Put Closing shall occur within thirty (30) days of the later of (x) Change of Control or (y) delivery of the Put Notice to the Company, at the offices of the Company, or at such other place the Company and the Purchaser mutually agree. 7. Restriction on Transfer. Except for the escrow described in Section 8 of this Agreement or transfer of the Shares to the Company or its assignees contemplated by this Agreement or the Pledge Agreement (in the form attached hereto as Exhibit B), none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and -6- distribution; provided, however, that Purchaser may transfer shares in conformance with Section 9(f) of this Agreement. 8. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unvested Shares upon exercise of the Repurchase Option by the Company, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") and reasonably acceptable to the Purchaser the share certificates representing the Unvested Shares, together with the Assignment Separate from Certificate (the "Stock Assignment") duly endorsed in blank, in the form attached hereto as Exhibit D. The Unvested Shares and Stock Assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser in the form attached as Exhibit E hereto, until such time as the Company's Repurchase Option expires. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unvested Shares in escrow and while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises its Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Repurchase Option has been exercised or expires unexercised, and a portion of the Shares has been released from such Repurchase Option, the Escrow Holder shall promptly upon request, but not more frequently than once each year, cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's Repurchase Option. 9. Company's Right of First Refusal. Before any Shares held by Purchaser or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall -7- have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be (i) the Offered Price in the case of Shares that are vested or (ii) in the case of Shares that are Unvested Shares, the lower of the Offered Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. -8- (f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the Purchaser's Immediate Family or a trust for the benefit of one or more members of the Purchaser's Immediate Family or to a trust, partnership, limited liability company, custodianship or other fiduciary account for the benefit of the Purchaser or one or more members of the Purchaser's Immediate Family, or the disbursement therefrom to Purchaser or one or more members of his Immediate Family, shall be exempt from the provisions of this Section, provided that the Purchaser notifies the Company in writing within thirty (30) days of said transfer. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Agreement, including but not limited to this Section and Section 4, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 10. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer. (a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH -9- TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i)to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 11. Lock-Up Period. Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser (or any transferee under Section 8 of this Agreement) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 12. Tax Consequences. Set forth below is a brief summary as of the date of grant of this Stock Purchase Right of some of the federal tax consequences of exercise of this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. (a) Exercise of Stock Purchase Right. Generally, no income will be recognized by Purchaser in connection with the exercise of the stock purchase right for shares subject to the Repurchase Option, unless an election under Section 83(b) of the Code is filed with the Internal Revenue Service within 30 days of the date of exercise of the right to purchase stock. The form for making this election is attached as Exhibit F hereto. Otherwise, as the Company's repurchase right lapses, Purchaser will recognize compensation income in an amount equal to the difference between the Fair Market Value of the stock at the time the Company's repurchase right lapses and the amount paid for the stock, if any (the "Spread"). If Purchaser is a Service Provider or former Service Provider, the Spread will be subject to tax withholding by the Company, and -10- the Company will be entitled to a tax deduction in the amount at the time the Purchaser recognizes ordinary income with respect to a Stock Purchase Right. (b) Disposition of Shares. Upon disposition of the Shares, any gain or loss is treated as capital gain or loss. If the Shares are held for more than one year, any gain realized on disposition of the shares will be treated as long-term capital gain for federal income tax purposes. Long-term capital gains are grouped and netted by holding periods. Net capital gains on assets held for more than 12 months is capped at 20%. Capital losses are allowed in full against capital gains, and up to $3,000 against other income. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 13. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO PARAGRAPH 5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AND THE COMPANY ACHIEVING CERTAIN TARGETS (AS DEFINED) (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL. 14. Notices. Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and may be delivered by hand, by nationally recognized private courier, or by certified mail. Notices delivered by hand or by nationally recognized private courier shall be deemed given when delivered personally to the addressee or to the courier, or if given by certified mail when deposited in the U.S. mail, certified and with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party not sending the notice. 15. No Waiver. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. -11- 16. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Purchaser and his or her heirs, executors, administrators, successors and assigns. 17. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Purchaser or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 18. Governing Law; Severability. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of New York. 19. Entire Agreement. The Plan is incorporated herein by reference. This Agreement (including the exhibits referenced herein), the Plan and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions -12- arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Stock Purchase Right. JAMES MOLENDA NEXSAN CORPORATION Address: Address: 20628 Calhaven Drive C/o Beechtree Capital, Ltd. Santa Clarita, CA 91350 1 Rockefeller Plaza Suite 1600 New York, NY 10020 By: /s/ Martin Boddy --------------------------- /s/ James Molenda Name Printed: Martin Boddy - ----------------------- Title: CEO Signature /s/ James Molenda - ------------------- Print Name -13- PROMISSORY NOTE $792,000 January 4, 2001 New York, New York FOR VALUE RECEIVED, the undersigned, JAMES MOLENDA, (the "Payor"), with an address at 20628 Calhaven Drive, Santa Clarita, CA 91350, promises to pay to the order of Nexsan Corporation, a Delaware corporation ("Payee") with offices at c/o Beachtree Capital, Ltd., 1 Rockefeller Plaza, New York, NY 10020, the principal amount of Seven Hundred Ninety Two Thousand ($792,000) Dollars, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest thereon at the rate of 5.61% per annum. Interest accrued hereunder shall be due and payable on the stated or any accelerated maturity date, and the principal amount hereof, together with all accrued but unpaid interest thereon, shall be paid on the fifth anniversary of the date hereof. This Note is issued by the Payor as payment in connection with the purchase by the Payor of one million two hundred (1,200,000) shares of the common stock ("Common Stock") of the Payee pursuant to a Restricted Stock Purchase Agreement dated the date hereof and is entitled to the benefits thereof. 1. Events of Default. a. Upon the occurrence of any of the following events (hereinafter called "Events of Default") which shall have occurred and be continuing: (i) The Payor shall default in any payment of principal or interest due under this Note and fail to cure such default within ten days after notice thereof; (ii) (1) The Payor shall commence any proceeding or other action relating to him in bankruptcy or seek readjustment of his debts, receivership, composition or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (2) the Payor shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (3) the Payor makes a general assignment for the benefit of his creditors; (iii) (1) The commencement of any proceedings or the taking of any other action against the Payor in bankruptcy or seeking the reorganization, arrangement or readjustment of his debts, or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for sixty (60) days undismissed, unbonded or undischarged; or (2) the issuance of a warrant of attachment, execution or similar process against substantially all of the property of the Payor and the continuance of such event for thirty (30) days undismissed, unbonded and undischarged; or (iv) (1)The Payor voluntarily elects to terminate his or her employment agreement with, or his or her arrangement for the provision of services to, the Payee, or (2) the Payee elects to terminate the Payor's employment or service agreement for Cause, as such term is defined in the Option Plan, then, and in any such event, the Payee may, by written notice to the Payor, declare the entire unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, due and payable, and the same shall forthwith become due and payable upon without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. b. Non-Waiver and Other Remedies. No course of dealing or delay on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver thereof or otherwise prejudice the rights of the holder of this Note. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 2. Security. (a) Pledge Agreement. This Note is secured by a Pledge Agreement between the Payor and the Payee, dated of even date herewith (the "Pledge Agreement"), pursuant to which the Payor has pledged the Common Stock as collateral for payment hereunder. (b) Recourse. No recourse under or upon any obligation, covenant or agreement of this Note, or for any claim based hereon or otherwise in respect hereof, shall be had against the Payor or his assigns, except (i) for accrued and unpaid interest, and (ii) in the event the amount actually applied to the payment of principal of this Note after payment of costs and expenses and accrued but unpaid interest hereon upon any sale by the Payee of the Common Stock (or any other collateral held as security for this Note) pursuant to Section 3 of the Pledge Agreement, or otherwise, is less than the original principal amount hereof, then this Note shall be with recourse to the Payor as to not more than thirty three and one-third percent (33 1/3 %) of the principal remaining unpaid immediately prior to such application. 3. Prepayment. The indebtedness evidenced by this Note may be prepaid by the Payor at any time in whole or in part from time to time, without premium or penalty, provided that any prepayment of any portion of the outstanding principal amount hereof shall be accompanied by all accrued but unpaid interest thereon. 4. Lost Documents. Upon receipt by the Payor of evidence reasonably satisfactory to him of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to him, and upon reimbursement to the Payor of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Note, if mutilated, the Payor will make and deliver to the Payee in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of this Note. 5. No Presentment, etc. The Payor and any endorsers, sureties and guarantors of this Note waive presentment for payment, demand, protest, notice of protest and notice of dishonor hereof, and all other notices to which they may be entitled. 6. Miscellaneous. a. Parties in Interest. All covenants, agreements and undertakings in this Note by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective permitted successors and assigns of the parties hereto whether so expressed or not. b. Notices. All notices, requests, consents and demands shall be made in writing and shall be sent, and deemed delivered, in the manner prescribed in Paragraph 12 of the Pledge Agreement. c. Waiver. The failure of the Payee to exercise any right or remedy granted to him hereunder on any one or more instances, shall not constitute a waiver of any default by the Payee, and all such rights and remedies shall remain continuously in force. No delay or omission in the exercise or enforcement by the Payee of any rights or remedies shall be construed as a waiver of any right or remedy of the Payee; and no exercise or enforcement of any such right or remedy shall be held to exhaust any other right or remedy of the Payee. d. Illegality. If any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provisions of this Note and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. e. Amendment. This Note may not be changed orally, but only by an instrument in writing duly executed by the party against which enforcement of any waiver, change, modification or discharge is sought. f. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York. IN WITNESS WHEREOF, this Note has been executed and delivered by the Payor on the date specified above. By: /s/ James Molenda ----------------------- James Molenda, as Payor ACCEPTED: NEXSAN CORPORATION By: /s/ Martin Boddy -------------------- Name: Martin Boddy Title: CEO EXHIBIT B PLEDGE AGREEMENT THE PLEDGE AGREEMENT (the "Agreement"), entered into as of ____________, 2001, by and between Nexsan Corporation ("Secured Party") and __________ (the "Pledgor"). W I T N E S S E T H: WHEREAS, Pledgor has purchased from the Secured Party ______________shares ("Shares") of the common stock of Nexsan Corporation, a Delaware corporation (the "Corporation"), pursuant to the Restricted Stock Purchase Agreement and exhibits thereto (collectively the "Agreement"), dated the date hereof between Pledgor and the Secured Party ("Stock Purchase Agreement"); and WHEREAS, Pledgor has agreed to pledge the Shares as security for the Promissory Note of even date herewith, made by Pledgor to the order of the Secured Party pursuant to the Stock Purchase Agreement (the "Note"). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Warranty and Covenant. Pledgor represents and warrants to the Secured Party that except for the security interest created hereby, and except for restrictions imposed by the Restricted Stock Purchase Agreement, he owns the Shares free and clear of all liens, charges and encumbrances and that he has the unencumbered right to pledge such Shares pursuant to the terms hereof. 2. Pledge. As security for the prompt payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all indebtedness and all other liabilities and obligations, whether now existing or hereafter arising, of Pledgor to the Secured Party under or arising out of the Note (collectively, the "Obligations"), Pledgor hereby delivers, pledges and assigns to Secured Party and creates in Secured Party a perfected first security interest in all of Pledgor's right, title and interest in, to and under all of the Shares, together with (subject to the terms of Section 3 hereof) all rights and privileges of Pledgor with respect thereto, all proceeds, income and profits thereof and all property received in addition thereto, in exchange thereof or in substitution therefor and in any other property or assets of equal value as may from time to time be substituted by mutual agreement of the parties hereto as collateral security hereunder (all such property of Pledgor being hereinafter referred to collectively as the "Collateral"). 3. Rights of Pledgor. So long as no Default has occurred and is continuing (as used, herein, the term "Default" shall mean and include (i) the failure of Pledgor to perform any of her Obligations when due, (ii) any material misrepresentation by Pledgor in or with respect to any provision of the Agreement or the Note, or (iii) any attachment of the Collateral at any time pursuant to any court order or other legal process), (a) Pledgor shall be entitled to vote or consent with respect to the Collateral in any manner not inconsistent with the Agreement or the Note, and (b) all cash distributions with respect to the Shares shall, anything in Section 2 or elsewhere herein to the contrary notwithstanding, be the sole and exclusive property of Pledgor. 4. Event of Default. In the event of the occurrence of an Event of Default, as such term is defined in the Note, and the continuation of such Event of Default uncured beyond any applicable notice or other grace period, Secured Party may sell or otherwise dispose of the Collateral at a public or private sale or make other commercially reasonable disposition of the Collateral or any portion thereof after twenty_one (21) calendar days' notice to the Pledgor. Any proceeds of the disposition of the Collateral in excess of the then outstanding Obligations shall promptly be remitted to Pledgor by the Secured Party. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Collateral, or any partial disposition of the Collateral, Pledgor agrees to execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use her reasonable best efforts to secure the same. Pledgor further agrees to use her reasonable best efforts (without incurring any additional cost or expense) to secure such sale or other disposition of the Collateral as the Secured Party may deem necessary pursuant to the terms of the Agreement 5. Additional Rights of the Secured Party. In addition to its rights and privileges under the Agreement, the Secured Party shall have all the rights, powers and privileges of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction. 6. Binding Agreement. The Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York applicable to agreements made and to be performed wholly within the State of New York. The Agreement, together with all documents referred to herein, constitutes the entire agreement between the parties with respect to the matters addressed herein and may not be modified except by a writing executed by Pledgor and the Secured Party. 7. Covenants. The Secured Party covenants that, provided no Default or Event of Default (as defined in the Note) shall exist and be continuing, it shall release Shares from the pledge created hereby upon payment of a pro rata portion of the Note and accrued interest; provided, that such Shares shall be delivered by Secured Party to the Escrow Holder (as defined in the Stock Purchase Agreement) to be held and disposed of in accordance with the terms of the Stock Purchase Agreement. -2- 8. Termination. The Agreement shall continue in full force and effect until all the Obligations shall have been fully and indefeasibly paid in full. The Collateral shall be delivered to the Escrow Holder upon full payment, satisfaction and termination of all of the Obligations, to be held and disposed of in accordance with the terms of the Agreement. 9. Further Assurances. Pledgor shall at any time and from time to time upon the written request of the Secured Party, execute and deliver such further documents and do such further acts and things as the Secured Party may reasonably request in order to effect the purposes of the Agreement. 10. Severability. If any paragraph herein, or part thereof, shall for any reason be held or adjudged to be invalid, illegal or unenforceable by any court of competent jurisdiction, such paragraph or part thereof so adjudicated invalid, illegal or unenforceable shall be deemed separate, distinct and independent, and the remainder of the Agreement shall remain in full force and effect and shall not be affected by such holding or adjudication. 11. Successors and Assigns. The Agreement, and the terms and conditions hereof, shall be binding upon and shall inure to the benefit of the Pledgor and his or her successors and assigns, and the Secured Party and his or her successors and assigns; provided that Pledgor may not assign or delegate his or her obligations hereunder without the prior written consent of the Secured Party and any purported assignment or delegation by Pledgor of his or her obligations hereunder in the absence of such written consent shall be void. 12. Notices. All notices and other communication provided for herein shall be in writing and mailed, by registered or certified mail, return receipt requested, or delivered by overnight courier or by hand, to the intended recipient at the "Address for Notices" specified below intended recipient's name on the signature page hereof; or, as to either party, at such other address as shall hereafter be designated by such party in a notice to the other party. Except as otherwise provided in the Agreement, all notices and other communications hereunder shall be deemed to have been duly given when received by the intended recipient. 13. Counterparts. The Agreement may be executed in any number of counterpart copies, each of which shall be deemed an original, but which together shall constitute a single instrument. 14. Headings. Descriptive headings appearing herein are included solely for convenience of reference and are not intended to affect the meaning or construction of any of the provisions of the Agreement. [The remainder of this page is intentionally blank.] -3- IN WITNESS WHEREOF, the undersigned parties hereto have executed the Agreement, as of the day and year first above written. ______________________________ __________________, as Pledgor Address for Notices: ___________________ ___________________ NEXSAN CORPORATION By: ____________________________________ Name Printed: _____________ Title: ____________________ -4- EXHIBIT B-1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED the undersigned, __________________________, does hereby sell, assign and transfer unto __________________________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Pledge Agreement between Nexsan Corporation and the undersigned dated _________________. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. -5- EXHIBIT C INVESTMENT REPRESENTATION STATEMENT PURCHASER: ________________________ COMPANY: Nexsan Corporation SECURITY: COMMON STOCK AMOUNT: _______________ shares DATE: _________________ In connection with the purchase of the above-listed shares of common stock (the "Securities"), the undersigned Purchaser represents to the Company the following: Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Purchaser is acquiring these Securities for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Purchaser further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Securities. Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of Delaware and any other legend required under applicable state securities laws. Purchaser is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Stock Purchase Right to the Purchaser, the exercise will be exempt from -1- registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three (3) month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Stock Purchase Right, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one (1) year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two (2) years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. Purchaser further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Purchaser understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Purchaser: _______________________________ Print Name: ___________________ Date: ______________________ -2- EXHIBIT D ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, __________________________, does hereby sell, assign and transfer unto __________________________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between Nexsan Corporation and the undersigned dated ______________, ____. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 1 EXHIBIT E JOINT ESCROW INSTRUCTIONS _________________, _________ Mr. ______________ Secretary, Nexsan Corporation _____________________________ _____________________________ Dear Sir: As Escrow Agent for both Nexsan Corporation, a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: a. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement (the "Repurchase Option"), the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. b. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Repurchase Option. c. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions to and substitutions for said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph (c), Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 1 d. Once per calendar year and upon termination of this escrow, unless the Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Repurchase Option. Within ninety (90) days after cessation of Purchaser's continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Repurchase Option. e. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. f. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. g. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. h. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. i. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. j. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. k. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. -2- l. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. m. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. n. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten (10) days' advance written notice to each of the other parties hereto. COMPANY: Nexsan Corporation __________________ PURCHASER: __________________ __________________ ESCROW AGENT: __________________ __________________ __________________ __________________ o. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. p. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. q. The Restricted Stock Purchase Agreement is incorporated herein by reference. These Joint Escrow Instructions, the 2001 Stock Plan, and the Restricted Stock Purchase Agreement (including the exhibits referenced therein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Escrow Agent, the Purchaser and the Company with respect to the subject matter hereof, and -3- may not be modified except by means of a writing signed by the Escrow Agent, the Purchaser and the Company. r. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Very truly yours, Nexsan Corporation By: ________________________________ Printed Name:________________ Title:_______________________ PURCHASER: ____________________________________ (Signature) ____________________________________ (Typed or Printed Name) ESCROW AGENT: __________________________ __________________________ -4- EXHIBIT F ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to the above_referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below: a. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: ADDRESS: IDENTIFICATION NO.: TAXABLE YEAR: 2001 b. The property with respect to which the election is made is described as follows: ___________________shares (the "Shares") of the Common Stock of Nexsan Corporation (the "Company"). c. The date on which the property was transferred is: ________________, 2001. d. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, on certain events. This repurchase right lapses with regard to a portion of the Shares based on the achievement by the Company of certain performance targets while the undersigned is a service provider of the Company. e. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $ ____________ per share. f. The amount (if any) paid for such property is: $ ____________per share. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. 1 The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: _______________, ____ ____________________________, Taxpayer Printed Name: - __________________________ -2- EX-4.10 18 0018.txt RESTRICTED STOCK PURCHASE AGREEMENT NEXSAN CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, capitalized terms defined in the 2001 Stock Plan (the "Plan") of Nexsan Corporation (the "Company") shall have the same meanings when used in this Restricted Stock Purchase Agreement (the "Agreement"). I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT BEECHTREE CAPITAL, LLC ( the "Purchaser") You have been granted the right to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement (the "Agreement"), as follows: Grant Number 5 - Date of Grant ------- Exercise Price Per Share $0.66 ----- Total Number of Shares Subject to This Stock Purchase Right ("Shares") 500,000 ------- Non-Transferability of Stock Purchase Right. This Stock Purchase Right may not be transferred in any manner and may be exercised only by Purchaser. The terms of the Plan and this Agreement shall be binding upon successors and assigns of the Purchaser. II. AGREEMENT 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase the number of Shares set forth above in the Notice of Grant of Stock Purchase Right, at the exercise price per share set forth in the Notice of Grant of Stock Purchase Right (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall prevail. 2. Payment of Purchase Price. Purchaser herewith (i) delivers to the Company the aggregate Exercise Price for the Shares by promissory note ("Note") in the form of Exhibit A hereto, (ii) pledges the Shares to the Company to secure the Note pursuant to a Pledge Agreement in the form of Exhibit B attached hereto and (iii) assigns the Shares pursuant to an Assignment Separate From Certificate in the form of Exhibit B-1. 3. Purchaser's Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Stock Purchase Right is exercised, the Purchaser shall, if required by the Company, concurrently with the exercise of all or any portion of this Stock Purchase Right, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C. 4. Repurchase Option. (a) In the event the Purchaser's continuous status as an independent consultant ("Service Provider") terminates for any or no reason (including death or Disability), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company), have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unvested Shares (as defined in Section 5) at the Exercise Price per share, plus interest at the rate of interest set forth in the Note (the "Repurchase Price"). (b) The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 7)) and, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company. (c) Whenever the Company shall have the right to repurchase the Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's Repurchase Option to purchase all or a part of the Unvested Shares. If the Fair Market Value of the Unvested Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the Unvested Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of Unvested Shares to be purchased. -2- (d) If the Company or its assignee does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within sixty (60) days following Purchaser's termination as a Service Provider, the Repurchase Option shall terminate. 5. Release of Shares From Repurchase Option (Vesting). (a) All of the Shares purchased pursuant to this Agreement shall be released from the Repurchase Option (sometimes hereafter referred to as "vest" or "vesting") on January 1, 2002. (b) Any of the Shares which have not yet been released from the Company's Repurchase Option are referred to herein as "Unvested Shares." (c) In the event that Purchaser's relationship as a Service Provider with the Company shall terminate prior to the vesting of all Shares purchased under this Agreement all Unvested Shares shall cease to vest pursuant to this Agreement. 6. Restriction on Transfer. Except for the escrow described in Section 7 of this Agreement or transfer of the Shares to the Company or its assignees contemplated by this Agreement or the Pledge Agreement (in the form attached hereto as Exhibit B), none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's Repurchase Option in accordance with the provisions of this Agreement. 7. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unvested Shares upon exercise of the Repurchase Option by the Company, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") and reasonably acceptable to the Purchaser the share certificates representing the Unvested Shares, together with the Assignment Separate from Certificate (the "Stock Assignment") duly endorsed in blank, in the form attached hereto as Exhibit D. The Unvested Shares and Stock Assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser in the form attached as Exhibit E hereto, until such time as the Company's Repurchase Option expires. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unvested Shares in escrow and while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises its Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. -3- (d) When the Repurchase Option has been exercised or expires unexercised, and a portion of the Shares has been released from such Repurchase Option, the Escrow Holder shall promptly upon request, but not more frequently than once each year, cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's Repurchase Option. 8. Company's Right of First Refusal. Before any Shares held by Purchaser or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be (i) the Offered Price in the case of Shares that are vested or (ii) in the case of Shares that are Unvested Shares, the lower of the Offered Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. -4- (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 9. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer. (a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION -5- HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 10. Lock-Up Period. Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser (or any transferee under Section 8 of this Agreement) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 11. Tax Consequences. Set forth below is a brief summary as of the date of grant of this Stock Purchase Right of some of the federal tax consequences of exercise of this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. (a) Exercise of Stock Purchase Right. Generally, no income will be recognized by Purchaser in connection with the exercise of the stock purchase right for shares subject to the Repurchase Option, unless an election under Section 83(b) of the Code is filed with the Internal Revenue Service within 30 days of the date of exercise of the right to purchase stock. The form for making this election is attached as Exhibit F hereto. Otherwise, as the Company's -6- repurchase right lapses, Purchaser will recognize compensation income in an amount equal to the difference between the Fair Market Value of the stock at the time the Company's repurchase right lapses and the amount paid for the stock, if any (the "Spread"). If Purchaser is a Service Provider or former Service Provider, the Spread will be subject to tax withholding by the Company, and the Company will be entitled to a tax deduction in the amount at the time the Purchaser recognizes ordinary income with respect to a Stock Purchase Right. (b) Disposition of Shares. Upon disposition of the Shares, any gain or loss is treated as capital gain or loss. If the Shares are held for more than one year, any gain realized on disposition of the shares will be treated as long-term capital gain for federal income tax purposes. Long-term capital gains are grouped and netted by holding periods. Net capital gains on assets held for more than 12 months is capped at 20%. Capital losses are allowed in full against capital gains, and up to $3,000 against other income. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 12. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO PARAGRAPH 5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL. 13. Notices. Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and may be delivered by hand, by nationally recognized private courier, or by certified mail. Notices delivered by hand or by nationally recognized private courier shall be deemed given when delivered personally to the addressee or to the courier, or if given by certified mail when deposited in the U.S. mail, certified and with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party not sending the notice. 14. No Waiver. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor -7- prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. 15. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Purchaser its successors and assigns. 16. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Purchaser or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 17. Governing Law; Severability. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of New York. 18. Entire Agreement. The Plan is incorporated herein by reference. This Agreement (including the exhibits referenced herein), the Plan and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions -8- arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Stock Purchase Right. BEECHTREE CAPITAL, LLC NEXSAN CORPORATION Address: Address: 1 Rockefeller Plaza C/o Beechtree Capital, Ltd. Suite 1600 1 Rockefeller Plaza New York, NY 10020 Suite 1600 New York, NY 10020 By:/s/ George Weiss By: /s/ Martin Boddy - ------------------------------ ----------------------------- Name Printed: George Weiss Name Printed: Martin Boddy Title: Managing Member Title: CEO -9- PROMISSORY NOTE $330,000 January 4, 2001 New York, New York FOR VALUE RECEIVED, the undersigned, BEECHTREE CAPITAL, LLC, (the "Payor"), with an address at 1 Rockefeller Plaza, Suite 1600, New York, NY 10020, promises to pay to the order of Nexsan Corporation, a Delaware corporation ("Payee") with offices at c/o Beechtree Capital Ltd., 1 Rockefeller Plaza, Suite 1600, New York, NY 10020, the principal amount of Three Hundred and Thirty Thousand ($330,000) Dollars, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest thereon at the rate of 5.61% per annum. Interest accrued hereunder shall be due and payable on the stated or any accelerated maturity date, and the principal amount hereof, together with all accrued but unpaid interest thereon, shall be paid on the third anniversary of the date hereof. This Note is issued by the Payor as payment in connection with the purchase by the Payor of five hundred thousand (500,000) shares of the common stock ("Common Stock") of the Payee pursuant to a Restricted Stock Purchase Agreement dated the date hereof and is entitled to the benefits thereof. 1. Events of Default. a. Upon the occurrence of any of the following events (hereinafter called "Events of Default") which shall have occurred and be continuing: (i) The Payor shall default in any payment of principal or interest due under this Note and fail to cure such default within ten days after notice thereof; (ii) (1) The Payor shall commence any proceeding or other action relating to him in bankruptcy or seek readjustment of his debts, receivership, composition or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (2) the Payor shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (3) the Payor makes a general assignment for the benefit of his creditors; (iii) (1) The commencement of any proceedings or the taking of any other action against the Payor in bankruptcy or seeking the reorganization, arrangement or readjustment of his debts, or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for sixty (60) days undismissed, unbonded or undischarged; or (2) the issuance of a warrant of attachment, execution or similar process against substantially all of the property of the Payor and the continuance of such event for thirty (30) days undismissed, unbonded and undischarged; or (iv) (1) The Payor voluntarily elects to terminate his or her consulting agreement with, or his or her arrangement for the provision of services to, the Payee, or (2) the Payee elects to terminate the Payor's consulting agreement for Cause, as such term is defined in the 10 Option Plan, then, and in any such event, the Payee may, by written notice to the Payor, declare the entire unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, due and payable, and the same shall forthwith become due and payable upon without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. b. Non-Waiver and Other Remedies. No course of dealing or delay on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver thereof or otherwise prejudice the rights of the holder of this Note. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 2. Security. (a) Pledge Agreement. This Note is secured by a Pledge Agreement between the Payor and the Payee, dated of even date herewith (the "Pledge Agreement"), pursuant to which the Payor has pledged the Common Stock as collateral for payment hereunder. (b) Recourse. No recourse under or upon any obligation, covenant or agreement of this Note, or for any claim based hereon or otherwise in respect hereof, shall be had against the Payor or his assigns, except (i) for accrued and unpaid interest, and (ii) in the event the amount actually applied to the payment of principal of this Note after payment of costs and expenses and accrued but unpaid interest hereon upon any sale by the Payee of the Common Stock (or any other collateral held as security for this Note) pursuant to Section 3 of the Pledge Agreement, or otherwise, is less than the original principal amount hereof, then this Note shall be with recourse to the Payor as to accrued and unpaid interest hereon, and to not more than thirty three and one-third percent (33 1/3 %) of the principal remaining unpaid immediately prior to such application. 3. Prepayment. The indebtedness evidenced by this Note may be prepaid by the Payor at any time in whole or in part from time to time, without premium or penalty, provided that any prepayment of any portion of the outstanding principal amount hereof shall be accompanied by all accrued but unpaid interest thereon. 4. Lost Documents. Upon receipt by the Payor of evidence reasonably satisfactory to him of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to him, and upon reimbursement to the Payor of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Note, if mutilated, the Payor will make and deliver to the Payee in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of this Note. 5. No Presentment, etc. The Payor and any endorsers, sureties and guarantors of this Note waive presentment for payment, demand, protest, notice of protest and notice of dishonor hereof, and all other notices to which they may be entitled. 6. Miscellaneous. a. Parties in Interest. All covenants, agreements and undertakings in this Note by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective permitted successors and assigns of the parties hereto whether so expressed or not. b. Notices. All notices, requests, consents and demands shall be made in writing and shall be sent, and deemed delivered, in the manner prescribed in Paragraph 12 of the Pledge Agreement. c. Waiver. The failure of the Payee to exercise any right or remedy granted to him hereunder on any one or more instances, shall not constitute a waiver of any default by the Payee, and all such rights and remedies shall remain continuously in force. No delay or omission in the exercise or enforcement by the Payee of any rights or remedies shall be construed as a waiver of any right or remedy of the Payee; and no exercise or enforcement of any such right or remedy shall be held to exhaust any other right or remedy of the Payee. d. Illegality. If any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provisions of this Note and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. e. Amendment. This Note may not be changed orally, but only by an instrument in writing duly executed by the party against which enforcement of any waiver, change, modification or discharge is sought. f. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York. IN WITNESS WHEREOF, this Note has been executed and delivered by the Payor on the date specified above. By: /s/ George Weiss Name: George Weiss, as Payor ------------ Title: Managing Member --------------- ACCEPTED: NEXSAN CORPORATION By: /s/ Martin Boddy Name: Martin Boddy ------------ Title: CEO ------------ EX-4.11 19 0019.txt RESTRICTED STOCK PURCHASE AGREEMENT NEXSAN CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, capitalized terms defined in the 2001 Stock Plan (the "Plan") of Nexsan Corporation (the "Company") shall have the same meanings when used in this Restricted Stock Purchase Agreement (the "Agreement"). I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT DIRECT INVESTORS, LLC. ( the "Purchaser") You have been granted the right to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement (the "Agreement"), as follows: Grant Number 4 ------- Date of Grant Exercise Price Per Share $0.66 ------- Total Number of Shares Subject to This Stock Purchase Right ("Shares") 500,000 ------- Non-Transferability of Stock Purchase Right. This Stock Purchase Right may not be transferred in any manner and may be exercised only by Purchaser. The terms of the Plan and this Agreement shall be binding upon successors and assigns of the Purchaser. II. AGREEMENT 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase the number of Shares set forth above in the Notice of Grant of Stock Purchase Right, at the exercise price per share set forth in the Notice of Grant of Stock Purchase Right (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall prevail. 2. Payment of Purchase Price. Purchaser herewith (i) delivers to the Company the aggregate Exercise Price for the Shares by promissory note ("Note") in the form of Exhibit A hereto, (ii) pledges the Shares to the Company to secure the Note pursuant to a Pledge Agreement in the form of Exhibit B attached hereto and (iii) assigns the Shares pursuant to an Assignment Separate From Certificate in the form of Exhibit B-1. 3. Purchaser's Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Stock Purchase Right is exercised, the Purchaser shall, if required by the Company, concurrently with the exercise of all or any portion of this Stock Purchase Right, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C. 4. Repurchase Option. (a) In the event the Purchaser's continuous status as an independent consultant ("Service Provider") terminates for any or no reason (including death or Disability), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company), have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unvested Shares (as defined in Section 5) at the Exercise Price per share, plus interest at the rate of interest set forth in the Note (the "Repurchase Price"). (b) The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 7)) and, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company. (c) Whenever the Company shall have the right to repurchase the Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's Repurchase Option to purchase all or a part of the Unvested Shares. If the Fair Market Value of the Unvested Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the Unvested Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of Unvested Shares to be purchased. -2- (d) If the Company or its assignee does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within sixty (60) days following Purchaser's termination as a Service Provider, the Repurchase Option shall terminate. 5. Release of Shares From Repurchase Option (Vesting). (a) All of the Shares purchased pursuant to this Agreement shall be released from the Repurchase Option (sometimes hereafter referred to as "vest" or "vesting") on January 1, 2002. (b) Any of the Shares which have not yet been released from the Company's Repurchase Option are referred to herein as "Unvested Shares." (c) In the event that Purchaser's relationship as a Service Provider with the Company shall terminate prior to the vesting of all Shares purchased under this Agreement all Unvested Shares shall cease to vest pursuant to this Agreement. 6. Restriction on Transfer. Except for the escrow described in Section 7 of this Agreement or transfer of the Shares to the Company or its assignees contemplated by this Agreement or the Pledge Agreement (in the form attached hereto as Exhibit B), none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's Repurchase Option in accordance with the provisions of this Agreement. 7. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unvested Shares upon exercise of the Repurchase Option by the Company, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") and reasonably acceptable to the Purchaser the share certificates representing the Unvested Shares, together with the Assignment Separate from Certificate (the "Stock Assignment") duly endorsed in blank, in the form attached hereto as Exhibit D. The Unvested Shares and Stock Assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser in the form attached as Exhibit E hereto, until such time as the Company's Repurchase Option expires. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unvested Shares in escrow and while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises its Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. -3- (d) When the Repurchase Option has been exercised or expires unexercised, and a portion of the Shares has been released from such Repurchase Option, the Escrow Holder shall promptly upon request, but not more frequently than once each year, cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's Repurchase Option. 8. Company's Right of First Refusal. Before any Shares held by Purchaser or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be (i) the Offered Price in the case of Shares that are vested or (ii) in the case of Shares that are Unvested Shares, the lower of the Offered Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. -4- (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 9. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer. (a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION -5- HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 10. Lock-Up Period. Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser (or any transferee under Section 8 of this Agreement) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 11. Tax Consequences. Set forth below is a brief summary as of the date of grant of this Stock Purchase Right of some of the federal tax consequences of exercise of this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. (a) Exercise of Stock Purchase Right. Generally, no income will be recognized by Purchaser in connection with the exercise of the stock purchase right for shares subject to the Repurchase Option, unless an election under Section 83(b) of the Code is filed with the Internal Revenue Service within 30 days of the date of exercise of the right to purchase stock. The form for making this election is attached as Exhibit F hereto. Otherwise, as the Company's -6- repurchase right lapses, Purchaser will recognize compensation income in an amount equal to the difference between the Fair Market Value of the stock at the time the Company's repurchase right lapses and the amount paid for the stock, if any (the "Spread"). If Purchaser is a Service Provider or former Service Provider, the Spread will be subject to tax withholding by the Company, and the Company will be entitled to a tax deduction in the amount at the time the Purchaser recognizes ordinary income with respect to a Stock Purchase Right. (b) Disposition of Shares. Upon disposition of the Shares, any gain or loss is treated as capital gain or loss. If the Shares are held for more than one year, any gain realized on disposition of the shares will be treated as long-term capital gain for federal income tax purposes. Long-term capital gains are grouped and netted by holding periods. Net capital gains on assets held for more than 12 months is capped at 20%. Capital losses are allowed in full against capital gains, and up to $3,000 against other income. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 12. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO PARAGRAPH 5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL. 13. Notices. Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and may be delivered by hand, by nationally recognized private courier, or by certified mail. Notices delivered by hand or by nationally recognized private courier shall be deemed given when delivered personally to the addressee or to the courier, or if given by certified mail when deposited in the U.S. mail, certified and with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party not sending the notice. 14. No Waiver. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor -7- prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. 15. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Purchaser its successors and assigns. 16. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Purchaser or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 17. Governing Law; Severability. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of New York. 18. Entire Agreement. The Plan is incorporated herein by reference. This Agreement (including the exhibits referenced herein), the Plan and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions -8- arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Stock Purchase Right. DIRECT INVESTORS, LLC. NEXSAN CORPORATION Address: Address: C/O Direct Brokerage, Inc. C/o Beechtree Capital, Ltd. 39 Broadway Ave. (32 Floor) 1 Rockefeller Plaza New York, NY 10006 Suite 1600 New York, NY 10020 By: /s/ E. Corprew Reed By: /s/ Martin Boddy -------------------------------- ------------------------------- Name Printed: E. Corprew Reed Name Printed: Martin Boddy Title: Managing Member Title: CEO -9- PROMISSORY NOTE $330,000 January 4, 2001 New York, New York FOR VALUE RECEIVED, the undersigned, DIRECT INVESTORS, LLC, (the "Payor"), with an address at c/o Direct Brokerage, Inc. 39 Broadway Ave. 32nd Floor, New York,NY 10006, promises to pay to the order of NEXSAN CORPORATION, a Delaware corporation ("Payee") with offices at c/o Beechtree Capital Ltd., 1 Rockefeller Plaza, Suite 1600, New York, NY 10020, the principal amount of Three Hundred and Thirty Thousand ($330,000) Dollars, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest thereon at the rate of 5.61% per annum. Interest accrued hereunder shall be due and payable on the stated or any accelerated maturity date, and the principal amount hereof, together with all accrued but unpaid interest thereon, shall be paid on the third anniversary of the date hereof. This Note is issued by the Payor as payment in connection with the purchase by the Payor of five hundred thousand (500,000) shares of the common stock ("Common Stock") of the Payee pursuant to a Restricted Stock Purchase Agreement dated the date hereof and is entitled to the benefits thereof. 1. Events of Default. a. Upon the occurrence of any of the following events (hereinafter called "Events of Default") which shall have occurred and be continuing: (i) The Payor shall default in any payment of principal or interest due under this Note and fail to cure such default within ten days after notice thereof; (ii) (1) The Payor shall commence any proceeding or other action relating to him in bankruptcy or seek readjustment of his debts, receivership, composition or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (2) the Payor shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (3) the Payor makes a general assignment for the benefit of his creditors; (iii) (1) The commencement of any proceedings or the taking of any other action against the Payor in bankruptcy or seeking the reorganization, arrangement or readjustment of his debts, or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for sixty (60) days undismissed, unbonded or undischarged; or (2) the issuance of a warrant of attachment, execution or similar process against substantially all of the property of the Payor and the continuance of such event for thirty (30) days undismissed, unbonded and undischarged; or (iv) (1)The Payor voluntarily elects to terminate his or her consulting agreement with, or his or her arrangement for the provision of services to, the Payee, or (2) the Payee elects to terminate the Payor's consulting agreement for Cause, as such term is defined in the Option Plan, then, and in any such event, the Payee may, by written notice to the Payor, declare the entire unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, due and payable, and the same shall forthwith become due and payable upon without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. b. Non-Waiver and Other Remedies. No course of dealing or delay on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver thereof or otherwise prejudice the rights of the holder of this Note. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 2. Security. (a) Pledge Agreement. This Note is secured by a Pledge Agreement between the Payor and the Payee, dated of even date herewith (the "Pledge Agreement"), pursuant to which the Payor has pledged the Common Stock as collateral for payment hereunder. (b) Recourse. No recourse under or upon any obligation, covenant or agreement of this Note, or for any claim based hereon or otherwise in respect hereof, shall be had against the Payor or his assigns, except (i) for accrued and unpaid interest, and (ii) in the event the amount actually applied to the payment of principal of this Note after payment of costs and expenses and accrued but unpaid interest hereon upon any sale by the Payee of the Common Stock (or any other collateral held as security for this Note) pursuant to Section 3 of the Pledge Agreement, or otherwise, is less than the original principal amount hereof, then this Note shall be with recourse to the Payor as to accrued and unpaid interest hereon, and to not more than thirty three and one-third percent (33 1/3 %) of the principal remaining unpaid immediately prior to such application. 3. Prepayment. The indebtedness evidenced by this Note may be prepaid by the Payor at any time in whole or in part from time to time, without premium or penalty, provided that any prepayment of any portion of the outstanding principal amount hereof shall be accompanied by all accrued but unpaid interest thereon. 4. Lost Documents. Upon receipt by the Payor of evidence reasonably satisfactory to him of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to him, and upon reimbursement to the Payor of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Note, if mutilated, the Payor will make and deliver to the Payee in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of this Note. 5. No Presentment, etc. The Payor and any endorsers, sureties and guarantors of this Note waive presentment for payment, demand, protest, notice of protest and notice of dishonor hereof, and all other notices to which they may be entitled. 6. Miscellaneous. a. Parties in Interest. All covenants, agreements and undertakings in this Note by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective permitted successors and assigns of the parties hereto whether so expressed or not. b. Notices. All notices, requests, consents and demands shall be made in writing and shall be sent, and deemed delivered, in the manner prescribed in Paragraph 12 of the Pledge Agreement. c. Waiver. The failure of the Payee to exercise any right or remedy granted to him hereunder on any one or more instances, shall not constitute a waiver of any default by the Payee, and all such rights and remedies shall remain continuously in force. No delay or omission in the exercise or enforcement by the Payee of any rights or remedies shall be construed as a waiver of any right or remedy of the Payee; and no exercise or enforcement of any such right or remedy shall be held to exhaust any other right or remedy of the Payee. d. Illegality. If any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provisions of this Note and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. e. Amendment. This Note may not be changed orally, but only by an instrument in writing duly executed by the party against which enforcement of any waiver, change, modification or discharge is sought. f. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York. IN WITNESS WHEREOF, this Note has been executed and delivered by the Payor on the date specified above. By: /s/ E. Corprew Reed ---------------------------------- Name: E. Corprew Reed, as Payor Title: Managing Member ACCEPTED: NEXSAN CORPORATION By: /s/ Martin Boddy ----------------------------- Name: Martin Boddy Title: CEO EXHIBIT B PLEDGE AGREEMENT THE PLEDGE AGREEMENT (the "Agreement"), entered into as of ____________, 2001, by and between Nexsan Corporation ("Secured Party") and __________ (the "Pledgor"). W I T N E S S E T H: WHEREAS, Pledgor has purchased from the Secured Party ______________shares ("Shares") of the common stock of Corporation, a Delaware corporation (the "Corporation"), pursuant to the Restricted Stock Purchase Agreement and exhibits thereto (collectively the "Agreement"), dated the date hereof between Pledgor and the Secured Party ("Stock Purchase Agreement"); and WHEREAS, Pledgor has agreed to pledge the Shares as security for the Promissory Note of even date herewith, made by Pledgor to the order of the Secured Party pursuant to the Stock Purchase Agreement (the "Note"). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Warranty and Covenant. Pledgor represents and warrants to the Secured Party that except for the security interest created hereby, and except for restrictions imposed by the Restricted Stock Purchase Agreement, he owns the Shares free and clear of all liens, charges and encumbrances and that he has the unencumbered right to pledge such Shares pursuant to the terms hereof. 2. Pledge. As security for the prompt payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all indebtedness and all other liabilities and obligations, whether now existing or hereafter arising, of Pledgor to the Secured Party under or arising out of the Note (collectively, the "Obligations"), Pledgor hereby delivers, pledges and assigns to Secured Party and creates in Secured Party a perfected first security interest in all of Pledgor's right, title and interest in, to and under all of the Shares, together with (subject to the terms of Section 3 hereof) all rights and privileges of Pledgor with respect thereto, all proceeds, income and profits thereof and all property received in addition thereto, in exchange thereof or in substitution therefor and in any other property or assets of equal value as may from time to time be substituted by mutual agreement of the parties hereto as collateral security hereunder (all such property of Pledgor being hereinafter referred to collectively as the "Collateral"). 3. Rights of Pledgor. So long as no Default has occurred and is continuing (as used, herein, the term "Default" shall mean and include (i) the failure of Pledgor to perform any of her Obligations when due, (ii) any material misrepresentation by Pledgor in or with respect to any provision of the Agreement or the Note, or (iii) any attachment of the Collateral at any time pursuant to any court order or other legal process), (a) Pledgor shall be entitled to vote or consent with respect to the Collateral in any manner not inconsistent with the Agreement or the Note, and (b) all cash distributions with respect to the Shares shall, anything in Section 2 or elsewhere herein to the contrary notwithstanding, be the sole and exclusive property of Pledgor. 4. Event of Default. In the event of the occurrence of an Event of Default, as such term is defined in the Note, and the continuation of such Event of Default uncured beyond any applicable notice or other grace period, Secured Party may sell or otherwise dispose of the Collateral at a public or private sale or make other commercially reasonable disposition of the Collateral or any portion thereof after twenty-one (21) calendar days' notice to the Pledgor. Any proceeds of the disposition of the Collateral in excess of the then outstanding Obligations shall promptly be remitted to Pledgor by the Secured Party. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Collateral, or any partial disposition of the Collateral, Pledgor agrees to execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use her reasonable best efforts to secure the same. Pledgor further agrees to use her reasonable best efforts (without incurring any additional cost or expense) to secure such sale or other disposition of the Collateral as the Secured Party may deem necessary pursuant to the terms of the Agreement 5. Additional Rights of the Secured Party. In addition to its rights and privileges under the Agreement, the Secured Party shall have all the rights, powers and privileges of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction. 6. Binding Agreement. The Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York applicable to agreements made and to be performed wholly within the State of New York. The Agreement, together with all documents referred to herein, constitutes the entire agreement between the parties with respect to the matters addressed herein and may not be modified except by a writing executed by Pledgor and the Secured Party. 7. Covenants. The Secured Party covenants that, provided no Default or Event of Default (as defined in the Note) shall exist and be continuing, it shall release Shares from the pledge created hereby upon payment of a pro rata portion of the Note and accrued interest; provided, that such Shares shall be delivered by Secured Party to the Escrow Holder (as defined in the Stock Purchase Agreement) to be held and disposed of in accordance with the terms of the Stock Purchase Agreement. -2- 8. Termination. The Agreement shall continue in full force and effect until all the Obligations shall have been fully and indefeasibly paid in full. The Collateral shall be delivered to the Escrow Holder upon full payment, satisfaction and termination of all of the Obligations, to be held and disposed of in accordance with the terms of the Agreement. 9. Further Assurances. Pledgor shall at any time and from time to time upon the written request of the Secured Party, execute and deliver such further documents and do such further acts and things as the Secured Party may reasonably request in order to effect the purposes of the Agreement. 10. Severability. If any paragraph herein, or part thereof, shall for any reason be held or adjudged to be invalid, illegal or unenforceable by any court of competent jurisdiction, such paragraph or part thereof so adjudicated invalid, illegal or unenforceable shall be deemed separate, distinct and independent, and the remainder of the Agreement shall remain in full force and effect and shall not be affected by such holding or adjudication. 11. Successors and Assigns. The Agreement, and the terms and conditions hereof, shall be binding upon and shall inure to the benefit of the Pledgor and his or her successors and assigns, and the Secured Party and his or her successors and assigns; provided that Pledgor may not assign or delegate his or her obligations hereunder without the prior written consent of the Secured Party and any purported assignment or delegation by Pledgor of his or her obligations hereunder in the absence of such written consent shall be void. 12. Notices. All notices and other communication provided for herein shall be in writing and mailed, by registered or certified mail, return receipt requested, or delivered by overnight courier or by hand, to the intended recipient at the "Address for Notices" specified below intended recipient's name on the signature page hereof; or, as to either party, at such other address as shall hereafter be designated by such party in a notice to the other party. Except as otherwise provided in the Agreement, all notices and other communications hereunder shall be deemed to have been duly given when received by the intended recipient. 13. Counterparts. The Agreement may be executed in any number of counterpart copies, each of which shall be deemed an original, but which together shall constitute a single instrument. 14. Headings. Descriptive headings appearing herein are included solely for convenience of reference and are not intended to affect the meaning or construction of any of the provisions of the Agreement. [The remainder of this page is intentionally blank.] -3- IN WITNESS WHEREOF, the undersigned parties hereto have executed the Agreement, as of the day and year first above written. _____________________________________________ _________________________, as Pledgor Address for Notices: ___________________ ___________________ NEXSAN CORPORATION By: _______________________________________ Name Printed: _______________ Title: ______________________ -4- EXHIBIT B-1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED the undersigned, __________________________, does hereby sell, assign and transfer unto ___________________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Pledge Agreement between Nexsan Corporation and the undersigned dated _________________. Dated: _________________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. -5- EXHIBIT C INVESTMENT REPRESENTATION STATEMENT PURCHASER: ________________________ COMPANY: Nexsan Corporation SECURITY: COMMON STOCK AMOUNT: _______________ shares DATE: _________________ In connection with the purchase of the above-listed shares of common stock (the "Securities"), the undersigned Purchaser represents to the Company the following: Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Purchaser is acquiring these Securities for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Purchaser further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Securities. Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of Delaware and any other legend required under applicable state securities laws. Purchaser is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Stock Purchase Right to the Purchaser, the exercise will be exempt from -1- registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three (3) month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Stock Purchase Right, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one (1) year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two (2) years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. Purchaser further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Purchaser understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Purchaser: ______________________________________ Print Name: __________________________ Date: _____________________________ -2- EXHIBIT D ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, __________________________, does hereby sell, assign and transfer unto ___________________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between Nexsan Corporation and the undersigned dated ______________, ____. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 1 [PG NUMBER] - 1 - [PG NUMBER] EXHIBIT E JOINT ESCROW INSTRUCTIONS ___________________, _____ Mr. __________________________ Secretary, Nexsan Corporation _____________________________ _____________________________ Dear Sir: As Escrow Agent for both Nexsan Corporation, a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: a. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement (the "Repurchase Option"), the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. b. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Repurchase Option. c. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions to and substitutions for said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph (c), Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 1 d. Once per calendar year and upon termination of this escrow, unless the Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Repurchase Option. Within ninety (90) days after cessation of Purchaser's continuous service - rendering to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Repurchase Option. e. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. f. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. g. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. h. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. i. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. j. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. k. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. -2- l. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. m. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. n. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten (10) days' advance written notice to each of the other parties hereto. COMPANY: Nexsan Corporation _________________________________ _________________________________ PURCHASER: _________________________________ _________________________________ _________________________________ ESCROW AGENT: _________________________________ _________________________________ _________________________________ o. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. p. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. q. The Restricted Stock Purchase Agreement is incorporated herein by reference. These Joint Escrow Instructions, the 2001 Stock Plan, and the Restricted Stock Purchase Agreement (including the exhibits referenced therein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Escrow Agent, the Purchaser and the Company with respect to the subject matter hereof, and -3- may not be modified except by means of a writing signed by the Escrow Agent, the Purchaser and the Company. r. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Very truly yours, Nexsan Corporation By: _______________________________________ Printed Name:______________________ Title:_____________________________ PURCHASER: ____________________________________________ (Signature) ____________________________________________ (Typed or Printed Name) ESCROW AGENT: ______________________________ ______________________________ -4- EXHIBIT F ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below: a. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: ADDRESS: IDENTIFICATION NO.: TAXABLE YEAR: 200_ b. The property with respect to which the election is made is described as follows: ___________________shares (the "Shares") of the Common Stock of Nexsan Corporation (the "Company"). c. The date on which the property was transferred is: ________________, 2001. d. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, upon the taxpayer ceasing to perform services for the Company. This repurchase right lapses with regard to a portion of the Shares based on the continuous performance of services over a period of time. e. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $ ____________ per share. f. The amount (if any) paid for such property is: $ ____________ per share. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. 1 The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: ______________________, _____ ______________________________________, Taxpayer Printed Name: ______________________________________ EX-4.12 20 0020.txt RESTRICTED STOCK PURCHASE AGREEMENT NEXSAN CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, capitalized terms defined in the 2001 Stock Plan (the "Plan") of Nexsan Corporation (the "Company") shall have the same meanings when used in this Restricted Stock Purchase Agreement (the "Agreement"). I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT --------------------------------------- MOHAN VACHANI ( the "Purchaser") You have been granted the right to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement (the "Agreement"), as follows: Grant Number 3 ----------------- Date of Grant ----------------- Exercise Price Per Share $0.66 ----- Total Number of Shares Subject to This Stock Purchase Right ("Shares") 75,000 ----------------- Non-Transferability of Stock Purchase Right. - -------------------------------------------- This Stock Purchase Right may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Purchaser only by Purchaser. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Purchaser. II. AGREEMENT --------- 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase the number of Shares set forth above in the Notice of Grant of Stock Purchase Right, at the exercise price per share set forth in the Notice of Grant of Stock Purchase Right (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall prevail. 2. Payment of Purchase Price. Purchaser herewith (i) delivers to the Company the aggregate Exercise Price for the Shares by promissory note ("Note") in the form of Exhibit A hereto, (ii) pledges the Shares to the Company to secure the Note pursuant to a Pledge Agreement in the form of Exhibit B attached hereto and (iii) assigns the Shares pursuant to an Assignment Separate From Certificate in the form of Exhibit B-1. 3. Purchaser's Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Stock Purchase Right is exercised, the Purchaser shall, if required by the Company, concurrently with the exercise of all or any portion of this Stock Purchase Right, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C. 4. Repurchase Option. (a) In the event the Purchaser's continuous status as an independent consultant ("Service Provider") terminates for any or no reason (including death or Disability), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company), have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unvested Shares (as defined in Section 5) at the Exercise Price per share, plus interest at the rate of interest set forth in the Note (the "Repurchase Price"). (b) The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 7)) and, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company. (c) Whenever the Company shall have the right to repurchase the Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's Repurchase Option to purchase all or a part of the Unvested Shares. If the Fair Market Value of the Unvested Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of the Unvested Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of Unvested Shares to be purchased. 2 (d) If the Company or its assignee does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within sixty (60) days following Purchaser's termination as a Service Provider, the Repurchase Option shall terminate. 5. Release of Shares From Repurchase Option (Vesting). (a) All of the Shares purchased pursuant to this Agreement shall be released from the Repurchase Option (sometimes hereafter referred to as "vest" or "vesting") on January 1, 2002, provided that if the Consulting Agreement, dated as of the date hereof, between the Purchaser and the Company (the "Consulting Agreement") is terminated on June 30, 2001 in accordance with its terms, then 37,500 Shares shall vest on June 30, 2001. (b) Any of the Shares which have not yet been released from the Company's Repurchase Option are referred to herein as "Unvested Shares." (c) In the event that Purchaser's relationship as a Service Provider with the Company shall terminate prior to the vesting of all Shares purchased under this Agreement all Unvested Shares shall cease to vest pursuant to this Agreement. 6. Restriction on Transfer. Except for the escrow described in Section 7 of this Agreement or transfer of the Shares to the Company or its assignees contemplated by this Agreement or the Pledge Agreement (in the form attached hereto as Exhibit B), none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution; provided, however, that Purchaser may transfer shares in conformance with Section 8(f) of this Agreement. 7. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unvested Shares upon exercise of the Repurchase Option by the Company, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") and reasonably acceptable to the Purchaser the share certificates representing the Unvested Shares, together with the Assignment Separate from Certificate (the "Stock Assignment") duly endorsed in blank, in the form attached hereto as Exhibit D. The Unvested Shares and Stock Assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser in the form attached as Exhibit E hereto, until such time as the Company's Repurchase Option expires. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unvested Shares in escrow and while acting in good faith and in the exercise of its judgment. 3 (c) If the Company or any assignee exercises its Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Repurchase Option has been exercised or expires unexercised, and a portion of the Shares has been released from such Repurchase Option, the Escrow Holder shall promptly upon request, but not more frequently than once each year, cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's Repurchase Option. 8. Company's Right of First Refusal. Before any Shares held by Purchaser or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all or part of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be (i) the Offered Price in the case of Shares that are vested or (ii) in the case of Shares that are Unvested Shares, the lower 4 of the Offered Price or the Repurchase Price as defined in Section 4(a) hereof. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or (iii) by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares, that are not repurchased by the Company, to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the Purchaser's Immediate Family or a trust for the benefit of one or more members of the Purchaser's Immediate Family or to a trust, partnership, limited liability company, custodianship or other fiduciary account for the benefit of the Purchaser or one or more members of the Purchaser's Immediate Family, or the disbursement therefrom to Purchaser or one or more members of his Immediate Family, shall be exempt from the provisions of this Section, provided that the Purchaser notifies the Company in writing within thirty (30) days of said transfer. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Agreement, including but not limited to this Section and Section 4, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 9. Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer. 5 (a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by applicable state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 10. Lock-Up Period. Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser (or any transferee under Section 8 of this Agreement) shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such shorter period as may be requested in writing by the Managing Underwriter and agreed to in writing by the 6 Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 11. Tax Consequences. Set forth below is a brief summary as of the date of grant of this Stock Purchase Right of some of the federal tax consequences of exercise of this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. (a) Exercise of Stock Purchase Right. Generally, no income will be recognized by Purchaser in connection with the exercise of the stock purchase right for shares subject to the Repurchase Option, unless an election under Section 83(b) of the Code is filed with the Internal Revenue Service within 30 days of the date of exercise of the right to purchase stock. The form for making this election is attached as Exhibit F hereto. Otherwise, as the Company's repurchase right lapses, Purchaser will recognize compensation income in an amount equal to the difference between the Fair Market Value of the stock at the time the Company's repurchase right lapses and the amount paid for the stock, if any (the "Spread"). If Purchaser is a Service Provider or former Service Provider, the Spread will be subject to tax withholding by the Company, and the Company will be entitled to a tax deduction in the amount at the time the Purchaser recognizes ordinary income with respect to a Stock Purchase Right. (b) Disposition of Shares. Upon disposition of the Shares, any gain or loss is treated as capital gain or loss. If the Shares are held for more than one year, any gain realized on disposition of the shares will be treated as long-term capital gain for federal income tax purposes. Long-term capital gains are grouped and netted by holding periods. Net capital gains on assets held for more than 12 months is capped at 20%. Capital losses are allowed in full against capital gains, and up to $3,000 against other income. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 12. No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO PARAGRAPH 5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN 7 DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL. 13. Notices. Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and may be delivered by hand, by nationally recognized private courier, or by certified mail. Notices delivered by hand or by nationally recognized private courier shall be deemed given when delivered personally to the addressee or to the courier, or if given by certified mail when deposited in the U.S. mail, certified and with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party not sending the notice. 14. No Waiver. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. 15. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Purchaser and his or her heirs, executors, administrators, successors and assigns. 16. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Purchaser or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 17. Governing Law; Severability. This Agreement is governed by the internal substantive laws, but not the choice of law rules, of New York. 18. Entire Agreement. The Plan is incorporated herein by reference. This Agreement (including the exhibits referenced herein), the Plan and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. 8 By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Stock Purchase Right. VACHANI MOHAN NEXSAN CORPORATION Address: Address: 1 Diablo View Drive C/o Beechtree Capital, Ltd. Orinda, CA 94563 1 Rockefeller Plaza Suite 1600 New York, NY 10020 By: /s/ Martin Boddy ----------------------------- /s/ Vachani Mohan Name Printed: Martin Boddy - ----------------------------- Title: CEO Signature - ----------------------------- Print Name 9 PROMISSORY NOTE $49,500 January 4, 2001 New York, New York FOR VALUE RECEIVED, the undersigned, MOHAN VACHANI, (the "Payor"), with an address at 1 Diablo View Drive, Orinda, CA 94563, promises to pay to the order of Nexsan Corporation, a Delaware corporation ("Payee") with offices at c/o RubinBaum LLP 30 Rockefeller Plaza, New York, NY 10112, the principal amount of Forty Nine Thousand Five Hundred ($49,500) Dollars, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest thereon at the rate of 5.61% per annum. Interest accrued hereunder shall be due and payable on the stated or any accelerated maturity date, and the principal amount hereof, together with all accrued but unpaid interest thereon, shall be paid on the day following the third anniversary of the date hereof. This Note is issued by the Payor as payment in connection with the purchase by the Payor of seventy five thousand (75,000) shares of the common stock ("Common Stock") of the Payee pursuant to a Restricted Stock Purchase Agreement dated the date hereof and is entitled to the benefits thereof. 1. Events of Default. a. Upon the occurrence of any of the following events (hereinafter called "Events of Default") which shall have occurred and be continuing: (i) The Payor shall default in any payment of principal or interest due under this Note and fail to cure such default within ten days after notice thereof; (ii) (1) The Payor shall commence any proceeding or other action relating to him in bankruptcy or seek readjustment of his debts, receivership, composition or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (2) the Payor shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (3) the Payor makes a general assignment for the benefit of his creditors; (iii) (1) The commencement of any proceedings or the taking of any other action against the Payor in bankruptcy or seeking the reorganization, arrangement or readjustment of his debts, or any other relief under the Bankruptcy Act, as amended, or under any other insolvency, readjustment of debt or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for sixty (60) days undismissed, unbonded or undischarged; or (2) the issuance of a warrant of attachment, execution or similar process against substantially all of the property of the Payor and the continuance of such event for thirty (30) days undismissed, unbonded and undischarged; or (iv) (1)The Payor voluntarily elects to terminate his or her consulting agreement with, or his or her arrangement for the provision of services to, the Payee, or (2) the Payee elects to terminate the Payor's consulting agreement for Cause, as such term is defined in the Option Plan, then, and in any such event, the Payee may, by written notice to the Payor, declare the entire unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, due and payable, and the same shall forthwith become due and payable upon without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. b. Non-Waiver and Other Remedies. No course of dealing or delay on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver thereof or otherwise prejudice the rights of the holder of this Note. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 2. Security. (a) Pledge Agreement. This Note is secured by a Pledge Agreement between the Payor and the Payee, dated of even date herewith (the "Pledge Agreement"), pursuant to which the Payor has pledged the Common Stock as collateral for payment hereunder. (b) Recourse. No recourse under or upon any obligation, covenant or agreement of this Note, or for any claim based hereon or otherwise in respect hereof, shall be had against the Payor or his assigns, except (i) for accrued and unpaid interest, and (ii) in the event the amount actually applied to the payment of principal of this Note after payment of costs and expenses and accrued but unpaid interest hereon upon any sale by the Payee of the Common Stock (or any other collateral held as security for this Note) pursuant to Section 3 of the Pledge Agreement, or otherwise, is less than the original principal amount hereof, then this Note shall be with recourse to the Payor as to accrued and unpaid interest hereon, and to not more than thirty three and one-third percent (33 1/3 %) of the principal remaining unpaid immediately prior to such application. 3. Prepayment. The indebtedness evidenced by this Note may be prepaid by the Payor at any time in whole or in part from time to time, without premium or penalty, provided that any prepayment of any portion of the outstanding principal amount hereof shall be accompanied by all accrued but unpaid interest thereon. 4. Lost Documents. Upon receipt by the Payor of evidence reasonably satisfactory to him of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to him, and upon reimbursement to the Payor of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Note, if mutilated, the Payor will make and deliver to the Payee in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of this Note. 5. No Presentment, etc. The Payor and any endorsers, sureties and guarantors of this Note waive presentment for payment, demand, protest, notice of protest and notice of dishonor hereof, and all other notices to which they may be entitled. 6. Miscellaneous. a. Parties in Interest. All covenants, agreements and undertakings in this Note by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective permitted successors and assigns of the parties hereto whether so expressed or not. b. Notices. All notices, requests, consents and demands shall be made in writing and shall be sent, and deemed delivered, in the manner prescribed in Paragraph 12 of the Pledge Agreement. c. Waiver. The failure of the Payee to exercise any right or remedy granted to him hereunder on any one or more instances, shall not constitute a waiver of any default by the Payee, and all such rights and remedies shall remain continuously in force. No delay or omission in the exercise or enforcement by the Payee of any rights or remedies shall be construed as a waiver of any right or remedy of the Payee; and no exercise or enforcement of any such right or remedy shall be held to exhaust any other right or remedy of the Payee. d. Illegality. If any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provisions of this Note and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. e. Amendment. This Note may not be changed orally, but only by an instrument in writing duly executed by the party against which enforcement of any waiver, change, modification or discharge is sought. f. Construction. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York. IN WITNESS WHEREOF, this Note has been executed and delivered by the Payor on the date specified above. By: /s/ Mohan Vachani ------------------------------------------ Mohan Vachani, as Payor ACCEPTED: NEXSAN CORPORATION By: /s/ Martin Boddy ----------------- Name: Martin Boddy ---------------- Title: CEO ---------------- EXHIBIT B --------- PLEDGE AGREEMENT THE PLEDGE AGREEMENT (the "Agreement"), entered into as of ____________, 2001, by and between Nexsan Corporation ("Secured Party") and __________ (the "Pledgor"). W I T N E S S E T H: WHEREAS, Pledgor has purchased from the Secured Party ______________shares ("Shares") of the common stock of Corporation, a Delaware corporation (the "Corporation"), pursuant to the Restricted Stock Purchase Agreement and exhibits thereto (collectively the "Agreement"), dated the date hereof between Pledgor and the Secured Party ("Stock Purchase Agreement"); and WHEREAS, Pledgor has agreed to pledge the Shares as security for the Promissory Note of even date herewith, made by Pledgor to the order of the Secured Party pursuant to the Stock Purchase Agreement (the "Note"). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Warranty and Covenant. Pledgor represents and warrants to the Secured Party that except for the security interest created hereby, and except for restrictions imposed by the Restricted Stock Purchase Agreement, he owns the Shares free and clear of all liens, charges and encumbrances and that he has the unencumbered right to pledge such Shares pursuant to the terms hereof. 2. Pledge. As security for the prompt payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all indebtedness and all other liabilities and obligations, whether now existing or hereafter arising, of Pledgor to the Secured Party under or arising out of the Note (collectively, the "Obligations"), Pledgor hereby delivers, pledges and assigns to Secured Party and creates in Secured Party a perfected first security interest in all of Pledgor's right, title and interest in, to and under all of the Shares, together with (subject to the terms of Section 3 hereof) all rights and privileges of Pledgor with respect thereto, all proceeds, income and profits thereof and all property received in addition thereto, in exchange thereof or in substitution therefor and in any other property or assets of equal value as may from time to time be substituted by mutual agreement of the parties hereto as collateral security hereunder (all such property of Pledgor being hereinafter referred to collectively as the "Collateral"). 3. Rights of Pledgor. So long as no Default has occurred and is continuing (as used, herein, the term "Default" shall mean and include (i) the failure of Pledgor to perform any of her Obligations when due, (ii) any material misrepresentation by Pledgor in or with respect to any provision of the Agreement or the Note, or (iii) any attachment of the Collateral at any time pursuant to any court order or other legal process), (a) Pledgor shall be entitled to vote or consent with respect to the Collateral in any manner not inconsistent with the Agreement or the Note, and (b) all cash distributions with respect to the Shares shall, anything in Section 2 or elsewhere herein to the contrary notwithstanding, be the sole and exclusive property of Pledgor. 4. Event of Default. In the event of the occurrence of an Event of Default, as such term is defined in the Note, and the continuation of such Event of Default uncured beyond any applicable notice or other grace period, Secured Party may sell or otherwise dispose of the Collateral at a public or private sale or make other commercially reasonable disposition of the Collateral or any portion thereof after twenty-one (21) calendar days' notice to the Pledgor. Any proceeds of the disposition of the Collateral in excess of the then outstanding Obligations shall promptly be remitted to Pledgor by the Secured Party. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Collateral, or any partial disposition of the Collateral, Pledgor agrees to execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use her reasonable best efforts to secure the same. Pledgor further agrees to use her reasonable best efforts (without incurring any additional cost or expense) to secure such sale or other disposition of the Collateral as the Secured Party may deem necessary pursuant to the terms of the Agreement 5. Additional Rights of the Secured Party. In addition to its rights and privileges under the Agreement, the Secured Party shall have all the rights, powers and privileges of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction. 6. Binding Agreement. The Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York applicable to agreements made and to be performed wholly within the State of New York. The Agreement, together with all documents referred to herein, constitutes the entire agreement between the parties with respect to the matters addressed herein and may not be modified except by a writing executed by Pledgor and the Secured Party. 7. Covenants. The Secured Party covenants that, provided no Default or Event of Default (as defined in the Note) shall exist and be continuing, it shall release Shares from the pledge created hereby upon payment of a pro rata portion of the Note and accrued interest; provided, that such Shares shall be delivered by Secured Party to the Escrow Holder (as defined in the Stock Purchase Agreement) to be held and disposed of in accordance with the terms of the Stock Purchase Agreement. 2 8. Termination. The Agreement shall continue in full force and effect until all the Obligations shall have been fully and indefeasibly paid in full. The Collateral shall be delivered to the Escrow Holder upon full payment, satisfaction and termination of all of the Obligations, to be held and disposed of in accordance with the terms of the Agreement. 9. Further Assurances. Pledgor shall at any time and from time to time upon the written request of the Secured Party, execute and deliver such further documents and do such further acts and things as the Secured Party may reasonably request in order to effect the purposes of the Agreement. 10. Severability. If any paragraph herein, or part thereof, shall for any reason be held or adjudged to be invalid, illegal or unenforceable by any court of competent jurisdiction, such paragraph or part thereof so adjudicated invalid, illegal or unenforceable shall be deemed separate, distinct and independent, and the remainder of the Agreement shall remain in full force and effect and shall not be affected by such holding or adjudication. 11. Successors and Assigns. The Agreement, and the terms and conditions hereof, shall be binding upon and shall inure to the benefit of the Pledgor and his or her successors and assigns, and the Secured Party and his or her successors and assigns; provided that Pledgor may not assign or delegate his or her obligations hereunder without the prior written consent of the Secured Party and any purported assignment or delegation by Pledgor of his or her obligations hereunder in the absence of such written consent shall be void. 12. Notices. All notices and other communication provided for herein shall be in writing and mailed, by registered or certified mail, return receipt requested, or delivered by overnight courier or by hand, to the intended recipient at the "Address for Notices" specified below intended recipient's name on the signature page hereof; or, as to either party, at such other address as shall hereafter be designated by such party in a notice to the other party. Except as otherwise provided in the Agreement, all notices and other communications hereunder shall be deemed to have been duly given when received by the intended recipient. 13. Counterparts. The Agreement may be executed in any number of counterpart copies, each of which shall be deemed an original, but which together shall constitute a single instrument. 14. Headings. Descriptive headings appearing herein are included solely for convenience of reference and are not intended to affect the meaning or construction of any of the provisions of the Agreement. [The remainder of this page is intentionally blank.] 3 IN WITNESS WHEREOF, the undersigned parties hereto have executed the Agreement, as of the day and year first above written. ____________________________________________ __________________, as Pledgor Address for Notices:_______________________ _______________________ NEXSAN CORPORATION By:________________________________________ Name Printed: _______________ Title: ______________________ 4 EXHIBIT B-1 ----------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED the undersigned,_______, does hereby sell, assign and transfer unto ___________ (___________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No. herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Pledge Agreement between Nexsan Corporation and the undersigned dated _________________. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 5 EXHIBIT C --------- INVESTMENT REPRESENTATION STATEMENT PURCHASER: ________________________ COMPANY: Nexsan Corporation SECURITY: COMMON STOCK AMOUNT: _______________ shares DATE: _________________ In connection with the purchase of the above-listed shares of common stock (the "Securities"), the undersigned Purchaser represents to the Company the following: Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Purchaser is acquiring these Securities for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Purchaser further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Securities. Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of Delaware and any other legend required under applicable state securities laws. Purchaser is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Stock Purchase Right to the Purchaser, the exercise will be exempt from 1 registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three (3) month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Stock Purchase Right, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one (1) year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two (2) years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. Purchaser further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Purchaser understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Purchaser: ________________________________ Print Name: ___________________ Date: ______________________ 2 EXHIBIT D --------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, __________________________, does hereby sell, assign and transfer unto ___________ (__________) shares of the Common Stock of Nexsan Corporation, standing in the name of the undersigned on the books of said corporation represented by Certificate No._____ herewith and does hereby irrevocably constitute and appoint ______________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between Nexsan Corporation and the undersigned dated ______________, ____. Dated: _______________, _____ Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 1 EXHIBIT E --------- JOINT ESCROW INSTRUCTIONS _____________________,_________ Mr. ______________________ Secretary, Nexsan Corporation _____________________________ _____________________________ Dear Sir: As Escrow Agent for both Nexsan Corporation, a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: a. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement (the "Repurchase Option"), the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. b. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Repurchase Option. c. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions to and substitutions for said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph (c), Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 1 d. Once per calendar year and upon termination of this escrow, unless the Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Repurchase Option. Within ninety (90) days after cessation of Purchaser's continuous service - rendering to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Repurchase Option. e. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. f. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. g. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. h. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. i. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. j. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. k. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 2 l. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. m. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. n. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten (10) days' advance written notice to each of the other parties hereto. COMPANY: Nexsan Corporation _____________________ _____________________ PURCHASER: _____________________ _____________________ _____________________ ESCROW AGENT: _____________________ _____________________ _____________________ _____________________ _____________________ o. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. p. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. q. The Restricted Stock Purchase Agreement is incorporated herein by reference. These Joint Escrow Instructions, the 2001 Stock Plan, and the Restricted Stock Purchase Agreement (including the exhibits referenced therein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Escrow Agent, the Purchaser and the Company with respect to the subject matter hereof, and 3 may not be modified except by means of a writing signed by the Escrow Agent, the Purchaser and the Company. r. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Very truly yours, Nexsan Corporation By: ______________________________________ Printed Name:________________ Title:_______________________ PURCHASER: _________________________________________ (Signature) _________________________________________ (Typed or Printed Name) ESCROW AGENT: _____________________________ _____________________________ 4 EXHIBIT F --------- ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below: a. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: ADDRESS: IDENTIFICATION NO.: TAXABLE YEAR: 200_ b. The property with respect to which the election is made is described as follows: ___________________shares (the "Shares") of the Common Stock of Nexsan Corporation (the "Company"). c. The date on which the property was transferred is: ___________, 2001. d. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, upon the taxpayer ceasing to perform services for the Company. This repurchase right lapses with regard to a portion of the Shares based on the continuous performance of services over a period of time. e. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $ ____________ per share. f. The amount (if any) paid for such property is: $ ____________per share. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. 1 The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: _______________, ____ _______________________________, Taxpayer Printed Name: -__________________________ 2 EX-10.1 21 0021.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 4, 2001, between NEXSAN CORPORATION a Delaware corporation ("Company") and MARTIN BODDY ("Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as its President and Chief Executive Officer and Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: EMPLOYMENT 1.1 The Company hereby agrees to employ Executive, and Executive hereby agrees to accept employment by the Company and to serve, as the President and Chief Executive Officer, effective as of the consummation of the transactions contemplated by (i) the Exchange Agreement among the Company and the shareholders of Nexsan Technologies Ltd., and by (ii) the Stock Purchase Agreement among the Company, Beechtree Capital LLC, and the purchasers of the Company's common stock ("Common Shares") parties thereto (the "Effective Date"). 1.2 The Executive agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board of Directors of the Company shall from time to time reasonably assign to him. The Executive shall devote his full-time efforts to the business of the Company and it Affiliates (defined below) so as to increase the profitability and shareholder value of the Company; and the Executive shall not be engaged in any other business activity during the duration of this Agreement, unless written approval is first secured from the Board of Directors of the Company. 1.3 Executive shall also serve at the option of the Company as an officer or director of any other entity controlling, controlled by or under common control with the Company (an "Affiliate") without additional compensation, it being understood, however, that Executive is contemporaneously herewith entering into a Contract of Employment with Nexsan Technologies, Ltd. Without limiting the forgoing, during the term of this Agreement, the Executive consents to being appointed as a member of the Company's Board of Directors. 1.4 The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company. 2. COMPENSATION 2.1 Base Salary (a) The Company shall pay Executive a base salary ("Base Salary") at the rate of $25,000 per year. Base Salary shall be payable in installments consistent with the Company's payroll practices then in effect. The Company shall increase the Base Salary annually, beginning on the second anniversary of the Effective Date, by five percent (5%) over the Base Salary in effect the previous year. 2.2 Stock Options Intentionally omitted. 2.3 Additional Compensation Nothing contained in this Agreement shall prevent the Board of Directors of the Company, in its sole and absolute discretion, from, at any time, increasing Executive's compensation either permanently or for a limited period, whether in Base Salary or by bonus or otherwise, if the Board of Directors, in its sole discretion, shall deem it advisable to do so in order to recognize and fairly compensate the Executive for services rendered, provided, that nothing in this sentence shall in any manner obligate the Board of Directors to make any such increase or provide any such additional benefits. 2.4 Withholdings, Etc. Payment of all compensation and benefits to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable employment and withholding taxes. 3. BENEFITS Executive shall be entitled to participate in all health care, insurance, deferred compensation and other employee benefit plans generally available to executives of the Company, consistent with the terms of those plans as they may currently exist or be modified from time to time. 4. TERM AND TERMINATION - 2 - 4.1 Unless earlier terminated as provided herein, the initial term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date and shall terminate on the fifth anniversary (the "Expiration Date") of the Effective Date. Unless this Agreement shall have been earlier terminated, the term of this Agreement and Executive's employment will be extended automatically for successive one (1) year terms commencing on the Expiration Date unless either party elects to terminate this Agreement by providing written notice to the other party at least one hundred eighty (180) days prior to the expiration of the Initial Term or any renewal term of this Agreement. 4.2 This Agreement and Executive's employment hereunder shall terminate: (a) upon the death of Executive; (b) upon written notice to Executive if, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been unable to perform Executive's duties hereunder on a full time basis for a consecutive period of one hundred twenty (120) days or an aggregate of one hundred eighty (180) days within any twelve-month period; or (c) upon written notice to Executive, for Cause. "Cause" means (i) any willful, material violation by the Executive of any law or regulation applicable to the business of the Company or any Affiliate; (ii) the Executive's conviction for, or guilty plea or plea of nolo contendere to, a felony (other than a felony related solely to automobile infractions, unless Executive is incarcerated as a result thereof); (iii) the Executive's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iv) gross carelessness or unjustifiable neglect of Executive's duties or willful failure to follow the lawful orders of the Board of Directors of the Company; (v) any material breach by the Executive this Agreement; (vi) the Executive's violation of any of the policies of the Company or any Affiliate so as to cause loss, damage or injury to the property, reputation or employees of the Company or any Affiliate, or (vi) any other willful misconduct by the Executive which is materially injurious to the business, financial condition or business reputation the Company or any Affiliate. 4.3 Consequences of Termination In the event that the Company terminates Executive's employment pursuant to Section 4.2 then (a) the Executive's Base Salary shall be prorated as of the date of termination or resignation and such prorated amount shall be paid to Executive, and (b) the Company shall make such other and further - 3 - payments to Executive as may be provided pursuant to the terms of any employee benefit plan in which Executive is a participant at the time of termination, to the extent payable upon such termination in accordance with such plans or applicable Company policies. 5. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS 5.1 Employment Location The Executive shall perform the employment duties contemplated by this Agreement from such location as the Company may from time to time specify, it being understood that Executive's principal place of residence shall be the U.K. The Executive acknowledges that his duties hereunder entail substantial travel. 5.2 Reimbursement of Expenses Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of Executive's duties under this Agreement, all in accordance with the policies and procedures established by the Company from time to time for the Company's executives. 5.3 Company Property Executive agrees that all operating and/or financial data and projections, plans, contracts, agreements, literature, manuals, brochures, books, schedules, correspondence and other materials furnished, disclosed or otherwise made available to Executive by the Company or its Affiliates or secured through the efforts of Executive, relating to the business conducted by the Company and/or its Affiliates, are and shall remain the property of the Company and/or its Affiliates, and Executive agrees to deliver all such materials, including all copies or abstracts thereof, to the Company upon the termination of Executive's employment hereunder, or at any other time at the Company's request. 5.4 Confidential Information Executive agrees that, except in the good faith performance of his duties and responsibilities under this Agreement or as required by order of a court or governmental agency having jurisdiction, he will not at any time during or after his employment with the Company use, reveal, divulge or make known to any person or entity any confidential or proprietary knowledge or information concerning the Company or its Affiliates, including without limitation any such information concerning any equipment, facilities, customers, end users, contracts, leases, operating and/or financial data and projections, processes, developments, schedules, lists, plans or other matters relating to the business of the Company or its Affiliates and will retain all knowledge and information Executive acquired during his - 4 - employment therewith relating to the business of the Company or its Affiliates in trust in a fiduciary capacity for the sole benefit of the Company, its Affiliates and their respective successors and assigns. Executive's obligations under this Section 5.4 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by Executive of this Agreement, (ii) is generally disclosed to third parties (excluding counsel, accountants, financial advisors, employees, agents and material creditors of the Company) by the Company without restriction on such third parties, or (iii) is approved for release by written authorization of the President of the Company. 5.5 Developments (a) Executive will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments"). (b) Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. (c) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in the United States and foreign countries) relating to Developments. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. 5.6 Non-Competition While employed hereunder and for a period of one (1) year thereafter, Executive shall not (i) enter into the employment of, or act as a consultant, director, officer, or employee of, or render any service or advice to, any other business, partnership, association, corporation or other entity which directly engages in competition in any material respect with any business presently carried on or under development, or which hereafter during the period of his employment by the Company shall be carried on or be under development by the Company and which is then being carried on by the Company, in the United States or any foreign country where such business is then or was within the one year period ending on the date of termination conducted, other than the Company or any Affiliate (a "Competing Business") or (ii) invest or otherwise acquire any interest, whether as a shareholder, lender, partner, proprietor, vendor or otherwise, in any Competing - 5 - Business (excluding ownership of less than 2% of a class of securities of a publicly-traded company). While employed hereunder and for a period of one (1) year after termination of employment, Executive shall not encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or attempt to induce) any customer of the Company or any user of products of the Company to reduce, restrict, or terminate its business relationship with the Company or any reseller which is a customer of the Company or its use of products, or products which incorporate products, manufactured by the Company, or to shift its business from the Company or any such reseller to any other supplier of competing goods or services 5.7 Non-Solicitation While employed hereunder and for a period of one (1) year thereafter, Executive shall not, directly or indirectly, entice, induce or in any manner influence any person who is, or shall have been during such period, in the service of the Company or its Affiliates, or employed or engaged by or otherwise associated with any person or entity, to leave such service. 5.8 Survival, Rights and Remedies The provisions of this Section 5 shall survive the termination of this Agreement and the termination of Executive's employment with the Company and shall run to and inure to the benefit of the Company and its successors and assigns. Executive represents, warrants and acknowledges that he has carefully read this Section 5, that he has had an opportunity to have the provisions contained herein explained to him by his attorney, and that he understands the provisions contained herein. Executive further acknowledges that, by reason of his training, skills, experience and employment hereunder, the services to be rendered by him under the provisions of this Agreement and their value to the Company are of a special, unique and extraordinary character and that it would be difficult or impossible to replace such services, and he further acknowledges that a violation by him of any of the provisions of this Section 5 could cause continuing material and irreparable injury to the Company and that in such event money damages would not be readily calculable and the Company would not have an adequate remedy at law. Executive acknowledges and agrees that (i) the restrictions under this Section 5 are reasonable and will not interfere with Executive's ability to earn a livelihood or impose upon him any undue hardship, and (ii) any breach of the covenants, provisions and restrictions contained in this Section 5 shall cause, and shall be deemed to be, a fundamental and material breach of Executive's fiduciary and contractual obligations to Employer. Therefore, Executive agrees that the Company shall be authorized and entitled to obtain from any court of competent jurisdiction, interim and permanent equitable relief, including without limitation, injunctive relief, in the event of any such breach or threatened breach of the provisions of this Section 5, together with payment of reasonable attorneys' fees and disbursements and any other costs of enforcement incurred in connection with such breach or threatened breach. These rights and remedies shall be cumulative and shall be in addition to any other rights or remedies whatsoever to which the Company shall otherwise be entitled hereunder, at - 6 - law or otherwise, including the right to seek damages (including any consequential damages) which any court of competent jurisdiction may deem appropriate. 6. APPLICABLE LAW; ARBITRATION This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by and construed and enforced in accordance with the laws of the State of New York. Except as provided in Section 5.8, any controversy or claim arising under the provisions of this Agreement or of any breach or alleged breach thereof shall be subject to mediation under the auspices of the American Arbitration Association in New York, New York or any other location mutually agreeable to the parties, and, if not resolved thereby, shall be settled by arbitration, before a single arbitrator sitting in New York, New York or any other location mutually agreeable to the parties, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall be authorized to decree any and all relief of an equitable nature, and shall also be authorized to award damages and costs. Notwithstanding the foregoing, in the extent of a breach or impending breach of this Agreement, either party may seek an injunction, restraining order or other equitable relief from any court of competent jurisdiction. 7. SUCCESSORS This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts still are payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to Executive's estate. 8. MISCELLANEOUS 8.1 Entire Agreement This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.2 Notices Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, - 7 - return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to Executive: ----------------- ----------------- ----------------- If to Company: Nexsan Corporation c/o Beechtree Capital Ltd. 1 Rockefeller Plaza New York, New York 10020 and Nexsan Technologies, Ltd. Imperial House East Service Road Rayneway Derby DE21 7BF England with a copy to: RubinBaum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 or such other address as shall be provided in accordance with the terms hereof. Such notice shall be effective upon mailing. 8.3 Other Agreements Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 8.4 Assistance In Proceedings, Etc. - 8 - After termination of his employment, and upon reasonable notice, Executive shall furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party. The Company shall compensate Executive at the rate of $1,000 per hour for any such services performed after termination and will reimburse Executive for all reasonable expenses incurred in connection therewith in accordance with the provisions of Section 2 of this Agreement.. 8.5 Waivers No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 8.6 Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive. 8.7 Severability If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto an nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 8.8 Cooperation. - 9 - Upon termination of employment with the Company, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive's responsibilities and to ensure that the Company is aware of all matters which had been handled by Executive. The Company will reimburse Executive for all reasonable expenses incurred in connection therewith. 8.9 Protection Of Reputation. From the date hereof, Executive agrees that he will take no action which is intended, or could reasonably be expected, to harm the Company or its reputation or which could reasonably be expected to lead to unwanted or unfavorable publicity to the Company, provided, that nothing in this Section 8.9 shall affect the ability of Executive to enforce any remedy available at law or in equity. 8.10 Counterparts This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the 4th day of January, 2001 NEXSAN CORPORATION By: /s/ Martin Boddy ---------------------------------- Title: CEO /s/ Martin Boddy -------------------------------------- Martin Boddy EX-10.2 22 0022.txt EMPLOYMENT AGREEMENT CONTRACT OF EMPLOYMENT Dated January 4, 2001 1. The Employer: Nexsan Technologies Ltd, Imperial House, East Service, Road, Raynesway, Derby "We", "Us", or "the Company" AND 2. The Employee: Martin Boddy of 5 Duck Island ("You") Duffield, Derby PE 564EZ 1. Employment/job title/mobility 1.1 We will employ you, and you will work for us as Managing Director. 1.2 While your initial place of work will be Derby you will work at and/or travel to such places as we may reasonably require from time to time. 2. Duration 2.1 Your employment with us commenced on January 4, 2001 and subject to Clause 11.1 below will continue for an initial fixed term of five years from that date. At any time after January 4, 2005 four years after commencement) this contract can be determined by twelve months notice given by either you or us. 2.2 If not terminated earlier, this contract will end automatically when you reach age 65. 3. Your Duties 3.1 You will faithfully and diligently and to the best of your ability exercise -1- such powers and perform such reasonable duties in relation to our business as we require from time to time, and comply with all limitations, rules and regulations we may notify to you from time to time. 3.2 You will work such hours including as a minimum normal office hours at your place of work as are needed for the proper performance of your duties. In particular you agree whenever necessary to work longer than 48 hours a week on average. You will not be entitled to additional pay for overtime. 3.3 You will at all time endeavour to promote the interest and reputation of the Company. 4. Pay and benefits in kind 4.1 We will pay you a basic salary of $143,000 a year during your first year of employment; a basic salary of $218,000 a year during your second year of employment; and thereafter, for every subsequent year of employment a basic salary 5% greater than the basic salary paid to you during your previous year of employment. We will pay this in equal instalments by credit transfer to your nominated bank or building society account in Great Britain on or about the last business day of each monthly pay period. Your salary is deemed to include any fees receivable for holding any office in the Company or its Associates. We will review your salary annually and the Company may in its absolute discretion increase but not reduce your salary by such amount if any as it thinks fit. 4.2 We may, in our absolute discretion, pay you a bonus in respect of each financial year of the Company. To be eligible for consideration for such a bonus you must have been in service throughout the year in question and to receive it you must still be in service and not under notice of termination on the date appointed for payment of bonus. -2- 4.3 You will be eligible to join the Company pension scheme "the Scheme" subject to and in accordance with the rules of the Scheme, which provides that the Scheme may be amended or discontinued. The rules of the Scheme and any amendments to the rules of the Scheme will be notified to you. You will contribute to the Scheme at the level of 4% of your gross earnings and will be treated as having authorised the Company to deduct contributions from your earnings at that level. Members of the scheme are contracted out of the State Earnings Related Pension Scheme. 4.4 You and members of your immediate family will be eligible to participate in the Company's private health care scheme. Details of the scheme and any amendments to the scheme will be provided to you. At any time after commencement of your employment, at the discretion of the Company, you may be required to undergo a medical examination by a medical advisor approved by the Company and to authorise the medical advisor to disclose to the Company the results of the examination. 4.5 We will not provide you with a Company car however we will reimburse you in respect of the business mileage incurred by you using your own car on Company business at a rate of inland revenue fixed profit car scheme per mile or such other rate as may from time to time be agreed. 4.6 We will reimburse you at the end of each pay period for all travelling, hotel, entertainment and other expenses reasonably incurred by you in the performance of your duties in accordance with Company guidelines and subject to receipt from you of a duly vouched expenses claim form. If we issue you with a charge or credit card you must only use it for Company business purposes. 5. Holiday entitlement -3- 5.1 Our holiday year is the calendar year from 1 January to 31 December. Your annual holiday entitlement will be 20 working days in addition to the normal English Bank and Public holidays. Your holiday must be taken during the holiday year and your holiday dates agreed in advance. Employees who started during the holiday year will be entitled to 1 1/2 days' holiday for each complete month left in the holiday year. 5.2 We, do not normally allow staff to carry unused holiday entitlement forward (and we do not normally pay in lieu of untaken holiday). 5.3 If you leave during a holiday year, your holiday entitlement will be recalculated as (1 YS) days holiday for each complete month worked in the year. If you have taken less holiday than this you will be paid in lieu. If you have taken more holiday than this, you will have to repay the excess holiday pay. One day's holiday pay will be deemed to be 11260th of your annual basic salary. 6. Notification of Absence 6.1 If you are unable to come to work for any reason and your absence has not previously been authorised by us you must inform us immediately and keep us informed. You must confirm the reasons for your absence in writing as soon as practicable. 6.2 Following your return to work after a period of absence due to sickness of 7 calendar days or less you will have to complete a self-certification form. Self-certification forms will be retained in our records. 6.3 If you are absent from work due to sickness for more than 7 calendar days (including weekends) you must provide us with a medical certificate by the 8th day of sickness. You must provide medical certificates to us to cover any further absence. -4- 7. Sick pay 7.1. If you are absent from work due to sickness (including mental illness or a accidental injury) and comply with the requirements in clause 6, you will be paid Company Sick Pay at full pay for a period of ten weeks in any rolling 52 week period thereafter you will be entitled to Statutory Sick Pay. 8. Confidentiality You must not at any time during (except in the course of your duties) or after your employment disclose or make use of your knowledge of any confidential information of the Company and its Associates acquired by you during or as a consequence of your employment with us. Confidential information includes (without limitation) all and any information about business plans, maturing new business opportunities, research and development projects, product formulae, processes, inventions, designs, discoveries or know-how, sales statistics, marketing surveys and plans, costs, profit or loss, prices and discount structures, the names, addresses and contact details of customers and potential customers or suppliers and potential suppliers (whether or not recorded in writing or on computer disk or tape) which the Company or relevant Associate treats as confidential. 9. Restrictions on competition 9.1 You will not for the first 3 months after the end of your employment with us either on your own account or on behalf of any other legal person and in competition with the Company (or any Associate) directly or indirectly be engaged in or be concerned with any trade or business carried on by and/or competitive with us at the end of your employment. 9.2 You will not for the first 6 months after the end of your employment with us solicit away from us any person who is and was, when your employment ended, employed by us during the last 12 months of your -5- employment. 9.3 Each of the above restrictions is separate and severable from the other. If one is enforceable for any reason, but would be enforceable if some of its wording were deleted, it shall apply with such deletions as are necessary to make it enforceable. 9.4 None of the above provisions shall apply if you have been dismissed by the Company in breach of this contract. 10. Dismissal 10.1 We can dismiss you without prior notice or pay in lieu (and you will not be entitled to compensation or damages) if you: 10.1.1 commit any act of gross misconduct or gross incompetence or other repudiatory breach of contract; 10.1.2 without reasonable excuse and after prior written warning, repeat or continue any breach of contract (not falling within 10.1.1 above); 10.1.3 are absent due to sickness for at least 120 consecutive days, or an aggregate of 180 days in a period of 52 consecutive weeks; 10.1.4 commit such misconduct outside work of such disrepute that in the reasonable option of your continued employment will materially prejudice the interests of the Company; 10.1.5 are convicted of any criminal offence (other than road traffic offences) punishable with imprisonment (whether or not such sentence is actually imposed on you); -6- 10.1.6 resign (otherwise than at our request) any office you hold in the Company or its Associates or by virtue of your, employment; 10.1.7 become bankrupt, apply for or have a receiving order made . against you or enter into any voluntary arrangement with your creditors; or 10.1.8 have an order made against you disqualifying you from acting as a Company director. While we will endeavour to deal fairly with allegations against you, we reserve the right to proceed under this sub-clause without prior notice and without holding a hearing or inviting any representations from you. 10.2 We reserve the option in our absolute discretion to terminate your employment by paying you in lieu of notice. The payment shall be solely your basic salary without taking into account any bonus, pension contributions or benefits in kind and shall be subject to deductions for income tax and national insurance contributions as appropriate. You will not, under any circumstances, have any right to payment in lieu unless we have exercised our option to pay in lieu by notice to you. 10.3 At the end of your employment for whatever reason you must; 10.3.1 on request resign any directorships or other offices held by you in the Company or its Associates or by virtue of your employment and transfer to the Company or as the Company may direct any shares or other securities held by you as nominee or trustee for the Company or any Associate without payment in either case. If you fail to do so within 7 days of request, the Company is hereby -7- irrevocably authorised to appoint a person in your name and on your behalf to execute any documents or do any things necessary for such purpose(s) (all of which shall be without prejudice to any claims which you might otherwise have against us). 10.3.2 return all the Company's Associate's documents, computer disks or tapes and all other tangible items in your possession or control belonging to or containing any confidential information of the Company or its Associates. 11. Miscellaneous 11.1 Any notice to be given under this contract must be in writing and must either be delivered by hand or courier or sent by first class pre-paid post (or facsimile if the recipient has a facsimile number). Notices to the Company must be addressed to its registered office or sent to the Company secretary's facsimile number as the case may be. Notices to you must be addressed to your last known home address or sent to your facsimile number (if any) at your last known home address as the case . may be. A notice shall be deemed to have served at the time of delivery if delivered by hand or courier, 2 clear days after the time of posting if sent by first class pre-paid post, and at the time of completion of transmission by the sender if sent by facsimile. 11.2 No omission to exercise or delay in exercising any right, power or remedy provided to the Company by law or under this contract will be a waiver of it. 11.3 This contract (together with any documents referred to in it) sets out the whole agreement between the parties relating to and cancels all previous agreements, representations and arrangements in connection with your employment by us or any Associate. -8- 11.4 The validity, construction and performance of this contract shall be governed by English law. 11.5 All disputes, claims or proceedings between the parties relating to the validity, construction, performance or termination of this contract shall be subject to the exclusive jurisdiction of the English Courts. 11.6 Termination of this contract shall not affect any provisions which are intended to operate after termination. 11.7 We reserve the right and you agree to our deducting any debts you owe us from your wages. 12. Statutory particulars The further particulars of terms of employment not contained above which must be given to you under the Employment Rights Act 1996 are as follows: 12.1 Your continuous employment began on (insert). 12.2 There are no collective agreements with trade unions which directly affect the terms and conditions of your employment. 12.3 If you have any grievance relating to your employment or if you are dissatisfied with any disciplinary decision affecting you, you should first attempt to resolve this by discussion with your immediate superior. Failing satisfaction you may refer it in writing for determination at the next level of management. SIGNED on behalf of the Employer by a duly authorised officer -9- Sign /s/ Martin Boddy Print Martin Boddy on (date) January 4, 2001 (in the presence of witness (sign) (print) SIGNED by the Employee Sign /s/ Martin Boddy Print Martin Boddy on (date) January 4, 2001 (in the presence of witness (sign) (print) -10- EX-10.3 23 0023.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 4, 2001 between NEXSAN CORPORATION a Delaware corporation ("Company") and GARY WATSON ("Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as its Chief Technical officer and Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. EMPLOYMENT 1.1 The Company hereby agrees to employ Executive, and Executive hereby agrees to accept employment by the Company and to serve, as the Chief Technical Officer, effective as of the consummation of the transactions contemplated by (i) the Exchange Agreement among the Company and the shareholders of Nexsan Technologies Ltd., and by (ii) the Stock Purchase Agreement among the Company, Beechtree Capital LLC, and the purchasers of the Company's common stock ("Common Shares") parties thereto (the "Effective Date"). 1.2 The Executive agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board of Directors of the Company shall from time to time reasonably assign to him. The Executive shall devote his full-time efforts to the business of the Company and it Affiliates (defined below) so as to increase the profitability and shareholder value of the Company; and the Executive shall not be engaged in any other business activity during the duration of this Agreement, unless written approval is first secured from the Board of Directors of the Company. 1.3 Executive shall also serve at the option of the Company as an officer or director of any other entity controlling, controlled by or under common control with the Company (an "Affiliate") without additional compensation, it being understood, however, that Executive is contemporaneously herewith entering into a Contract of Employment with Nexsan Technologies, Ltd. Without limiting the forgoing, during the term of this Agreement, the Executive consents to being appointed as a member of the Company's Board of Directors. 1.4 The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company. 2. COMPENSATION 2.1 Base Salary (a) The Company shall pay Executive a base salary ("Base Salary") at the rate of $25,000 per year. Base Salary shall be payable in installments consistent with the Company's payroll practices then in effect. The Company shall increase the Base Salary annually, beginning on the second anniversary of the Effective Date, by five percent (5%) over the Base Salary in effect the previous year. 2.2 Stock Options Intentionally omitted. 2.3 Additional Compensation Nothing contained in this Agreement shall prevent the Board of Directors of the Company, in its sole and absolute discretion, from, at any time, increasing Executive's compensation either permanently or for a limited period, whether in Base Salary or by bonus or otherwise, if the Board of Directors, in its sole discretion, shall deem it advisable to do so in order to recognize and fairly compensate the Executive for services rendered, provided, that nothing in this sentence shall in any manner obligate the Board of Directors to make any such increase or provide any such additional benefits. 2.4 Withholdings, Etc. Payment of all compensation and benefits to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable employment and withholding taxes. 3. BENEFITS Executive shall be entitled to participate in all health care, insurance, deferred compensation and other employee benefit plans generally available to executives of the Company, consistent with the terms of those plans as they may currently exist or be modified from time to time. 4. TERM AND TERMINATION - 2 - 4.1 Unless earlier terminated as provided herein, the initial term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date and shall terminate on the fifth anniversary (the "Expiration Date") of the Effective Date. Unless this Agreement shall have been earlier terminated, the term of this Agreement and Executive's employment will be extended automatically for successive one (1) year terms commencing on the Expiration Date unless either party elects to terminate this Agreement by providing written notice to the other party at least one hundred eighty (180) days prior to the expiration of the Initial Term or any renewal term of this Agreement. 4.2 This Agreement and Executive's employment hereunder shall terminate: (a) upon the death of Executive; (b) upon written notice to Executive if, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been unable to perform Executive's duties hereunder on a full time basis for a consecutive period of one hundred twenty (120) days or an aggregate of one hundred eighty (180) days within any twelve-month period; or (c) upon written notice to Executive, for Cause. "Cause" means (i) any willful, material violation by the Executive of any law or regulation applicable to the business of the Company or any Affiliate; (ii) the Executive's conviction for, or guilty plea or plea of nolo contendere to, a felony (other than a felony related solely to automobile infractions, unless Executive is incarcerated as a result thereof); (iii) the Executive's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iv) gross carelessness or unjustifiable neglect of Executive's duties or willful failure to follow the lawful orders of the Board of Directors of the Company; (v) any material breach by the Executive this Agreement; (vi) the Executive's violation of any of the policies of the Company or any Affiliate so as to cause loss, damage or injury to the property, reputation or employees of the Company or any Affiliate, or (vi) any other willful misconduct by the Executive which is materially injurious to the business, financial condition or business reputation the Company or any Affiliate. 4.3 Consequences of Termination In the event that the Company terminates Executive's employment pursuant to Section 4.2 then (a) the Executive's Base Salary shall be prorated as of the date of termination or resignation and such prorated amount shall be paid to Executive, and (b) the Company shall make such other and further - 3 - payments to Executive as may be provided pursuant to the terms of any employee benefit plan in which Executive is a participant at the time of termination, to the extent payable upon such termination in accordance with such plans or applicable Company policies. 5. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS 5.1 Employment Location The Executive shall perform the employment duties contemplated by this Agreement from such location as the Company may from time to time specify, it being understood that Executive's principal place of residence shall be the U.K. The Executive acknowledges that his duties hereunder entail substantial travel. 5.2 Reimbursement of Expenses Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of Executive's duties under this Agreement, all in accordance with the policies and procedures established by the Company from time to time for the Company's executives. 5.3 Company Property Executive agrees that all operating and/or financial data and projections, plans, contracts, agreements, literature, manuals, brochures, books, schedules, correspondence and other materials furnished, disclosed or otherwise made available to Executive by the Company or its Affiliates or secured through the efforts of Executive, relating to the business conducted by the Company and/or its Affiliates, are and shall remain the property of the Company and/or its Affiliates, and Executive agrees to deliver all such materials, including all copies or abstracts thereof, to the Company upon the termination of Executive's employment hereunder, or at any other time at the Company's request. 5.4 Confidential Information Executive agrees that, except in the good faith performance of his duties and responsibilities under this Agreement or as required by order of a court or governmental agency having jurisdiction, he will not at any time during or after his employment with the Company use, reveal, divulge or make known to any person or entity any confidential or proprietary knowledge or information concerning the Company or its Affiliates, including without limitation any such information concerning any equipment, facilities, customers, end users, contracts, leases, operating and/or financial data and projections, processes, developments, schedules, lists, plans or other matters relating to the business of the Company or its Affiliates and will retain all knowledge and information Executive acquired during his - 4 - employment therewith relating to the business of the Company or its Affiliates in trust in a fiduciary capacity for the sole benefit of the Company, its Affiliates and their respective successors and assigns. Executive's obligations under this Section 5.4 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by Executive of this Agreement, (ii) is generally disclosed to third parties (excluding counsel, accountants, financial advisors, employees, agents and material creditors of the Company) by the Company without restriction on such third parties, or (iii) is approved for release by written authorization of the President of the Company. 5.5 Developments (a) Executive will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments"). (b) Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. (c) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in the United States and foreign countries) relating to Developments. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. 5.6 Non-Competition While employed hereunder and for a period of one (1) year thereafter, Executive shall not (i) enter into the employment of, or act as a consultant, director, officer, or employee of, or render any service or advice to, any other business, partnership, association, corporation or other entity which directly engages in competition in any material respect with any business presently carried on or under development, or which hereafter during the period of his employment by the Company shall be carried on or be under development by the Company and which is then being carried on by the Company, in the United States or any foreign country where such business is then or was within the one year period ending on the date of termination conducted, other than the Company or any Affiliate (a "Competing Business") or (ii) invest or otherwise acquire any interest, whether as a shareholder, lender, partner, proprietor, vendor or otherwise, in any Competing - 5 - Business (excluding ownership of less than 2% of a class of securities of a publicly_traded company). While employed hereunder and for a period of one (1) year after termination of employment, Executive shall not encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or attempt to induce) any customer of the Company or any user of products of the Company to reduce, restrict, or terminate its business relationship with the Company or any reseller which is a customer of the Company or its use of products, or products which incorporate products, manufactured by the Company, or to shift its business from the Company or any such reseller to any other supplier of competing goods or services. 5.7 Non-Solicitation While employed hereunder and for a period of one (1) year thereafter, Executive shall not, directly or indirectly, entice, induce or in any manner influence any person who is, or shall have been during such period, in the service of the Company or its Affiliates, or employed or engaged by or otherwise associated with any person or entity, to leave such service. 5.8 Survival, Rights and Remedies The provisions of this Section 5 shall survive the termination of this Agreement and the termination of Executive's employment with the Company and shall run to and inure to the benefit of the Company and its successors and assigns. Executive represents, warrants and acknowledges that he has carefully read this Section 5, that he has had an opportunity to have the provisions contained herein explained to him by his attorney, and that he understands the provisions contained herein. Executive further acknowledges that, by reason of his training, skills, experience and employment hereunder, the services to be rendered by him under the provisions of this Agreement and their value to the Company are of a special, unique and extraordinary character and that it would be difficult or impossible to replace such services, and he further acknowledges that a violation by him of any of the provisions of this Section 5 could cause continuing material and irreparable injury to the Company and that in such event money damages would not be readily calculable and the Company would not have an adequate remedy at law. Executive acknowledges and agrees that (i) the restrictions under this Section 5 are reasonable and will not interfere with Executive's ability to earn a livelihood or impose upon him any undue hardship, and (ii) any breach of the covenants, provisions and restrictions contained in this Section 5 shall cause, and shall be deemed to be, a fundamental and material breach of Executive's fiduciary and contractual obligations to Employer. Therefore, Executive agrees that the Company shall be authorized and entitled to obtain from any court of competent jurisdiction, interim and permanent equitable relief, including without limitation, injunctive relief, in the event of any such breach or threatened breach of the provisions of this Section 5, together with payment of reasonable attorneys' fees and disbursements and any other costs of enforcement incurred in connection with such breach or threatened breach. These rights and remedies shall be cumulative and shall be in addition to any other rights or remedies whatsoever to which the Company shall otherwise be entitled hereunder, at - 6 - law or otherwise, including the right to seek damages (including any consequential damages) which any court of competent jurisdiction may deem appropriate. 6. APPLICABLE LAW; ARBITRATION This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by and construed and enforced in accordance with the laws of the State of New York. Except as provided in Section 5.8, any controversy or claim arising under the provisions of this Agreement or of any breach or alleged breach thereof shall be subject to mediation under the auspices of the American Arbitration Association in New York, New York or any other location mutually agreeable to the parties, and, if not resolved thereby, shall be settled by arbitration, before a single arbitrator sitting in New York, New York or any other location mutually agreeable to the parties, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall be authorized to decree any and all relief of an equitable nature, and shall also be authorized to award damages and costs. Notwithstanding the foregoing, in the extent of a breach or impending breach of this Agreement, either party may seek an injunction, restraining order or other equitable relief from any court of competent jurisdiction. 7. SUCCESSORS This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts still are payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to Executive's estate. 8. MISCELLANEOUS 8.1 Entire Agreement This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.2 Notices Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, - 7 - return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to Executive: ------------------------ ------------------------ ------------------------ If to Company: Nexsan Corporation c/o Beechtree Capital Ltd. 1 Rockefeller Plaza New York, New York 10020 and Nexsan Technologies, Ltd. Imperial House East Service Road Rayneway Derby DE21 7BF England with a copy to: RubinBaum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 or such other address as shall be provided in accordance with the terms hereof. Such notice shall be effective upon mailing. 8.3 Other Agreements Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 8.4 Assistance In Proceedings, Etc. - 8 - After termination of his employment, and upon reasonable notice, Executive shall furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party. The Company shall compensate Executive at the rate of $1,000 per hour for any such services performed after termination and will reimburse Executive for all reasonable expenses incurred in connection therewith in accordance with the provisions of Section 2 of this Agreement.. 8.5 Waivers No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 8.6 Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive. 8.7 Severability If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto an nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 8.8 Cooperation. - 9 - Upon termination of employment with the Company, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive's responsibilities and to ensure that the Company is aware of all matters which had been handled by Executive. The Company will reimburse Executive for all reasonable expenses incurred in connection therewith. 8.9 Protection Of Reputation. From the date hereof, Executive agrees that he will take no action which is intended, or could reasonably be expected, to harm the Company or its reputation or which could reasonably be expected to lead to unwanted or unfavorable publicity to the Company, provided, that nothing in this Section 8.9 shall affect the ability of Executive to enforce any remedy available at law or in equity. 8.10 Counterparts This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the 4th day of January, 2001 NEXSAN CORPORATION By: /s/ Martin Boddy ------------------ Title: ---------------- /s/ Gary Watson ---------------------- Gary Watson - 10 - EX-10.4 24 0024.txt EMPLOYMENT AGREEMENT CONTRACT OF EMPLOYMENT ---------------------- Dated January 4, 2001 1. The Employer: Nexsan Technologies Ltd, Imperial House, East Service, Road, Raynesway, Derby "We", "Us", or "the Company" AND 2. The Employee: Gary Watson of 25 Wharpedale Road Long Eaton, Nottingham ("You") 1. EMPLOYMENT JOB TITLE MOBILITY 1.1 We will employ you, and you will work for us as Technical Director. 1.2 While your initial place of work will be Derby you will work at and/or travel to such places as we may reasonably require from time to time. 2. DURATION 2.1 Your employment with us commenced on January 4, 2001 and subject to Clause 11.1 below will continue for an initial fixed term of five years from that date. At any time after January 4, 2005 date four years after commencement) this contract can be determined by twelve months notice given by either you or us. 2.2 If not terminated earlier, this contract will end automatically when you reach age 65. 3. YOUR DUTIES 3.1 You will faithfully and diligently and to the best of your ability exercise -1- such powers and perform such reasonable duties in relation to our business as we require from time to time, and comply with all limitations, rules and regulations we may notify to you from time to time. 3.2 You will work such hours including as a minimum normal office hours at your place of work as are needed for the proper performance of your duties. In particular you agree whenever necessary to work longer than 48 hours a week on average. You will not be entitled to additional pay for overtime. 3.3 You will at all time endeavour to promote the interest and reputation of the Company. 4. PAY AND BENEFITS IN KIND 4.1 We will pay you a basic salary of $103,000 a year during your first year of employment; a basic salary of $178,000 a year during your second year of employment; and thereafter, for every subsequent year of employment a basic salary 5% greater than the basic salary paid to you during your previous year of employment. We will pay this in equal instalments by credit transfer to your nominated bank or building society account in Great Britain on or about the last business day of each monthly pay period. Your salary is deemed to include any fees receivable for holding any office in the Company or its Associates. We will review your salary annually and the Company may in its absolute discretion increase but not reduce your salary by such amount if any as it thinks fit. 4.2 We may, in our absolute discretion, pay you a bonus in respect of each financial year of the Company. To be eligible for consideration for such a bonus you must have been in service throughout the year in question and to receive it you must still be in service and not under notice of termination on the date appointed for payment of bonus. -2- 4.3 You will be eligible to join the Company pension scheme "the Scheme" subject to and in accordance with the rules of the Scheme, which provides that the Scheme may be amended or discontinued. The rules of the Scheme and any amendments to the rules of the Scheme will be notified to you. You will contribute to the Scheme at the level of 4% of your gross earnings and will be treated as having authorised the Company to deduct contributions from your earnings at that level. Members of the scheme are contracted out of the State Earnings Related Pension Scheme. 4.4 You and members of your immediate family will be eligible to participate in the Company's private health care scheme. Details of the scheme and any amendments to the scheme will be provided to you. At any time after commencement of your employment, at the discretion of the Company, you may be required to undergo a medical examination by a medical advisor approved by the Company and to authorise the medical advisor to disclose to the Company the results of the examination. 4.5 We will not provide you with a Company car however we will reimburse you in respect of the business mileage incurred by you using your own car on Company business at a rate of inland revenue fixed profit car scheme per mile or such other rate as may from time to time be agreed. 4.6 We will reimburse you at the end of each pay period for all travelling, hotel, entertainment and other expenses reasonably incurred by you in the performance of your duties in accordance with Company guidelines and subject to receipt from you of a duly vouched expenses claim form. If we issue you with a charge or credit card you must only use it for Company business purposes. 5. HOLIDAY ENTITLEMENT -3- 5.1 Our holiday year is the calendar year from 1 January to 31 December. Your annual holiday entitlement will be 20 working days in addition to the normal English Bank and Public holidays. Your holiday must be taken during the holiday year and your holiday dates agreed in advance. Employees who started during the holiday year will be entitled to 1 1/2 days' holiday for each complete month left in the holiday year. 5.2 We do not normally allow staff to carry unused holiday entitlement forward (and we do not normally pay in lieu of untaken holiday). 5.3 If you leave during a holiday year, your holiday entitlement will be recalculated as (1 1/2) days holiday for each complete month worked in the year. If you have taken less holiday than this you will be paid in lieu. If you have taken more holiday than this, you will have to repay the excess holiday pay. One day's holiday pay will be deemed to be 1/260th of your annual basic salary. 6. NOTIFICATION OF ABSENCE 6.1 If you are unable to come to work for any reason and your absence has not previously been authorised by us you must inform us immediately and keep us informed. You must confirm the reasons for your absence in writing as soon as practicable. 6.2 Following your return to work after a period of absence due to sickness of 7 calendar days or less you will have to complete a self-certification form. Self-certification forms will be retained in our records. 6.3 If you are absent from work due to sickness for more than 7 calendar days (including weekends) you must provide us with a medical certificate by the 8th day of sickness. You must provide medical certificates to us to cover any further absence. -4- 7. SICK PAY 7.1. If you are absent from work due to sickness (including mental illness or accidental injury) and comply with the requirements in clause 6, you will be paid Company Sick Pay at full pay for a period of ten weeks in any rolling 52 week period thereafter you will be entitled to Statutory Sick Pay. 8. CONFIDENTIALITY You must not at any time during (except in the course of your duties) or after your employment disclose or make use of your knowledge of any confidential information of the Company and its Associates acquired by you during or as a consequence of your employment with us. Confidential information includes (without limitation) all and any information about business plans, maturing new business opportunities, research and development projects, product formulae, processes, inventions, designs, discoveries or know-how, sales statistics, marketing surveys and plans, costs, profit or loss, prices and discount structures, the names, addresses and contact details of customers and potential customers or suppliers and potential suppliers (whether or not recorded in writing or on computer disk or tape) which the Company or relevant Associate treats as confidential. 9. RESTRICTIONS ON COMPETITION 9.1 You will not for the first 3 months after the end of your employment with us either on your own account or on behalf of any other legal person and in competition with the Company (or any Associate) directly or indirectly be engaged in or be concerned with any trade or business carried on by and/or competitive with us at the end of your employment. 9.2 You will not for the first 6 months after the end of your employment with us solicit away from us any person who is and was, when your employment ended, employed by us during the last 12 months of your -5- employment. 9.3 Each of the above restrictions is separate and severable from the other. If one is enforceable for any reason, but would be enforceable if some of its wording were deleted, it shall apply with such deletions as are necessary to make it enforceable. 9.4 None of the above provisions shall apply if you have been dismissed by the Company in breach of this contract. 10. DISMISSAL 10.1 We can dismiss you without prior notice or pay in lieu (and you will not be entitled to compensation or damages) if you: 10.1.1 commit any act of gross misconduct or gross incompetence or other repudiatory breach of contract; 10.1.2 without reasonable excuse and after prior written warning, repeat or continue any breach of contract (not falling within 10.1.1 above); 10.1.3 are absent due to sickness for at least 120 consecutive days, or an aggregate of 80 days in a period of 52 consecutive weeks; 10.1.4 commit such misconduct outside work of such disrepute that in the reasonable option of your continued employment will materially prejudice the interests of the Company; 10.1.5 are convicted of any criminal offence (other than road traffic offences) punishable with imprisonment (whether or not such sentence is actually imposed on you); -6- 10.1.6 resign (otherwise than at our request) any office you hold in the Company or its Associates or by virtue of your employment; 10.1.7 become bankrupt, apply for or have a receiving order made against you or enter into any voluntary arrangement with your creditors; or 10.1.8 have an order made against you disqualifying you from acting as a Company director. While we will endeavour to deal fairly with allegations against you, we reserve the right to proceed under this sub-clause without prior notice and without holding a hearing or inviting any representations from you. 10.2 We reserve the option in our absolute discretion to terminate your employment by paying you in lieu of notice. The payment shall be solely your basic salary without taking into account any bonus, pension contributions or benefits in kind and shall be subject to deductions for income tax and national insurance contributions as appropriate. You will not, under any circumstances, have any right to payment in lieu unless we have exercised our option to pay in lieu by notice to you. 10.3 At the end of your employment for whatever reason you must; 10.3.1 on request resign any directorships or other offices held by you in the Company or its Associates or by virtue of your employment and transfer to the Company or as the Company may direct any shares or other securities held by you as nominee or trustee for the Company or any Associate without payment in either case. If you fail to do so within 7 days of request, the Company is hereby -7- irrevocably authorised to appoint a person in your name and on your behalf to execute any documents or do any things necessary for such purpose(s) (all of which shalll be without prejudice to any claims which you might otherwise have against us). 10.3.2 return all the Company's Associate's documents, computer disks or tapes and all other tangible items in your possession or control belonging to or containing any confidential information of the Company or its Associates. 11. MISCELLANEOUS 11.1 Any notice to be given under this contract must be in writing and must either be delivered by hand or courier or sent by first class pre-paid post (or facsimile if the recipient has a facsimile number). Notices to the Company must be addressed to its registered office or sent to the Company secretary's facsimile number as the case may be. Notices to you must be addressed to your last known home address or sent to your facsimile number (if any) at your last known home address as the case may be. A notice shall be deemed to have served at the time of delivery if delivered by hand or courier, 2 clear days after the time of posting if sent by first class pre-paid post, and at the time of completion of transmission by the sender if sent by facsimile. 11.2 No omission to exercise or delay in exercising any right, power or remedy provided to the Company by law or under this contract will be a waiver of it. 11.3 This contract (together with any documents referred to in it) sets out the whole agreement between the parties relating to and cancels all previous agreements, representations and arrangements in connection with your employment by us or any Associate. -8- 11.4 The validity, construction and performance of this contract shall be governed by English law. 11.5 All disputes, claims or proceedings between the parties relating to the validity, construction, performance or termination of this contract shall be subject to the exclusive jurisdiction of the English Courts. 11.6 Termination of this contract shall not affect any provisions which are intended to operate after termination. 11.7 We reserve the right and you agree to our deducting any debts you owe us from your wages. 12. STATUTORY PARTICULARS The further particulars of terms of employment not contained above which must be given to you under the Employment Rights Act 1996 are as follows: 12.1 Your continuous employment began on (insert). 12.2 There are no collective agreements with trade unions which directly affect the terms and conditions of your employment. 12.3 If you have any grievance relating to your employment or if you are dissatisfied with any disciplinary decision affecting you, you should first attempt to resolve this by discussion with your immediate superior. Failing satisfaction you may refer it in writing for determination at the next level of management. SIGNED on behalf of the Employer by a duly authorised officer -9- Sign /s/ Martin Boddy Print Martin Boddy on (date) January 4, 2001 in the presence of witness (sign) /s/ Sharon Reid (print) Sharon Reid SIGNED by the Employee Sign /s/ Gary Watson Print Gary Watson on (date) January 4, 2001 in the presence of witness (sign) /s/ Sharon Reid (print) Sharon Reid EX-10.5 25 0025.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 4, 2001, between NEXSAN CORPORATION a Delaware corporation ("Company") and PAUL COXON ("Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as its Chief Financial Officer and Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. EMPLOYMENT 1.1 The Company hereby agrees to employ Executive, and Executive hereby agrees to accept employment by the Company and to serve, as the Chief Financial Officer effective as of the consummation of the transactions contemplated by (i) the Exchange Agreement among the Company and the shareholders of Nexsan Technologies Ltd., and by (ii) the Stock Purchase Agreement among the Company, Beechtree Capital, LLC, and the purchasers of the Company's common stock ("Common Shares") parties thereto (the "Effective Date"). 1.2 The Executive agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the President or the Board of Directors of the Company shall from time to time reasonably assign to him. The Executive shall devote his full-time efforts to the business of the Company and it Affiliates (defined below) so as to increase the profitability and shareholder value of the Company; and the Executive shall not be engaged in any other business activity during the duration of this Agreement, unless written approval is first secured from the Board of Directors of the Company. 1.3 Executive shall also serve at the option of the Company as an officer or director of any other entity controlling, controlled by or under common control with the Company (an "Affiliate") without additional compensation, it being understood, however, that Executive is contemporaneously herewith entering into a Contract of Employment with Nexsan Technologies, Ltd. Without limiting the forgoing, during the term of this Agreement, the Executive consents to being appointed as a member of the Company's Board of Directors. 1.4 The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company. 2. COMPENSATION 2.1 Base Salary (a) The Company shall pay Executive a base salary ("Base Salary") at the rate of $25,000 per year. Base Salary shall be payable in installments consistent with the Company's payroll practices then in effect. The Company shall increase the Base Salary annually, beginning on the second anniversary of the Effective Date, by five percent (5%) over the Base Salary in effect the previous year. 2.2 Stock Options Intentionally omitted. 2.3 Additional Compensation Nothing contained in this Agreement shall prevent the Board of Directors of the Company, in its sole and absolute discretion, from, at any time, increasing Executive's compensation either permanently or for a limited period, whether in Base Salary or by bonus or otherwise, if the Board of Directors, in its sole discretion, shall deem it advisable to do so in order to recognize and fairly compensate the Executive for services rendered, provided, that nothing in this sentence shall in any manner obligate the Board of Directors to make any such increase or provide any such additional benefits. 2.4 Withholdings, Etc. Payment of all compensation and benefits to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable employment and withholding taxes. 3. BENEFITS Executive shall be entitled to participate in all health care, insurance, deferred compensation and other employee benefit plans generally available to executives of the Company, consistent with the terms of those plans as they may currently exist or be modified from time to time. 4. 4. TERM AND TERMINATION - 2 - 4.1 Unless earlier terminated as provided herein, the initial term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date and shall terminate on the fifth anniversary (the "Expiration Date") of the Effective Date. Unless this Agreement shall have been earlier terminated, the term of this Agreement and Executive's employment will be extended automatically for successive one (1) year terms commencing on the Expiration Date unless either party elects to terminate this Agreement by providing written notice to the other party at least one hundred eighty (180) days prior to the expiration of the Initial Term or any renewal term of this Agreement. 4.2 This Agreement and Executive's employment hereunder shall terminate: (a) upon the death of Executive; (b) upon written notice to Executive if, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been unable to perform Executive's duties hereunder on a full time basis for a consecutive period of one hundred twenty (120) days or an aggregate of one hundred eighty (180) days within any twelve-month period; (c) upon written notice to Executive, for Cause. "Cause" means (i) any willful, material violation by the Executive of any law or regulation applicable to the business of the Company or any Affiliate; (ii) the Executive's conviction for, or guilty plea or plea of nolo contendere to, a felony (other than a felony related solely to automobile infractions, unless Executive is incarcerated as a result thereof); (iii) the Executive's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iv) gross carelessness or unjustifiable neglect of Executive's duties or willful failure to follow the lawful orders of the Board of Directors of the Company; (v) any material breach by the Executive this Agreement; (vi) the Executive's violation of any of the policies of the Company or any Affiliate so as to cause loss, damage or injury to the property, reputation or employees of the Company or any Affiliate, or (vi) any other willful misconduct by the Executive which is materially injurious to the business, financial condition or business reputation the Company or any Affiliate; or (d) upon written notice by the Company of termination. - 3 - 4.3 Consequences of Termination In the event that the Company terminates Executive's employment pursuant to Section 4.2 then (a) the Executive's Base Salary shall be prorated as of the date of termination or resignation and such prorated amount shall be paid to Executive, and (b) the Company shall make such other and further payments to Executive as may be provided pursuant to the terms of any employee benefit plan in which Executive is a participant at the time of termination, to the extent payable upon such termination in accordance with such plans or applicable Company policies. In addition, if the Company terminates Executive's employment pursuant to Section 4.2(d), then the Company shall cause the compensation payable to Executive pursuant to the Contract of Employment with Nexsan Technologies, Ltd. to be increased by an amount equal to his Base Salary otherwise payable under Section 2.1 hereof. 5. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS 5.1 Employment Location The Executive shall perform the employment duties contemplated by this Agreement from such location as the Company may from time to time specify, it being understood that Executive's principal place of residence shall be the U.K. The Executive acknowledges that his duties hereunder entail substantial travel. 5.2 Reimbursement of Expenses Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of Executive's duties under this Agreement, all in accordance with the policies and procedures established by the Company from time to time for the Company's executives. 5.3 Company Property Executive agrees that all operating and/or financial data and projections, plans, contracts, agreements, literature, manuals, brochures, books, schedules, correspondence and other materials furnished, disclosed or otherwise made available to Executive by the Company or its Affiliates or secured through the efforts of Executive, relating to the business conducted by the Company and/or its Affiliates, are and shall remain the property of the Company and/or its Affiliates, and Executive agrees to deliver all such materials, including all copies or abstracts thereof, to the Company upon the termination of Executive's employment hereunder, or at any other time at the Company's request. 5.4 Confidential Information - 4 - Executive agrees that, except in the good faith performance of his duties and responsibilities under this Agreement or as required by order of a court or governmental agency having jurisdiction, he will not at any time during or after his employment with the Company use, reveal, divulge or make known to any person or entity any confidential or proprietary knowledge or information concerning the Company or its Affiliates, including without limitation any such information concerning any equipment, facilities, customers, end users, contracts, leases, operating and/or financial data and projections, processes, developments, schedules, lists, plans or other matters relating to the business of the Company or its Affiliates and will retain all knowledge and information Executive acquired during his employment therewith relating to the business of the Company or its Affiliates in trust in a fiduciary capacity for the sole benefit of the Company, its Affiliates and their respective successors and assigns. Executive's obligations under this Section 5.4 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by Executive of this Agreement, (ii) is generally disclosed to third parties (excluding counsel, accountants, financial advisors, employees, agents and material creditors of the Company) by the Company without restriction on such third parties, or (iii) is approved for release by written authorization of the President of the Company. 5.5 Developments (a) Executive will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments"). (b) Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. (c) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in the United States and foreign countries) relating to Developments. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. 5.6 Non-Competition While employed hereunder and for a period of one (1) year thereafter, Executive shall not (i) enter into the employment of, or act as a consultant, director, officer, or - 5 - employee of, or render any service or advice to, any other business, partnership, association, corporation or other entity which directly engages in competition in any material respect with any business presently carried on or under development, or which hereafter during the period of his employment by the Company shall be carried on or be under development by the Company and which is then being carried on by the Company, in the United States or any foreign country where such business is then or was within the one year period ending on the date of termination conducted, other than the Company or any Affiliate (a "Competing Business") or (ii) invest or otherwise acquire any interest, whether as a shareholder, lender, partner, proprietor, vendor or otherwise, in any Competing Business (excluding ownership of less than 2% of a class of securities of a publicly_traded company). While employed hereunder and for a period of one (1) year after termination of employment, Executive shall not encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or attempt to induce) any customer of the Company or any user of products of the Company to reduce, restrict, or terminate its business relationship with the Company or any reseller which is a customer of the Company or its use of products, or products which incorporate products, manufactured by the Company, or to shift its business from the Company or any such reseller to any other supplier of competing goods or services 5.7 Non-Solicitation While employed hereunder and for a period of one (1) year thereafter, Executive shallnot, directly or indirectly, entice, induce or in any manner influence any person who is, or shall have been during such period, in the service of the Company or its Affiliates, or employed or engaged by or otherwise associated with any person or entity, to leave such service. 5.5 Survival, Rights and Remedies The provisions of this Section 5 shall survive the termination of this Agreement and the termination of Executive's employment with the Company and shall run to and inure to the benefit of the Company and its successors and assigns. Executive represents, warrants and acknowledges that he has carefully read this Section 5, that he has had an opportunity to have the provisions contained herein explained to him by his attorney, and that he understands the provisions contained herein. Executive further acknowledges that, by reason of his training, skills, experience and employment hereunder, the services to be rendered by him under the provisions of this Agreement and their value to the Company are of a special, unique and extraordinary character and that it would be difficult or impossible to replace such services, and he further acknowledges that a violation by him of any of the provisions of this Section 5 could cause continuing material and irreparable injury to the Company and that in such event money damages would not be readily calculable and the Company would not have an adequate remedy at law. Executive acknowledges and agrees that (i) the restrictions under this Section 5 are reasonable and will not interfere with Executive's ability to earn a livelihood or impose upon him any undue hardship, and (ii) any breach of the covenants, provisions and restrictions contained in this Section 5 shall cause, and shall be deemed to be, a fundamental and material breach of - 6 - Executive's fiduciary and contractual obligations to Employer. Therefore, Executive agrees that the Company shall be authorized and entitled to obtain from any court of competent jurisdiction, interim and permanent equitable relief, including without limitation, injunctive relief, in the event of any such breach or threatened breach of the provisions of this Section 5, together with payment of reasonable attorneys' fees and disbursements and any other costs of enforcement incurred in connection with such breach or threatened breach. These rights and remedies shall be cumulative and shall be in addition to any other rights or remedies whatsoever to which the Company shall otherwise be entitled hereunder, at law or otherwise, including the right to seek damages (including any consequential damages) which any court of competent jurisdiction may deem appropriate. 6. APPLICABLE LAW; ARBITRATION This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by and construed and enforced in accordance with the laws of the State of New York. Except as provided in Section 5.8, any controversy or claim arising under the provisions of this Agreement or of any breach or alleged breach thereof shall be subject to mediation under the auspices of the American Arbitration Association in New York, New York or any other location mutually agreeable to the parties, and, if not resolved thereby, shall be settled by arbitration, before a single arbitrator sitting in New York, New York or any other location mutually agreeable to the parties, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall be authorized to decree any and all relief of an equitable nature, and shall also be authorized to award damages and costs. Notwithstanding the foregoing, in the extent of a breach or impending breach of this Agreement, either party may seek an injunction, restraining order or other equitable relief from any court of competent jurisdiction. 7. SUCCESSORS This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts still are payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to Executive's estate. 8. MISCELLANEOUS 8.1 Entire Agreement - 7 - This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.2 Notices Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to Executive: Paul Coxon ------------------------ 6 Bramcote Drive, Beeston ------------------------- Nottingham, NG91AW U.K. ----------------------- If to Company: Nexsan Corporation c/o Beechtree Capital LLC 1 Rockefeller Plaza New York, New York 10020 and Nexsan Technologies, Ltd. Imperial House East Service Road Rayneway Derby DE21 7BF England with a copy to: RubinBaum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698_7825 or such other address as shall be provided in accordance with the terms hereof. Such notice shall be effective upon mailing. 8.3 Other Agreements Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, - 8 - directly or indirectly, with the business of such previous employer or any other party. Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 8.4 Assistance In Proceedings, Etc. After termination of his employment, and upon reasonable notice, Executive shall furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party. The Company shall compensate Executive at the rate of $1,000 per hour for any such services performed after termination and will reimburse Executive for all reasonable expenses incurred in connection therewith in accordance with the provisions of Section 2 of this Agreement.. 8.5 Waivers No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 8.6 Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive. 8.7 Severability If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and - 9 - shall be liberally construed in order to carry out the intent of the parties hereto an nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 8.8 Cooperation. Upon termination of employment with the Company, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive's responsibilities and to ensure that the Company is aware of all matters which had been handled by Executive. The Company will reimburse Executive for all reasonable expenses incurred in connection therewith. 8.9 Protection Of Reputation. From the date hereof, Executive agrees that he will take no action which is intended, or could reasonably be expected, to harm the Company or its reputation or which could reasonably be expected to lead to unwanted or unfavorable publicity to the Company, provided, that nothing in this Section 8.9 shall affect the ability of Executive to enforce any remedy available at law or in equity. 8.10 Counterparts This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the 4th day of January, 2001 NEXSAN CORPORATION By: /s/ Martin Boddy --------------------------- Title: CEO --------------------------- OPTIONEE: /s/ Paul Coxon --------------------------- - 10 - EX-10.6 26 0026.txt EMPLOYMENT AGREEMENT CONTRACT OF EMPLOYMENT ---------------------- Dated January 4, 2001 1. The Employer: Nexsan Technologies Ltd, Imperial House, East Service, Road, Raynesway, Derby "We", "Us", or "the Company" AND 2. The Employee: Paul Coxon of 6 Bramcote Drive Beeston ("You") Nottingham, NG91AW, UK 1. EMPLOYMENT/JOB TITLE/MOBILITY 1.1 We will employ you, and you will work for us as Financial Director. 1.2 While your initial place of work will be Derby you will work at and/or travel to such places as we may reasonably require from time to time. 2. DURATION 2.1 Your employment with us commenced on January 4, 2001 and subject to Clause 11.1 below will continue for an initial fixed term of five years from that date. At any time after Januaray 4, 2005 four years after commencement) this contract can be determined by twelve months notice given by either you or us. 2.2 If not terminated earlier, this contract will end automatically when you reach age 65. 3. YOUR DUTIES 3.1 You will faithfully and diligently and to the best of your ability exercise -1- such powers and perform such reasonable duties in relation to our business as we require from time to time, and comply with all limitations, rules and regulations we may notify to you from time to time. 3.2 You will work such hours including as a minimum normal office hours at your place of work as are needed for the proper performance of your duties. In particular you agree whenever necessary to work longer than 48 hours a week on average. You will not be entitled to additional pay for overtime. 3.3 You will at all time endeavour to promote the interest and reputation of the Company. 4. PAY AND BENEFITS IN KIND 4.1 We will pay you a basic salary of $85,000 a year during your first year of employment; a basic salary of $160,000 a year during your second year of employment; and thereafter, for every subsequent year of employment a basic salary 5% greater than the basic salary paid to you during your previous year of employment. We will pay this in equal instalments by credit transfer to your nominated bank or building society account in Great Britain on or about the last business day of each monthly pay period. Your salary is deemed to include any fees receivable for holding any office in the Company or its Associates. We will review your salary annually and the Company may in its absolute discretion increase but not reduce your salary by such amount if any as it thinks fit. 4.2 We may, in our absolute discretion, pay you a bonus in respect of each financial year of the Company. To be eligible for consideration for such a bonus you must have been in service throughout the year in question and to receive it you must still be in service and not under notice of termination on the date appointed for payment of bonus. -2- 4.3 You will be eligible to join the Company pension scheme "the Scheme" subject to and in accordance with the rules of the Scheme, which provides that the Scheme may be amended or discontinued. The rules of the Scheme and any amendments to the rules of the Scheme will be notified to you. You will contribute to the Scheme at the level of 4% of your gross earnings and will be treated as having authorised the Company to deduct contributions from your earnings at that level. Members of the scheme are contracted out of the State Earnings Related Pension Scheme. 4.4 You and members of your immediate family will be eligible to participate in the Company's private health care scheme. Details of the scheme and any amendments to the scheme will be provided to you. At any time after commencement of your employment, at the discretion of the Company, you may be required to undergo a medical examination by a medical advisor approved by the Company and to authorise the medical advisor to disclose to the Company the results of the examination. 4.5 We will not provide you with a Company car however we will reimburse you in respect of the business mileage incurred by you using your own car on Company business at a rate of inland revenue fixed profit car scheme per mile or such other rate as may from time to time be agreed. 4.6 We will reimburse you at the end of each pay period for all travelling, hotel, entertainment and other expenses reasonably incurred by you in the performance of your duties in accordance with Company guidelines and subject to receipt from you of a duly vouched expenses claim form. If we issue you with a charge or credit card you must only use it for Company business purposes. 5. HOLIDAY ENTITLEMENT -3- 5.1 Our holiday year is the calendar year from 1 January to 31 December. Your annual holiday entitlement will be 20 working days in addition to the normal English Bank and Public holidays. Your holiday must be taken during the holiday year and your holiday dates agreed in advance. Employees who started during the holiday year will be entitled to 1 1/2 days' holiday for each complete month left in the holiday year. 5.2 We do not normally allow staff to carry unused holiday entitlement forward (and we do not normally pay in lieu of untaken holiday). 5.3 If you leave during a holiday year, your holiday entitlement will be recalculated as (1 1/2) days holiday for each complete month worked in the year. If you have taken less holiday than this you will be paid in lieu. If you have taken more holiday than this, you will have to repay the excess holiday pay. One day's holiday pay will be deemed to be 1/260th of your annual basic salary. 6. NOTIFICATION OF ABSENCE 6.1 If you are unable to come to work for any reason and your absence has not previously been authorised by us you must inform us immediately and keep us informed. You must confirm the reasons for your absence in writing as soon as practicable. 6.2 Following your return to work after a period of absence due to sickness of 7 calendar days or less you will have to complete a self-certification form. Self-certification forms will be retained in our records. 6.3 If you are absent from work due to sickness for more than 7 calendar days (including weekends) you must provide us with a medical certificate by the 8th day of sickness. You must provide medical certificates to us to cover any further absence. -4- 7. SICK PAY 7.1. If you are absent from work due to sickness (including mental illness or accidental injury) and comply with the requirements in clause 6, you will be paid Company Sick Pay at full pay for a period of ten weeks in any rolling 52 week period thereafter you will be entitled to Statutory Sick Pay. 8. CONFIDENTIALITY You must not at any time during (except in the course of your duties) or after your employment disclose or make use of your knowledge of any confidential information of the Company and its Associates acquired by you during or as a consequence of your employment with us. Confidential information includes (without limitation) all and any information about business plans, maturing new business opportunities, research and development projects, product formulae, processes, inventions, designs, discoveries or know-how, sales statistics, marketing surveys and plans, costs, profit or loss, prices and discount structures, the names, addresses and contact details of customers and potential customers or suppliers and potential suppliers (whether or not recorded in writing or on computer disk or tape) which the Company or relevant Associate treats as confidential. 9. RESTRICTIONS ON COMPETITION 9.1 You will not for the first 3 months after the end of your employment with us either on your own account or on behalf of any other legal person and in competition with the Company (or any Associate) directly or indirectly be engaged in or be concerned with any trade or business carried on by and/or competitive with us at the end of your employment. 9.2 You will not for the first 6 months after the end of your employment with us solicit away from us any person who is and was, when your employment ended, employed by us during the last 12 months of your -5- employment. 9.3 Each of the above restrictions is separate and severable from the other. If one is enforceable for any reason, but would be enforceable if some of its wording were deleted, it shall apply with such deletions as are necessary to make it enforceable. 9.4 None of the above provisions shall apply if you have been dismissed by the Company in breach of this contract. 10. DISMISSAL 10.1 We can dismiss you without prior notice or pay in lieu (and you will not be entitled to compensation or damages) if you: 10.1.1 commit any act of gross misconduct or gross incompetence or other repudiatory breach of contract; 10.1.2 without reasonable excuse and after prior written warning, repeat or continue any breach of contract (not falling within 10.1.1 above); 10.1.3 are absent due to sickness for at least 120 consecutive days, or an aggregate of 180 days in a period of 52 consecutive weeks; 10.1.4 commit such misconduct outside work of such disrepute that in the reasonable option of your continued employment will materially prejudice the interests of the Company; 10.1.5 are convicted of any criminal offence (other than road traffic offences) punishable with imprisonment (whether or not such sentence is actually imposed on you); -6- 10.1.6 resign (otherwise than at our request) any office you hold in the Company or its Associates or by virtue of your employment; 10.1.7 become bankrupt, apply for or have a receiving order made against you or enter into any voluntary arrangement with your creditors; or 10.1.8 have an order made against you disqualifying you from acting as a Company director. While we will endeavour to deal fairly with allegations against you, we reserve the right to proceed under this sub-clause without prior notice and without holding a hearing or inviting any representations from you. 10.2 We reserve the option in our absolute discretion to terminate your employment by paying you in lieu of notice. The payment shall be solely your basic salary without taking into account any bonus, pension contributions or benefits in kind and shall be subject to deductions for income tax and national insurance contributions as appropriate. You will not, under any circumstances, have any right to payment in lieu unless we have exercised our option to pay in lieu by notice to you. 10.3 At the end of your employment for whatever reason you must; 10.3.1 on request resign any directorships or other offices held by you in the Company or its Associates or by virtue of your employment and transfer to the Company or as the Company may direct any shares or other securities held by you as nominee or trustee for the Company or any Associate without payment in either case. If you fail to do so within 7 days of request, the Company is hereby -7- irrevocably authorised to appoint a person in your name and on your behalf to execute any documents or do any things necessary for such purpose(s) (all of which shall be without prejudice to any claims which you might otherwise have against us). 10.3.2 return all the Company's Associate's documents, computer disks or tapes and all other tangible items in your possession or control belonging to or containing any confidential information of the Company or its Associates. 11. MISCELLANEOUS 11.1 Any notice to be given under this contract must be in writing and must either be delivered by hand or courier or sent by first class pre-paid post (or facsimile if the recipient has a facsimile number). Notices to the Company must be addressed to its registered office or sent to the Company secretary's facsimile number as the case may be. Notices to you must be addressed to your last known home address or sent to your facsimile number (if any) at your last known home address as the case may be. A notice shall be deemed to have served at the time of delivery if delivered by hand or courier, 2 clear days after the time of posting if sent by first class pre-paid post, and at the time of completion of transmission by the sender if sent by facsimile. 11.2 No omission to exercise or delay in exercising any right, power or remedy provided to the Company by law or under this contract will be a waiver of it. 11.3 This contract (together with any documents referred to in it) sets out the whole agreement between the parties relating to and cancels all previous agreements, representations and arrangements in connection with your employment by us or any Associate. -8- 11.4 The validity, construction and performance of this contract shall be governed by English law. 11.5 All disputes, claims or proceedings between the parties relating to the validity, construction, performance or termination of this contract shall be subject to the exclusive jurisdiction of the English Courts. 11.6 Termination of this contract shall not affect any provisions which are intended to operate after termination. 11.7 We reserve the right and you agree to our deducting any debts you owe us from your wages. 12. STATUTORY PARTICULARS The further particulars of terms of employment not contained above which must be given to you under the Employment Rights Act 1996 are as follows: 12.1 Your continuous employment began on (insert). 12.2 There are no collective agreements with trade unions which directly affect the terms and conditions of your employment. 12.3 If you have any grievance relating to your employment or if you are dissatisfied with any disciplinary decision affecting you, you should first attempt to resolve this by discussion with your immediate superior. Failing satisfaction you may refer it in writing for determination at the next level of management. SIGNED on behalf of the Employer by a duly authorised officer -9- Sign /s/ Martin Boddy Print Martin Boddy on (date) January 4, 2001 (in the presence of witness (sign) /s/ Sharon R. Reid (print) Sharon R. Reid SIGNED by the Employee Sign /s/ Paul Coxon Print Paul Coxon on (date) January 4, 2001 (in the presence of witness (sign) /s/ Sharon R. Reid (print) Sharon R. Reid EX-10.7 27 0027.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 4, 2001 between NEXSAN CORPORATION ("Company") and DIAMOND LAUFFIN ("Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as its Executive Vice President, and Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. EMPLOYMENT 1.1 The Company hereby agrees to employ Executive, and Executive hereby agrees to accept employment by the Company and to serve, as the Executive Vice President, effective as of the consummation of the transactions contemplated by (i) the Exchange Agreement among the Company and the shareholders of Nexsan Technologies Ltd., and (ii) the Stock Purchase Agreement among the Company, Beechtree Capital LLC, and the purchasers of the Company's common stock ("Common Shares") parties thereto (the "Effective Date"). 1.2 The Executive agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the President, the Chief Executive Officer, or the Board of Directors of the Company shall from time to time reasonably assign to him. The Executive shall devote his full-time efforts to the business of the Company so as to increase the profitability and shareholder value of the Company; and the Executive shall not be engaged in any other business activity during the duration of this Agreement, unless written approval is first secured from the President of the Company. Notwithstanding the foregoing, the Executive shall not have the authority to accept sales orders or enter into agreements for the sale of products or services unless the prices and terms of such sales have been approved by the President or Chief Executive Officer of the Company. 1.3 Executive shall also serve at the option of the Company as an officer or director of any other entity controlling, controlled by or under common control with the Company (an "Affiliate") without additional compensation. Without limiting the forgoing, during the term of this Agreement, the Executive consents to being appointed as a member of the Company's Board of Directors. 1.4 The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company. 2. COMPENSATION 2.1 Base Salary (a) The Company shall pay Executive a base salary ("Base Salary") at the rate of $250,000 per year. Base Salary shall be payable in installments consistent with the Company's payroll practices then in effect. The Company shall increase the Base Salary annually, on each anniversary of the Effective Date, by five percent (5%) over the Base Salary in effect the previous year. 2.2 Restricted Stock Purchase Rights Contemporaneously herewith, the Executive has been granted the right to purchase, pursuant to the Restrictive Stock Purchase Agreement entered by and between the Executive and the Company, pursuant to the Company's 2001 Stock Plan, 2,000,000 (Two Million) Common Shares of the Company. 2.3 Additional Compensation Nothing contained in this Agreement shall prevent the Board of Directors of the Company, in its sole and absolute discretion, from, at any time, increasing Executive's compensation either permanently or for a limited period, whether in Base Salary or by bonus or otherwise, if the Board of Directors, in its sole discretion, shall deem it advisable to do so in order to recognize and fairly compensate the Executive for services rendered, provided, that nothing in this sentence shall in any manner obligate the Board of Directors to make any such increase or provide any such additional benefits. 2.4 Withholdings, Etc. Payment of all compensation and benefits to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable employment and withholding taxes. 3. BENEFITS Executive shall be entitled to participate in all health care, insurance, deferred compensation and other employee benefit plans generally available to executives of the Company, consistent with the terms of those plans as they may currently exist or be modified -2- from time to time. Executive shall also be entitled to a minimum of four (4) weeks paid vacation annually and holidays and other fringe benefits, all in accordance with Company policy for executives of the Company, as those policies may currently exist or be modified from time to time. Unused vacation time shall accumulate, expire or be payable in accordance with Company policy applicable to executives of the Company, as then in effect. 4. TERM AND TERMINATION 4.1 Unless earlier terminated as provided herein, the initial term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date and shall terminate on the fifth anniversary (the "Expiration Date") of the Effective Date. Unless this Agreement shall have been earlier terminated, the term of this Agreement and Executive's employment will be extended automatically for successive one (1) year terms commencing on the Expiration Date unless either party elects to terminate this Agreement by providing written notice to the other party at least one hundred eighty (180) days prior to the expiration of the Initial Term or any renewal term of this Agreement. 4.2 This Agreement and Executive's employment hereunder shall terminate: (a) upon the death of Executive; (b) upon written notice to Executive if, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been unable to perform Executive's duties hereunder on a full time basis for a consecutive period of ninety (90) days or an aggregate of one hundred twenty (120) days within any twelve-month period; (c) upon written notice to Executive, for Cause. "Cause" means (i) any willful, material violation by the Executive of any law or regulation applicable to the business of the Company or any Affiliate; (ii) the Executive's conviction for, or guilty plea - or plea of nolo contendere - to, a felony (other than a felony related solely to automobile infractions, unless Executive is incarcerated as a result thereof); (iii) the Executive's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iv) gross carelessness or unjustifiable neglect of Executive's duties or willful failure to follow the lawful orders of the President, the Chief Executive Officer, Chief Operating Officer or of the Board of Directors of the Company; (v) any material breach by the Executive of this Agreement; (vi) the Executive's willful violation of any of the policies of the Company or any Affiliate so as to cause loss, -3- damage or injury to the property, reputation or employees of the Company or any Affiliate, or (vi) any other willful misconduct by the Executive which is materially injurious to the business, financial condition or business reputation the Company or any Affiliate; or (d) upon written notice given during the 31st month or the 43rd month after the Effective Date for failure to meet the Sales Target in the 30th month or by the 42nd month after the Effective Date, respectively. "Sales Target" means either (x) the total amount of sales, net of returns, discounts and allowances, of the Company and its Affiliates on a consolidated basis, net of intercompany transactions, in the applicable month, or (y) the average of such total amounts in the three months ending with the applicable month; provided that the amount of sales shall be increased by the amount of valid purchase orders which would have resulted is sales for the applicable month but for the fault of the Company. The Sales Target for the 30th month is $5 million and the Sales Target for the 42nd month is $8 million. For purposes of this subsection (d), the first month after the Effective Date shall be deemed to be January 2001. 4.3 Consequences of Termination. In the event that the Company terminates Executive's employment pursuant to Section 4.2 then (a) the Executive's Base Salary shall be prorated as of the date of termination or resignation and such prorated amount shall be paid to Executive, and (b) the Company shall make such other and further payments to Executive as may be provided pursuant to the terms of any employee benefit plan in which Executive is a participant at the time of termination, to the extent payable upon such termination in accordance with such plans or applicable Company policies; provided, that if the Company terminates Executive's employment pursuant to Section 4.2(d), the Company shall also pay to Executive severance equal to two times the average monthly Base Salary for the three months preceding the date of termination. 5. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS 5.1 Employment Location. The Executive shall perform the employment duties contemplated by this Agreement from such location as the Company may from time to time specify. The Executive acknowledges that his duties hereunder entail substantial travel. 5.2 Reimbursement of Expenses -4- Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of Executive's duties under this Agreement, all in accordance with the policies and procedures established by the Company from time to time for the Company's executives. 5.3 Company Property Executive agrees that all operating and/or financial data and projections, plans, contracts, agreements, literature, manuals, brochures, books, schedules, correspondence and other materials furnished, disclosed or otherwise made available to Executive by the Company or its Affiliates or secured through the efforts of Executive, relating to the business conducted by the Company and/or its Affiliates, are and shall remain the property of the Company and/or its Affiliates, and Executive agrees to deliver all such materials, including all copies or abstracts thereof, to the Company upon the termination of Executive's employment hereunder, or at any other time at the Company's request. 5.4 Confidential Information Executive agrees that, except in the good faith performance of his duties and responsibilities under this Agreement or as required by order of a court or governmental agency having jurisdiction, he will not at any time during or after his employment with the Company use, reveal, divulge or make known to any person or entity any confidential or proprietary knowledge or information concerning the Company or its Affiliates, including without limitation any such information concerning any equipment, facilities, customers, end users, contracts, leases, operating and/or financial data and projections, processes, developments, schedules, lists, plans or other matters relating to the business of the Company or its Affiliates and will retain all knowledge and information Executive acquired during his employment therewith relating to the business of the Company or its Affiliates in trust in a fiduciary capacity for the sole benefit of the Company, its Affiliates and their respective successors and assigns. Executive's obligations under this Section 5.4 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by Executive of this Agreement, (ii) is generally disclosed to third parties (excluding counsel, accountants, financial advisors, employees, agents and material creditors of the Company) by the Company without restriction on such third parties, or (iii) is approved for release by written authorization of the President of the Company. 5.5 Developments (a) Executive will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others during his employment by the -5- Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments"). (b) Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. (c) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in the United States and foreign countries) relating to Developments. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. (d) Notwithstanding anything in this Section 5 to the contrary, the Company acknowledges that the intellectual property known as the "Lead Registration Program" shall not be deemed a Development. 5.6 Non-Competition While employed hereunder, Executive shall not (i) enter into the employment of, or act as a consultant, director, officer, or employee of, or render any service or advice to, any other business, partnership, association, corporation or other entity which directly engages in competition in any material respect with any business presently carried on or under development, or which hereafter during the period of his employment by the Company shall be carried on or be under development by the Company and which is then being carried on by the Company, in the United States or any foreign country where such business is then or was within the one year period ending on the date of termination conducted, other than the Company or any Affiliate (a "Competing Business") or (ii) invest or otherwise acquire any interest, whether as a shareholder, lender, partner, proprietor, vendor or otherwise, in any Competing Business (excluding ownership of less than 2% of a class of securities of a publicly-traded company). While employed hereunder and for a period of one (1) year after termination of employment, Executive shall not encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or attempt to induce) any customer of the Company or any user of products of the Company to reduce, restrict, or terminate its business relationship with the Company or any reseller which is a customer of the Company or its use of products, or products which incorporate products, manufactured by the Company, or to shift its business from the Company or any such reseller to any other supplier of competing goods or services -6- 5.7 Non-Solicitation While employed hereunder and for a period of one (1) year thereafter, Executive shall not, directly or indirectly, entice, induce or in any manner influence any person who is, or shall have been during such period, in the service of the Company or its Affiliates, to leave such service, or employed or engaged by or otherwise associated with any person or entity. 5.8 Survival, Rights and Remedies The provisions of this Section 5 shall survive the termination of this Agreement and the termination of Executive's employment with the Company and shall run to and inure to the benefit of the Company and its successors and assigns. Executive represents, warrants and acknowledges that he has carefully read this Section 5, that he has had an opportunity to have the provisions contained herein explained to him by his attorney, and that he understands the provisions contained herein. Executive further acknowledges that, by reason of his training, skills, experience and employment hereunder, the services to be rendered by him under the provisions of this Agreement and their value to the Company are of a special, unique and extraordinary character and that it would be difficult or impossible to replace such services, and he further acknowledges that a violation by him of any of the provisions of this Section 5 could cause continuing material and irreparable injury to the Company and that in such event money damages would not be readily calculable and the Company would not have an adequate remedy at law. Executive acknowledges and agrees that (i) the restrictions under this Section 5 are reasonable and will not interfere with Executive's ability to earn a livelihood or impose upon him any undue hardship, and (ii) any breach of the covenants, provisions and restrictions contained in this Section 5 shall cause, and shall be deemed to be, a fundamental and material breach of Executive's fiduciary and contractual obligations to Employer. Therefore, Executive agrees that the Company shall be authorized and entitled to obtain from any court of competent jurisdiction, interim and permanent equitable relief, including without limitation, injunctive relief, in the event of any such breach or threatened breach of the provisions of this Section 5, and the prevailing party shall be entitled to payment of reasonable attorneys' fees and disbursements and any other costs incurred in connection with any proceedings in connection with such breach or threatened breach. These rights and remedies shall be cumulative and shall be in addition to any other rights or remedies whatsoever to which the Company shall otherwise be entitled hereunder, at law or otherwise, including the right to seek damages (including any consequential damages) which any court of competent jurisdiction may deem appropriate. 6. APPLICABLE LAW; ARBITRATION This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by and construed and enforced in accordance with the laws of the State of California. Except as provided in Section 5.8, any controversy or claim arising under the provisions of this Agreement or of any breach or alleged breach thereof shall be subject to mediation under the auspices of the American Arbitration Association in Los Angeles, California -7- or any other location mutually agreeable to the parties, and, if not resolved thereby, shall be settled by arbitration, before a single arbitrator sitting in Los Angeles, California or any other location mutually agreeable to the parties, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall be authorized to decree any and all relief of an equitable nature, and shall also be authorized to award damages and costs. Notwithstanding the foregoing, in the extent of a breach or impending breach of this Agreement, either party may seek an injunction, restraining order or other equitable relief from any court of competent jurisdiction. 7. SUCCESSORS This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts still are payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to Executive's estate. 8. MISCELLANEOUS 8.1 Entire Agreement This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.2 Notices Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to Executive: 32 South Wendy Drive Newbury Park, CA 91320 If to Company: Nexsan Corporation C/O Beechtree Capital, Ltd. 1 Rockefeller Plaza New York, NY 10020 -8- and to RubinBaum LLP 30 Rockefeller Plaza New York, NY 10112 Attention: Michael J. Emont, Esq. or such other address as shall be provided in accordance with the terms hereof. Such notice shall be effective upon mailing. 8.3 Waivers No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 8.4 Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive. 8.5 Severability If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto an nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 8.6 Counterparts This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.7 Other Agreements. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the 4th day of January, 2001 NEXSAN CORPORATION By: /s/ Martin Boddy --------------------------------- Title: CEO ------------------------------ /s/ Diamond Lauffin ------------------------------------ DIAMOND LAUFFIN -10- EX-10.8 28 0028.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 4, 2001, between NEXSAN CORPORATION ("Company") and JAMES MOLENDA ("Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as its Vice President of Sales and Executive desires to accept such employment, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. EMPLOYMENT 1.1 The Company hereby agrees to employ Executive, and Executive hereby agrees to accept employment by the Company and to serve, as Vice President of Sales, effective as of the consummation of the transactions contemplated by (i) the Exchange Agreement among the Company and the shareholders of Nexsan Technologies Ltd., and (ii) the Stock Purchase Agreement among the Company, Beechtree Capital LLC, and the purchasers of the Company's common stock ("Common Shares") parties thereto (the "Effective Date"). 1.2 The Executive agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the President, the Chief Executive Officer, or the Board of Directors of the Company shall from time to time reasonably assign to him. The Executive shall devote his full-time efforts to the business of the Company so as to increase the profitability and shareholder value of the Company; and the Executive shall not be engaged in any other business activity during the duration of this Agreement, unless written approval is first secured from the President of the Company. Notwithstanding the foregoing, the Executive shall not have the authority to accept sales orders or enter into agreements for the sale of products or services unless the prices and terms of such sales have been approved by the President or Chief Executive Officer of the Company. 1.3 Executive shall also serve at the option of the Company as an officer or director of any other entity controlling, controlled by or under common control with the Company (an "Affiliate") without additional compensation. Without limiting the forgoing, during the term of this Agreement, the Executive consents to being appointed as a member of the Company's Board of Directors. 1.4 The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company. 2. COMPENSATION 2.1 Base Salary (a) The Company shall pay Executive a base salary ("Base Salary") at the rate of $225,000 per year. Base Salary shall be payable in installments consistent with the Company's payroll practices then in effect. The Company shall increase the Base Salary annually, on each anniversary of the Effective Date, by five percent (5%) over the Base Salary in effect the previous year. 2.2 Restricted Stock Purchase Rights Contemporaneously herewith, the Executive has been granted the right to purchase, pursuant to the Restrictive Stock Purchase Agreement entered by and between the Executive and the Company, pursuant to the Company's 2001 Stock Plan, 1,200,000 (One Million and Two Hundred Thousand) Common Shares of the Company. 2.3 Additional Compensation Nothing contained in this Agreement shall prevent the Board of Directors of the Company, in its sole and absolute discretion, from, at any time, increasing Executive's compensation either permanently or for a limited period, whether in Base Salary or by bonus or otherwise, if the Board of Directors, in its sole discretion, shall deem it advisable to do so in order to recognize and fairly compensate the Executive for services rendered, provided, that nothing in this sentence shall in any manner obligate the Board of Directors to make any such increase or provide any such additional benefits. 2.4 Withholdings, Etc. Payment of all compensation and benefits to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable employment and withholding taxes. 3. BENEFITS Executive shall be entitled to participate in all health care, insurance, deferred compensation and other employee benefit plans generally available to executives of the Company, consistent with the terms of those plans as they may currently exist or be modified -2- from time to time. Executive shall also be entitled to a minimum of four(4) weeks paid vacation annually and holidays and other fringe benefits, all in accordance with Company policy for executives of the Company, as those policies may currently exist or be modified from time to time. Unused vacation time shall accumulate, expire or be payable in accordance with Company policy applicable to executives of the Company, as then in effect. 4. TERM AND TERMINATION 4.1 Unless earlier terminated as provided herein, the initial term of this Agreement and of Executive's employment hereunder shall commence on the Effective Date and shall terminate on the fifth anniversary (the "Expiration Date") of the Effective Date. Unless this Agreement shall have been earlier terminated, the term of this Agreement and Executive's employment will be extended automatically for successive one (1) year terms commencing on the Expiration Date unless either party elects to terminate this Agreement by providing written notice to the other party at least one hundred eighty (180) days prior to the expiration of the Initial Term or any renewal term of this Agreement. 4.2 This Agreement and Executive's employment hereunder shall terminate: (a) upon the death of Executive; (b) upon written notice to Executive if, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been unable to perform Executive's duties hereunder on a full time basis for a consecutive period of ninety (90) days or an aggregate of one hundred twenty (120) days within any twelve-month period; (c) upon written notice to Executive, for Cause. "Cause" means (i) any willful, material violation by the Executive of any law or regulation applicable to the business of the Company or any Affiliate; (ii) the Executive's conviction for, or guilty plea - or plea of nolo contendere - to, a felony (other than a felony related solely to automobile infractions, unless Executive is incarcerated as a result thereof); (iii) the Executive's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iv) gross carelessness or unjustifiable neglect of Executive's duties or willful failure to follow the lawful orders of the President, the Chief Executive Officer, Chief Operating Officer or of the Board of Directors of the Company; (v) any material breach by the Executive of this Agreement; (vi) the Executive's willful violation of any of the policies of the Company or any Affiliate so as to cause loss, -3- damage or injury to the property, reputation or employees of the Company or any Affiliate, or (vi) any other willful misconduct by the Executive which is materially injurious to the business, financial condition or business reputation the Company or any Affiliate; or (d) upon written notice given during the 31st month or the 43rd month after the Effective Date for failure to meet the Sales Target in the 30th month or by the 42nd month after the Effective Date, respectively. "Sales Target" means either (x) the total amount of sales, net of returns, discounts and allowances, of the Company and its Affiliates on a consolidated basis, net of intercompany transactions, in the applicable month, or (y) the average of such total amounts in the three months ending with the applicable month; provided that the amount of sales shall be increased by the amount of valid purchase orders which would have resulted is sales for the applicable month but for the fault of the Company. The Sales Target for the 30th month is $5 million and the Sales Target for the 42nd month is $8 million. For purposes of this subsection (d), the first month after the Effective Date shall be deemed to be January 2001. 4.3 Consequences of Termination. In the event that the Company terminates Executive's employment pursuant to Section 4.2 then (a) the Executive's Base Salary shall be prorated as of the date of termination or resignation and such prorated amount shall be paid to Executive, and (b) the Company shall make such other and further payments to Executive as may be provided pursuant to the terms of any employee benefit plan in which Executive is a participant at the time of termination, to the extent payable upon such termination in accordance with such plans or applicable Company policies; provided, that if the Company terminates Executive's employment pursuant to Section 4.2(d), the Company shall also pay to Executive severance equal to two times the average monthly Base Salary for the three months preceding the date of termination. 5. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS 5.1 Employment Location. The Executive shall perform the employment duties contemplated by this Agreement from such location as the Company may from time to time specify. The Executive acknowledges that his duties hereunder entail substantial travel. 5.2 Reimbursement of Expenses -4- Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of Executive's duties under this Agreement, all in accordance with the policies and procedures established by the Company from time to time for the Company's executives. 5.3 Company Property Executive agrees that all operating and/or financial data and projections, plans, contracts, agreements, literature, manuals, brochures, books, schedules, correspondence and other materials furnished, disclosed or otherwise made available to Executive by the Company or its Affiliates or secured through the efforts of Executive, relating to the business conducted by the Company and/or its Affiliates, are and shall remain the property of the Company and/or its Affiliates, and Executive agrees to deliver all such materials, including all copies or abstracts thereof, to the Company upon the termination of Executive's employment hereunder, or at any other time at the Company's request. 5.4 Confidential Information Executive agrees that, except in the good faith performance of his duties and responsibilities under this Agreement or as required by order of a court or governmental agency having jurisdiction, he will not at any time during or after his employment with the Company use, reveal, divulge or make known to any person or entity any confidential or proprietary knowledge or information concerning the Company or its Affiliates, including without limitation any such information concerning any equipment, facilities, customers, end users, contracts, leases, operating and/or financial data and projections, processes, developments, schedules, lists, plans or other matters relating to the business of the Company or its Affiliates and will retain all knowledge and information Executive acquired during his employment therewith relating to the business of the Company or its Affiliates in trust in a fiduciary capacity for the sole benefit of the Company, its Affiliates and their respective successors and assigns. Executive's obligations under this Section 5.4 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by Executive of this Agreement, (ii) is generally disclosed to third parties (excluding counsel, accountants, financial advisors, employees, agents and material creditors of the Company) by the Company without restriction on such third parties, or (iii) is approved for release by written authorization of the President of the Company. 5.5 Developments (a) Executive will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others during his employment by the -5- Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments"). (b) Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. (c) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in the United States and foreign countries) relating to Developments. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. (d) Notwithstanding anything in this Section 5 to the contrary, the Company acknowledges that the intellectual property known as the "Lead Registration Program" shall not be deemed a Development. 5.6 Non-Competition While employed hereunder, Executive shall not (i) enter into the employment of, or act as a consultant, director, officer, or employee of, or render any service or advice to, any other business, partnership, association, corporation or other entity which directly engages in competition in any material respect with any business presently carried on or under development, or which hereafter during the period of his employment by the Company shall be carried on or be under development by the Company and which is then being carried on by the Company, in the United States or any foreign country where such business is then or was within the one year period ending on the date of termination conducted, other than the Company or any Affiliate (a "Competing Business") or (ii) invest or otherwise acquire any interest, whether as a shareholder, lender, partner, proprietor, vendor or otherwise, in any Competing Business (excluding ownership of less than 2% of a class of securities of a publicly_traded company). While employed hereunder and for a period of one (1) year after termination of employment, Executive shall not encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or attempt to induce) any customer of the Company or any user of products of the Company to reduce, restrict, or terminate its business relationship with the Company or any reseller which is a customer of the Company or its use of products, or products which incorporate products, manufactured by the Company, or to shift its business from the Company or any such reseller to any other supplier of competing goods or services -6- 5.7 Non-Solicitation While employed hereunder and for a period of one (1) year thereafter, Executive shall not, directly or indirectly, entice, induce or in any manner influence any person who is, or shall have been during such period, in the service of the Company or its Affiliates, to leave such service, or employed or engaged by or otherwise associated with any person or entity. 5.8 Survival, Rights and Remedies The provisions of this Section 5 shall survive the termination of this Agreement and the termination of Executive's employment with the Company and shall run to and inure to the benefit of the Company and its successors and assigns. Executive represents, warrants and acknowledges that he has carefully read this Section 5, that he has had an opportunity to have the provisions contained herein explained to him by his attorney, and that he understands the provisions contained herein. Executive further acknowledges that, by reason of his training, skills, experience and employment hereunder, the services to be rendered by him under the provisions of this Agreement and their value to the Company are of a special, unique and extraordinary character and that it would be difficult or impossible to replace such services, and he further acknowledges that a violation by him of any of the provisions of this Section 5 could cause continuing material and irreparable injury to the Company and that in such event money damages would not be readily calculable and the Company would not have an adequate remedy at law. Executive acknowledges and agrees that (i) the restrictions under this Section 5 are reasonable and will not interfere with Executive's ability to earn a livelihood or impose upon him any undue hardship, and (ii) any breach of the covenants, provisions and restrictions contained in this Section 5 shall cause, and shall be deemed to be, a fundamental and material breach of Executive's fiduciary and contractual obligations to Employer. Therefore, Executive agrees that the Company shall be authorized and entitled to obtain from any court of competent jurisdiction, interim and permanent equitable relief, including without limitation, injunctive relief, in the event of any such breach or threatened breach of the provisions of this Section 5, and the prevailing party shall be entitled to payment of reasonable attorneys' fees and disbursements and any other costs incurred in connection with any proceedings in connection with such breach or threatened breach. These rights and remedies shall be cumulative and shall be in addition to any other rights or remedies whatsoever to which the Company shall otherwise be entitled hereunder, at law or otherwise, including the right to seek damages (including any consequential damages) which any court of competent jurisdiction may deem appropriate. 6. APPLICABLE LAW; ARBITRATION This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by and construed and enforced in accordance with the laws of the State of California. Except as provided in Section 5.8, any controversy or claim arising under the provisions of this Agreement or of any breach or alleged breach thereof shall be subject to mediation under the auspices of the American Arbitration Association in Los Angeles, California -7- or any other location mutually agreeable to the parties, and, if not resolved thereby, shall be settled by arbitration, before a single arbitrator sitting in Los Angeles, California or any other location mutually agreeable to the parties, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall be authorized to decree any and all relief of an equitable nature, and shall also be authorized to award damages and costs. Notwithstanding the foregoing, in the extent of a breach or impending breach of this Agreement, either party may seek an injunction, restraining order or other equitable relief from any court of competent jurisdiction. 7. SUCCESSORS This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts still are payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to Executive's estate. 8. MISCELLANEOUS 8.1 Entire Agreement This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.2 Notices Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to Executive: 20628 Calhaven Drive Santa Clarita, CA 91350 If to Company: Nexsan Corporation C/O Beechtree Capital, Ltd. 1 Rockefeller Plaza New York, NY 10020 -8- and to RubinBaum LLP 30 Rockefeller Plaza New York, NY 10112 Attention: Michael J. Emont, Esq. or such other address as shall be provided in accordance with the terms hereof. Such notice shall be effective upon mailing. 8.3 Waivers No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 8.4 Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive. 8.5 Severability If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto an nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or -9- arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 8.6 Counterparts This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.7 Other Agreements. Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the 4th day of January, 2001 NEXSAN CORPORATION By: /s/ Martin Boddy --------------------------------- Title: CEO ------------------------------- /s/ James Molenda --------------------------------- JAMES MOLENDA -10 EX-10.9 29 0029.txt CONSULTING AGREEMENT CONSULTING AGREEMENT AGREEMENT, made this day 4TH of January 2001 by and between Nexsan Corporation, having its principal place of business at Suite 1600, 1 Rockefeller Plaza, New York, New York 10022 (hereinafter the "Company") and Beechtree Capital, LLC, having its principal place of business at One Rockefeller Plaza, New York, New York 10020 (hereinafter the "Consultant). WHEREAS, the Company desires to retain the Consultant for consulting services in connection with the Company's business and investment banking affairs, and the Consultant desires to provide such services as set forth herein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: A. CONSULTATION. 1. Consultant. The Company hereby retains the Consultant to render to the Company the consulting services as defined in Section B hereof, and the Consultant hereby accepts such assignment upon the terms and conditions hereinafter set forth. 2. Independent Relationship. The Consultant shall provide the consulting services required to be rendered by it hereunder solely as an independent contractor and nothing contained herein shall be construed as giving rise to an employment or agency relationship, joint venture, partnership or other form of business relationship. 3. No Authority to Obligate the Company. Without the consent of the board of directors or appropriate officer of the Company, the Consultant shall have no authority to take, nor shall it take, any action committing or obligating the Company in any manner, and it shall not represent itself to others as having such authority. 4. Term. The term of the Consultant's consultation to the Company hereunder shall commence as of the date hereof and shall extend for a term of five (5) years unless the parties agree in writing to extend the consultation for an additional one year term(s). Notwithstanding the foregoing, this Agreement may be terminated at any time after four (4) years for any reason, by either party giving at least ninety (90) days written notice to the other party, or by the Company if the Consultant has willfully failed to use reasonable efforts to perform its obligations hereunder and such willful failure continues for three months after written notice specifying in reasonable detail the basis thereof. Upon any termination of this Agreement, the Company shall: (i) pay to the Consultant any previously accrued but unpaid compensation, as contemplated by Section C hereof; and (ii) pay any previously incurred but unpaid expenses, as contemplated by Section D hereof. B. OBLIGATIONS OF THE CONSULTANT. 1. Consulting Services. During the term of this Agreement, Consultant will render advice and assistance to the Company on business related matters and in connection therewith the Consultant shall: a. evaluate the Company's managerial, marketing and sales performance, including the furnishing of written reports upon the request of the Company; b. consult with the Company concerning ongoing strategic corporate planning and long term investment policies, including any revision of the Company's business plan; c. assist in the negotiation of contracts with suppliers and major customers when so requested by the Company; d. consult with and advise the Company with regard to potential mergers and acquisitions, whether the Company is the acquiring company or the target of acquisition; e. upon the request of the Company, Consultant will review press releases to be made available to, among others, the press, customers, suppliers, broker/dealers, financial institutions, and the Company's shareholders; and f. render such other services to the Company as its Board of Directors may reasonably request. 2. Nonexclusive Engagement; Extent of Services. a. The parties agree that the consultation contemplated by this Agreement is a nonexclusive engagement and that the Consultant now renders and may continue to render consulting services to other companies which may or may not conduct activities similar to those of the Company. b. The Consultant will devote such time and effort to the affairs of the Company as the Consultant deems reasonable and adequate to render the consulting services contemplated by this Agreement. The Consultant's work will not include any services that constitute the rendering of any legal opinions or performance of work that is in the ordinary purview of certified public accountants. 3. Confidentiality. The Consultant will not, either during its engagement by the Company pursuant to this Agreement or at any other time thereafter, disclose, use or make known -2- for its or another's benefit, any confidential information, knowledge, or data of the Company or any of its affiliates in any way acquired or used by the Consultant during its engagement by the Company. Confidential information, knowledge or data of the Company and its affiliates shall not include any information which is or becomes generally available to the public other than as a result of a disclosure by the Consultant or its representatives. C. COMPENSATION. 1. Cash Retainer. The Company will pay a monthly cash retainer of $8,333 to the Consultant payable on the 1st day of each month for the entire term of this Agreement. 2. Stock Purchase Rights. Contemporaneously herewith the Company is issuing the issue Consultant stock purchase rights pursuant to a Restricted Stock Purchase Agreement. D. REIMBURSEMENT OF EXPENSES. 1. Out-of-Pocket Expenses. The Company shall reimburse the Consultant for actual out-of-pocket expenses including, but not limited to, facsimile, postage, printing, photocopying, and entertainment, incurred by the Consultant without the prior consent of the Company and in connection with the performance by the Consultant of its duties hereunder. 2. Travel and Related Expenses. The Company shall also reimburse the Consultant for the costs of all travel and related expenses incurred by the Consultant in connection with the performance of its services hereunder, including, without limitation, costs and expenses incurred with respect to travel to England; provided that all such costs and expenses have been authorized, in advance, by the Company. 3. General. Expenses shall be due and payable when billed and after they have been incurred. E. MISCELLANEOUS. 1. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the engagement of Consultant by the Company as a consultant and supersedes and replaces any and all prior understandings, agreements or correspondence between the parties relating to the subject matter hereof. 2. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both the parties hereto. No waiver of any other provisions hereof (whether or not similar) shall be binding unless executed in writing by both the parties hereto nor shall such waiver constitute a continuing waiver. -3- 3. Governing Law. This Agreement has been made in and shall be interpreted according to the laws of the State of New York without any reference to the conflicts of laws rules thereof. The parties hereto submit to the jurisdiction of the courts of the State of New York for the purpose of any actions or proceedings which may be required to enforce any of the provisions of this agreement. 4. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and upon the Consultant and the Consultant's successors and assigns. 5. Severability. If any provision or provisions of this agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: a. the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and b. to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 6. Further Assurances. From and after the execution and delivery of this Agreement, upon request of either party, the other shall do, execute, acknowledge and deliver all such further acts, assurances and other instruments and papers as may be required to carry out the transactions contemplated by this agreement. 7. Headings. The headings of the paragraphs of this agreement are inserted for convenience only and shall not be deemed to constitute part of this agreement or to affect the construction hereof. 8. Notices. Any notice to be given hereunder shall be given in writing. All notices under this Agreement shall be either hand delivered receipt acknowledged, or sent by registered or certified mail, return receipt requested as follows: (a) If to the Company, to it at: Nexsan Corporation Suite 1600 1 Rockefeller Plaza New York, New York 10020 and Nexsan Technologies, Ltd. Imperial House -4- East Service Road Rayneway Derby DE21 7BF England with a copy to: RubinBaum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 and Flint Bishop & Barnett 5 St. Michael's Court St. Michael's Lane Derby DEl 3JH England Attn.: Mr. Thomas Travers Facsimile no. 011 44 (0)1332 207601 (b) If to the Consultant, to it at: Beechtree Capital, LLC One Rockefeller Plaza New York, New York 10020 Attn.: Mr. George M. Weiss with a copy to: Ruffa & Ruffa, P.C. 150 East 58th Street New York, New York 10155 Facsimile No.: Attn: William P. Ruffa, Esq. All such notices shall be deemed given when delivered, if personally delivered as aforesaid, or within five business days after mailing, as aforesaid. 9. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -5- SIGNATURE PAGE FOLLOWS] -6- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. NEXSAN CORPORATION By: /s/ Martin Boddy ---------------------------------- Martin Boddy, President BEECHTREE CAPITAL, LLC By: /s/ George M. Weiss ---------------------------------- George M. Weiss -7- EX-10.10 30 0030.txt SERVICES AGREEMENT CONSULTING AGREEMENT AGREEMENT, made this day of December, 2000 by and between Nexsan Corporation, having its principal place of business at One Rockefeller Plaza, New York, NY 10020, (hereinafter the "Company") and Direct Investors, LLC, having its principal place of business at 39 Broadway, 32nd floor, New York, New York 10006 (hereinafter the "Consultant). WHEREAS, the Company desires to retain the Consultant for consulting services in connection with the Company's business and investment banking affairs, and the Consultant desires to provide such services as set forth herein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: A. CONSULTATION. 1. Consultant. The Company hereby retains the Consultant to render to the Company the consulting services as defined in Section B hereof, and the Consultant hereby accepts such assignment upon the terms and conditions hereinafter set forth. 2. Independent Relationship. The Consultant shall provide the consulting services required to be rendered by it hereunder solely as an independent contractor and nothing contained herein shall be construed as giving rise to an employment or agency relationship, joint venture, partnership or other form of business relationship. 3. No Authority to Obligate the Company. Without the consent of the board of directors or appropriate officer of the Company, the Consultant shall have no authority to take, nor shall it take, any action committing or obligating the Company in any manner, and it shall not represent itself to others as having such authority. -1- 4. Term. The term of the Consultant's consultation to the Company hereunder shall commence as of the date hereof and shall extend for a term of five (5) years unless the parties agree in writing to extend the consultation for an additional one year term(s). Notwithstanding the foregoing, this Agreement may be terminated at any time after four (4) for any reason, by either party giving at least thirty (30) days written notice to the other party at its address set forth on the first page of this Agreement, or to such other address as either party may specify to the other in writing in accordance with Section E hereof. Upon any termination of this Agreement, the Company shall: (i) pay to the Consultant any previously accrued but unpaid compensation, as contemplated by Section C hereof; and (ii) pay any previously incurred but unpaid expenses, as contemplated by Section D hereof. B. OBLIGATIONS OF THE CONSULTANT. 1. Consulting Services. During the term of this Agreement, Consultant will render advice and assistance to the Company on business related matters and in connection therewith the Consultant shall: a. evaluate the Company's managerial, marketing and sales performance, including the furnishing of written reports upon the request of the Company; b. consult with the Company concerning ongoing strategic corporate planning and long term investment policies, including any revision of the Company's business plan; c. assist in the negotiation of contracts with suppliers and major customers when so requested by the Company; d. consult with and advise the Company with regard to potential mergers and acquisitions, whether the Company is the acquiring company or the target of acquisition; -2- e. upon the request of the Company, Consultant will review press releases to be made available to, among others, the press, customers, suppliers, broker/dealers, financial institutions, and the Company's shareholders; and f. render such other services to the Company as its Board of Directors may reasonably request. 2. Nonexclusive Engagement; Extent of Services. a. The parties agree that the consultation contemplated by this Agreement is a nonexclusive engagement and that the Consultant now renders and may continue to render consulting services to other companies which may or may not conduct activities similar to those of the Company. b. The Consultant will devote such time and effort to the affairs of the Company as the Consultant deems reasonable and adequate to render the consulting services contemplated by this Agreement. The Consultant's work will not include any services that constitute the rendering of any legal opinions or performance of work that is in the ordinary purview of certified public accountants. 3. Confidentiality. The Consultant will not, either during its engagement by the Company pursuant to this Agreement or at any other time thereafter, disclose, use or make known for its or another's benefit, any confidential information, knowledge, or data of the Company or any of its affiliates in any way acquired or used by the Consultant during its engagement by the Company. Confidential information, knowledge or data of the Company and its affiliates shall not include any information which is or becomes generally available to the public other than as a result of a disclosure by the Consultant or its representatives. -3- C. COMPENSATION. 1. Cash Retainer. The Company will pay a monthly cash retainer of $8,333 to the Consultant payable on the 1st day of each month for the entire term of this Agreement. 2. Stock Purchase Rights. Contemporaneously herewith the Company is issuing the issue Consultant stock purchase rights pursuant to a Restricted Stock Purchase Agreement. D. REIMBURSEMENT OF EXPENSES. 1. Out-of-Pocket Expenses. The Company shall reimburse the Consultant for actual out-of-pocket expenses including, but not limited to, facsimile, postage, printing, photocopying, and entertainment, incurred by the Consultant without the prior consent of the Company and in connection with the performance by the Consultant of its duties hereunder. 2. Travel and Related Expenses. The Company shall also reimburse the Consultant for the costs of all travel and related expenses incurred by the Consultant in connection with the performance of its services hereunder, including, without limitation, costs and expenses incurred with respect to travel to England; provided that all such costs and expenses have been authorized, in advance, by the Company. 3. General. Expenses shall be due and payable when billed and after they have been incurred. E. MISCELLANEOUS. 1. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the engagement of Consultant by the Company as a consultant and supersedes and replaces any and all prior understandings, agreements or correspondence between the parties relating to the subject matter hereof. 2. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless -4- executed in writing by both the parties hereto. No waiver of any other provisions hereof (whether or not similar) shall be binding unless executed in writing by both the parties hereto nor shall such waiver constitute a continuing waiver. 3. Governing Law. This Agreement has been made in and shall be interpreted according to the laws of the State of New York without any reference to the conflicts of laws rules thereof. The parties hereto submit to the jurisdiction of the courts of the State of New York for the purpose of any actions or proceedings which may be required to enforce any of the provisions of this agreement. 4. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and upon the Consultant and the Consultant's successors and assigns. 5. Severability. If any provision or provisions of this agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: a. the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and b. to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 6. Further Assurances. From and after the execution and delivery of this Agreement, upon request of either party, the other shall do, execute, acknowledge and deliver all such further acts, assurances and other instruments and papers as may be required to carry out the transactions contemplated by this agreement. -5- 7. Headings. The headings of the paragraphs of this agreement are inserted for convenience only and shall not be deemed to constitute part of this agreement or to affect the construction hereof. 8. Notices. Any notice to be given hereunder shall be given in writing. All notices under this Agreement shall be either hand delivered receipt acknowledged, or sent by registered or certified mail, return receipt requested as follows: a. If to the Company, to it at: Nexsan Corporation Suite 1600 1 Rockefeller Plaza New York, New York 10022 and Nexsan Technologies Limited Imperial House East SSErvice Road Rayneway Derby DE21 7BF England with a copy to: RubinBaum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 and Flint Bishop & Barnett 5 St. Michael's Court St. Michael's Lane Derby DEl 3JH England Attn.: Mr. Thomas Travers Facsimile no. 011 44 (0)1332 207601 b. If to the Consultant, to it at: Direct Investors, LLC 39 Broadway, 32nd floor. New York, New York 10006 Attn.: Mr. E. Corprew Reed -6- with a copy to: Thelen Reid & Priest LLP 40 West 57th Street New York, New York 10019-4097 Facsimile No.: (212) 603-2001 Attn: Bruce A. Rich All such notices shall be deemed given when delivered, if personally delivered as aforesaid, or within five business days after mailing, as aforesaid. 9. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS] -7- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. NEXSAN CORPORATION By: /s/ Martin Boddy ------------------------------- , President BEECHTREE CAPITAL, LLC By: /s/ E. Corprew Reed ------------------------------- E. Corprew Reed Managing Member EX-10.11 31 0031.txt CONSULTING AGREEMENT CONSULTING AGREEMENT AGREEMENT, made this 4th day of January 2001 by and between NEXSAN CORPORATION (the "Company") and Mr. MOHAN VACHANI (the "Consultant"). WHEREAS, the Company desires to retain the Consultant for consulting services in connection with the U.S. operations and financial performance of the Company and its affiliates, and the Consultant desires to provide such services as set forth herein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: A. CONSULTATION. 1. Consultant. The Company hereby retains the Consultant to render to the Company and its affiliates the Services (as defined in Section B hereof), and the Consultant hereby accepts such assignment upon the terms and conditions hereinafter set forth. 2. Independent Relationship. The Consultant shall provide the Services required to be rendered by him hereunder solely as an independent contractor and nothing contained herein shall be construed as giving rise to an employment or agency relationship, joint venture, partnership or other form of business relationship with the Company. 3. No Authority to Obligate the Company. Without the consent of the Board of Directors or appropriate officer of the Company, the Consultant shall have no authority to take, nor shall he take, any action committing or obligating the Company in any manner, and he shall not represent himself to others as having such authority. 4. Term. The term of the Consultant's engagement hereunder shall commence as of the date hereof and shall extend for a period of one (1) year (the "Term"), unless the parties agree in writing to extend the Term for an additional period. Notwithstanding the foregoing, this Agreement may be terminated by either party as of June 30, 2001, for any or no reason, by giving at least thirty (30) days prior written notice. Upon any termination of this Agreement, the Company shall pay to the Consultant (i) any previously accrued but unpaid compensation, as contemplated by Section C(1) hereof; and (ii) any previously incurred but unpaid expenses, as contemplated by Section D hereof. B. OBLIGATIONS OF THE CONSULTANT. 1. Services. During the term of this Agreement, Consultant will render consulting service, advice and assistance (collectively, the "Services") to the Company and its affiliates on business and financial related matters, and in connection therewith the Consultant shall: a. oversee and assist in directing the Company's operations and financial performance in the U.S., and will provide guidance to the Company's executives in respect thereof, including the furnishing of written reports upon the request of the Company; b. advise the Company with regard to compliance with regulations of the Securities Exchange Commission (the "SEC"), and assist it with all filings required by the SEC and in all dealings with SEC officials; c. assist in the negotiation of contracts with suppliers and major customers when so requested by the Company; d. render other services to the Company, or its affiliates, as its Board of Directors may reasonably request; and e. report periodically to the Company's President, CFO, and the Company's consultant, Beechtree _________, and confer regularly with Company's Treasurer, with respect to the foregoing matters. 2. Nonexclusive Engagement; Extent of Services. a. The parties agree that the Services contemplated by this Agreement constitute a nonexclusive engagement and that the Consultant now renders and may continue to render consulting services to other companies which may or may not conduct activities similar to those of the Company. b. The Consultant will devote to the affairs of the Company, and its affiliates, such time and attention as may be required to render the Services, provided that he shall not be required to devote (i) during the first six (6) months of the Term, more than twenty five percent (25%) of his business time and attention, and (ii) thereafter, for the remainder of the Term, more than fifty percent (50%) of his business time and attention. 3. Confidentiality. The Consultant will not, either during his engagement by the Company pursuant to this Agreement or at any other time thereafter, disclose, use or make known for his or another's benefit, any confidential information, knowledge, or data of the Company or any of its affiliates in any way acquired or used by the Consultant during his engagement by the Company. Confidential information, knowledge or data of the Company shall not include any information which is or becomes generally available to the public other than as a result of a disclosure by the Consultant. 2 C. COMPENSATION. 1. Cash Retainer. The Company will pay throughout the Term, a monthly cash retainer of (i) Four Thousand US Dollars ($4,000) during the first six (6) months, and (ii) Eight Thousand US Dollars ($8,000) thereafter. 2. Restricted Stock. Contemporaneously with the signing of this Agreement, the Company will grant the Consultant the right to purchase 75,000 Shares of Common Stock of the Company, subject to its 2001 Stock Plan and upon the terms of a Restricted Stock Purchase Agreement between the Company and the Consultant. D. REIMBURSEMENT OF EXPENSES. 1. Out-of-Pocket Expenses. The Company shall reimburse the Consultant for actual out-of-pocket expenses including, but not limited to, facsimile, postage, printing, photocopying, and entertainment, incurred by the Consultant without the prior consent of the Company and in connection with the performance by the Consultant of the Services in amounts up to Five Hundred Dollars ($500) per month. Prior consent of the Company is required for reimbursement of expenses in excess of Five Hundred Dollars ($500) per month. 2. Travel and Related Expenses. The Company shall also reimburse the Consultant for the costs of all travel and related expenses incurred by the Consultant in connection with the performance of the Services, including, without limitation, costs and expenses incurred with respect to travel from California to England and New York; provided that all such costs and expenses have been authorized, in advance, by the Company. Expenses shall be due and payable when billed and after they have been incurred. E. MISCELLANEOUS. 1. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the engagement of Consultant by the Company as a consultant and supersedes and replaces any and all prior understandings, agreements or correspondence between the parties relating to the subject matter hereof. 2. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both the parties hereto. No waiver of any other provisions hereof (whether or not similar) shall be binding unless executed in writing by both the parties hereto nor shall such waiver constitute a continuing waiver. 3. Governing Law. This Agreement has been made in and shall be interpreted according to the laws of the State of New York without any reference to the conflicts of laws rules thereof. The parties hereto submit to the jurisdiction of the courts of the State of New York, and each party 3 waives the right to change venue, for the purpose of any actions or proceedings which may be required to enforce any of the provisions of this agreement. 4. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and upon the Consultant and the Consultant's heirs and representatives. 5. Severability. If any provision or provisions of this agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: a. the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and b. to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 6. Further Assurances. From and after the execution and delivery of this Agreement, upon request of either party, the other shall do, execute, acknowledge and deliver all such further acts, assurances and other instruments and papers as may be required to carry out the transactions contemplated by this agreement. 7. Headings. The headings of the paragraphs of this agreement are inserted for convenience only and shall not be deemed to constitute part of this agreement or to affect the construction hereof. 8. Notices. All notices or other communications required or appropriate hereunder shall be deemed to have been given, delivered or made if in writing (including facsimile transmission via telecopier or telegraphic communication) telegraphed, telecopied (with answer back confirmation), actually personally delivered, or 72 hours after placed in the U.S. mail (registered or certified, return receipt requested, postage prepaid) and addressed to the applicable party at the address stated bellow: (a) If to the Company, to it at: Nexsan Corporation c/o Beechtree Capital, Ltd. Suite 1600 1 Rockefeller Plaza New York, NY 10020 Attn.: President Facsimile No.: (212) 541-8463 4 with a copy to: RubinBaum LLP 30 Rockefeller Plaza New York, New York 10112 Attn.: Michael Emont, Esq. Facsimile No.: (212) 698-7825 (b) If to the Consultant: Mohan Vachani 1 Diablo View Drive Orinda, CA 94563 All such notices shall be deemed given when delivered, if personally delivered or faxed as aforesaid, or within five business days after mailing, as aforesaid. 9. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. NEXSAN CORPORATION By: /s/ Martin Boddy MOHAN VACHANI /s/ Mohan Vachani 6 EX-10.12 32 0032.txt LEASE FOR OFFICE SPACE DATED 25th MARCH 1999 - -------------------------------------------------------------------------------- 1. IVYGROVE DEVELOPMENTS LIMITED (Landlord) 2. NEXSAN TECHNOLOGIES LIMITED (Tenant) Counterpart/ L E A S E --------- of Premises: Unit 6, Eastside Park, East Service Road, Raynesway, Derby. Contractual Term: 6 years. Initial Rent: British Pound 15,000.00 per annum. Review Date: In the year 2001. FLINT, BISHOP & BARNETT SOLICITORS DERBY INDEX TO CLAUSES ---------------- 1. Definitions and Interpretation 2. The letting terms 3. Tenant's covenants 4. Provisos 5. Landlord's covenants 6. Obligations in Schedules to this Lease 7. Break Clause 8. Expert Determination 9. Legal fees 10. Stamp duty certificate 11. Covenant status of Lease Schedule 1 - Description of the Premises, rights and reservations Schedule 2 - Rent reviews Schedule 3 - Insurance provisions Schedule 4 - Form of guarantee on Assignment DATE: 25TH day of March 1999 PARTIES:- (1) The Landlord: IVYGROVE DEVELOPMENTS LIMITED whose registered office is at Racecourse Industrial Park Mansfield Road Derby DE21 4SX (2) The Tenant: NEXSAN TECHNOLOGIES LIMITED whose registered office is at 102 Friar Gate Derby DE1 1FH OPERATIVE PROVISIONS 1 DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Lease where the context so allows: "BUILDING" means the building of which the Premises form part edged blue on the plan annexed hereto and refers to each and every part of the Building and the car park service or loading area service road and any other areas the use and enjoyment of which is appurtenant to the Building whether or not within the structure of the Building "COMMON PARTS" means those parts of the site to be used in common by any of the Tenant, other tenants and occupiers of the site, the Landlord, and those properly authorised or permitted by them to do so, and "Common Parts" includes (but without limitation) the courtyards, external paviours, service areas, roadway, turning area, main entrance and other such amenities, but excludes any such parts as may be within the Premises; "CONDUCTING MEDIA" means any of the drains, sewers, conduits, flues, gutters, gullies, channels, ducts, shafts, watercourses, pipes, cables, wires and mains "INSURED RISKS" has the meaning given to it in Schedule 3 1 "INTEREST" means interest at the rate of 4 per cent over the base rate of Midland Bank Plc for the time being and from time to time (as well after as before judgment) or such other comparable rate as the Landlord may reasonably designate if the base rate cases to be published, compounded at quarterly rests on 31st March, 30th June, 30th September and 31st December in each year "LANDLORD" includes all persons from time to time entitled to the immediate reversion to this Lease "LEASE" includes any documents supplemental to this Lease "MEASURING CODE" means the Code of Measuring Practice (Fourth Edition RICS/ISVA 1993) "OUTGOINGS" means in relation to the Premises all non-domestic rates, water rates, water charges and all existing and future rates, taxes, charges, assessments, impositions and outgoings whatsoever (whether parliamentary municipal parochial or otherwise) which are now or may at any time be payable, charged or assessed on property or the owner or occupier of property, but "taxes" in this context does not include Value Added Tax, nor any taxes imposed on the Landlord in respect of the yearly rent reserved by this Lease or in respect of a disposal of the interest in immediate reversion to this Lease "PREMISES" means the property described in Part 1, Schedule 1 and refers to each and every part of the Premises and includes:- (1) the inside and outside of the windows and other lights and the frames, glass, equipment and fitments relating to windows and lights of the Premises but excluding the glass panels in the roof; (2) the doors, door frames equipment, fitments and any glass relating to the doors of the Premises; (3) the internal plaster or other surfaces of load bearing walls and columns within the Premises and of walls which form boundaries of the Premises; (4) non-load bearing walls within the Premises; 2 (5) the external sheeting to the load bearing walls and the flooring; (6) the plaster or other surfaces of the ceilings and false ceilings within the premises and the voids between the ceilings and false ceilings; (7) appurtenances, fixtures, fittings and rights granted by this Lease and improvements and additions made to, and fixtures fittings and appurtenances in, the Premises but excludes the structural parts loadbearing framework, roof, foundations, and external walls as opposed to sheeting, and the Conducting Media and machinery and plant within "TENANT" includes the Tenant's successors in title and assigns in whom this Lease may for the time being be vested; "TERM" means the term of years granted by this Lease; "UNSECURED UNDERLETTING" means an underletting of the whole or part of the Premises in relation to which the underlessor and the underlessee have agreed to exclude the provisions of Section 24 to 28 of the Landlord and Tenant Act 1954 and their agreement to do so has been duly authorized beforehand by the Court 1.2 INTERPRETATION OF RESTRICTIONS AND LIABILITY 1.2.1 Where the Tenant is placed under a restriction in this Lease, the restriction includes the obligation on the Tenant not to permit or allow the infringement of the restriction by any person 1.2.2 References to "liability" include, where the context allows, claims, demands, proceedings, damages, losses, costs and expenses 1.3 CLAUSES AND CLAUSE HEADINGS 1.3.1 The clause and paragraph headings in this Lease are for ease of reference only and are not be taken into account in the construction or interpretation of any covenant condition or proviso to which they refer 3 1.3.2 Unless the context otherwise requires, references 1.3.2.1 to numbered clauses and Schedules are references to the relevant clause in or Schedule to this Lease; and 1.3.2.2 in any Schedule to a numbered paragraph are references to the relevant paragraphs in that Schedule 1.4 SINGULAR AND PLURAL MEANINGS Words in this Lease importing the singular meaning, where the context so allows, include the plural meaning and vice versa 1.5 STATUES AND STATUTORY INSTRUMENTS References in this Lease to any statutes or statutory instruments include and refer to any statute or statutory instrument amending consolidating or replacing them respectively from time to time in force, and references to a statute include statutory instruments and regulations made pursuant to them 1.6 GENDER Words in this Lease importing any one gender include both other genders and may be used interchangeably, and words denoting natural persons where the context so allows include corporations and vice versa 1.7 JOINT AND SEVERAL OBLIGATIONS At any time that the party of the second part to this Lease is two or more persons the expression "the Tenant" include the plural number and obligations in this Lease expressed or implied to be made with the Tenant or by the Tenant are to be treated as made with or by such individuals jointly and severally 2 THE LETTING TERMS In consideration of the rent reserved by and the covenants in this Lease:- 2.1 the Landlord LETS with Full Title Guarantee to the Tenant: 2.1.1 ALL the Premises; 2.1.2 TOGETHER with the rights set out in Schedule 1 Part 2; and 2.1.3 EXCEPT AND RESERVED to the Landlord the rights set out in Schedule Part 3; 4 2.2 for the TERM of Six years commencing on 25th March 1999, determinable as provided by this Lease subject to the Encumbrances; and 2.3 the Tenant PAYING during the Term: 2.3.1 the yearly rent of FIFTEEN THOUSAND POUNDS inclusive of V.A.T. (subject to clause 2.3.4 hereof and subject to revision under Schedule 2) by equal quarterly payments in advance on the usual quarter days in every year the first (or a proportionate part) of such payments in respect of the period commencing on the _______________ and ending on the quarter day to be made on the grant of this Lease; 2.3.2 as additional rent the monies payable by the Tenant under Schedule 3 commencing on 25th March 1999; and 2.3.3 as additional rent any Value Added Tax chargeable on the rent and additional rent reserved in Clauses 2.3.1 and 2.3.2 2.3.4 the electricity supply for the premises shall be sub-metered and charged accordingly by the Landlord either monthly or quarterly to suit. 5 3 TENANT'S COVENANTS The Tenant covenants with the Landlord during the Term and any extension by statute of the tenancy created by this Lease as follows:- 3.1 RENT 3.1.1 To pay the yearly rent reserved by this Lease, free from any deductions and rights of set-off, at the times and in the manner required in clause 2.3.1 and by means of a Standing Order to the Tenant's bankers 3.1.2 To pay the additional rents reserved by this Lease at the times and in the manner specified in relation to each of them 3.2. INTEREST 3.2.1 To pay Interest on so much of the rents, reviewed rents, and other monies payable under this Lease as remain unpaid fourteen days after they have become due from the date that they became due until the payment is made to the Landlord 3.2.2 To pay Interest under Clause 3.2.1 for any period during which the Landlord properly refuses to accept the tender of payment because of an unremedied breach of covenant of the Tenant 3.3 OUTGOINGS AND CONTRIBUTIONS 3.3.1. To pay Outgoings; 3.3.2 To refund to the Landlord on demand (where Outgoings relate to the whole or part of the Building or other property including the Premises) a fair and proper proportion attributable to the Premises, such proportion to be conclusively determined by the Landlord or the Landlord's Surveyor 3.3.3 To reimburse the Landlord for loss of relief from non-domestic rate of unoccupied property which would have been available to the Landlord in respect of vacancy of the Premises after the termination of this Lease but for the allowance of relief to the Tenant or any other person formerly in occupation of the Premises for vacancy commencing before the termination of this Lease 6 3.3.4 To pay electricity consumed on the premises which shall be sub-metered and charged accordingly by the Landlord every quarter period. 3.3.5 To pay to the Landlord on demand a fair and proper proportion of the expense of repairing and maintaining any party walls 3.4. REPAIR Well and substantially to repair maintain and clean the Premises and to keep the Premises in good and substantial repair maintained and in clean condition (except in respect of damage by Insured Risks as allowed in Schedule 3) PROVIDED THAT the Tenants shall not 3.5 DECORATIONS 3.5.1 To decorate the inside of the Premises in the last three months of the Term (howsoever determined) with two coats of good quality paint or good quality polish, and with paper for those parts normally papered, or other suitable and appropriate materials of good quality, in a workmanlike manner (such decorations in the last three months of the Term to be executed in such colours patterns and materials as the Landlord may reasonably require) 3.5.2 Not without the consent of the Landlord to alter cover up or change any part of the architectural decorations or the external colour of the Premises 3.6 LANDLORD'S RIGHT OF INSPECTION AND RIGHT OF REPAIR 3.6.1 To permit the Landlord and its employees or agents at all reasonable times to enter into inspect and view the Premises and examine their condition and also to take a schedule of fixtures in the Premises 3.6.2 If any breach of covenant, defects, disrepair, removal of fixtures or unauthorized alterations or additions are found on inspection for which the Tenant is liable, then, on notice from 7 the Landlord, to execute to the reasonable satisfaction of the Landlord or its Surveyor all repairs works replacements or removals required within two months (or sooner if necessary) after the receipt of such notice 3.6.3 If the Tenant fails to comply with a notice under clause 3.6.2, the Landlord may itself or by its workpeople or agents enter the Premises and execute the repairs works replacement or removals 3.6.4 To pay to the Landlord on demand all expenses so incurred under clause 3.6.3 (such expenses and any Interest on them to be recoverable as if they were rent in arrear) 3.7 YIELD UP IN REPAIR AT THE END OF THE TERM At the termination of this Lease or at such later time as Landlord recovers possession of the Premises from the Tenant: 3.7.1 quietly to yield up the Premises (with all additions and improvements to the Premises and all fixtures in the Premises, other than tenant's fixtures which the Tenant may be entitled to remove) repaired, maintained, cleaned, decorated and kept in accordance with the Tenant's Covenants in this Lease (except in respect of damage by Insured Risks as allowed in Schedule 3); 3.7.2 if so requested by the Landlord, to remove from the Premises all the Tenant's belongings - that is to say trade fixtures and fittings and all notices, notice boards and signs bearing the name of or otherwise relating to the Tenant (including in this context any persons deriving title to the Premises under the Tenant) or its business; and 3.7.3 to make good to the satisfaction of the Landlord all damage to the Premises and the Building resulting from the removal of the Tenant's belongings from the Premises 3.8 LANDLORDS RIGHT OF RE-ENTRY FOR REPAIRS ETC. 3.8.1 To permit the Landlord or other owners, tenants or occupiers 8 of the Building or any adjoining or neighbouring property and their respective agents, workmen and employees to enter the Premises at reasonable times, after giving to the Tenant written notice (except in emergency): 3.8.1.1 to alter, maintain or repair the Building or the adjoining premises or property of the Landlord or person so entering; or 3.8.1.2 to construct, alter, maintain, repair or fix anything or additional thing serving such property and running through or on the Premises; or 3.8.1.3 to comply with an obligation to any third party having legal rights over the Building the Premises; or 3.8.1.4 in exercise of a right or to comply with an obligation of repair maintenance or renewal under this Lease; or 3.8.1.5 in connection with the development of the remainder of the Building or any adjoining or neighbouring land or premises including the right to build on or into or in prolongation of any boundary wall of the Premises - without payment of compensation for any nuisance annoyance inconvenience or damage caused to the Tenant, subject to the Landlord (or other person so entering) exercising the right in a reasonable manner and making good any damage caused to the Premises without unreasonable delay 3.8.2 On becoming aware of any defects in the Building, which are "relevant defects" for the purposes of Section 4 of the Defective Premises Act 1972, to give notice of them to the Landlord 9 3.9 ALTERATIONS 3.9.1 Not to make any alterations or additions to or affecting the structure or exterior of the Premises, or the appearance of the Premises as seen from the exterior 3.9.2 Not without the consent of the Landlord such consent not to be unreasonably withheld or delayed to make any other alterations or additions to the Premises (but the erection, alteration or removal by the Tenant of internal demountable partitioning, and consequential adjustments of ducting, ceiling tiles, light fittings and wiring is authorized without such consent if the plans of the partitions (or details of the alteration or removal of partitioning) are immediately deposited with the Landlord) 3.9.3 On the termination of this Lease, to the extent required by the Landlord, to reinstate the Premises to the condition in which they were in at the grant of this Lease, such reinstatement to be carried out under the supervision and to the reasonable satisfaction of the Landlord or the Landlord's Surveyor 3.9.4 To procure that any alterations or additions to the Premises permitted by the Landlord under Clause 3.9.2 be carried out only by a contractor approved by the Landlord (such approval not to be unreasonably withheld) 3.10 ALIENATION 3.10.1 Not to assign or charge or underlet part only of the Premises. 3.10.2 Not to assign or charge the whole of this Lease without the consent of the Landlord but, subject to the operation of the following provisions of this clause 3.10.2, such consent is not to be unreasonably withheld; 3.10.2.1 The Landlord may withhold its consent to the application by the Tenant for licence to assign this Lease: 3.10.2.1.1 if at the time of the assignment, there are arrears of rents or other monies due to the Landlord or the Tenant has not 10 substantially observed and performed the covenants on the part of the Tenant herein contained; or 3.10.2.1.2 unless the Tenant gives to the Landlord a guarantee in the form in Schedule 4; or 3.10.2.1.3 if the Tenant fails to demonstrate to the satisfaction of the Landlord (acting reasonably) that the proposed assignee is responsible and respectable and will be able to pay the rent and meet the other outgoings and liabilities arising under the Lease; or 3.10.2.1.4 unless any proposed assignee covenants by deed with the Landlord to pay the rents reserved by this Lease and to observe and perform all the covenants on the part of the Lessee and conditions in this Lease during the Term until released by virtue of the Landlord and Tenant (Covenants) Act 1995; or 3.10.2.1.5 unless (where it is reasonable so to require) the proposed assignee is able to procure (in addition to the guarantee provided by the Tenant and the Surety under the provisions of clause 3.10.2.1.2) a guarantee of the covenants of the assignee from a guarantor who is reasonably acceptable to the Landlord in the form in Schedule 4; or 3.10.2.1.6 if it is otherwise reasonable to do so 3.10.2.2 The conditions and criteria in clause 3.10.2.1 are specified for the purposes of Section 19 (1A) of the Landlord and Tenant Act 1927 11 3.10.3 Not to underlet the whole of the Premises without the consent of the Landlord (such consent not to be unreasonably withheld or delayed) 3.10.4 On the grant of an underlease, to obtain covenants by deed from the underlesseee direct with the Landlord in such form as the Landlord may require that the underlessee will: 3.10.4.1 not assign, sub-underlet or charge part only of the premises underlet; 3.10.4.2 not part with or share possession or occupation of the whole or any part of the premises underlet nor grant to third parties rights over them otherwise than by a permitted assignment or sub-underletting; 3.10.4.3 not assign, charge or sub-underlet the whole of the premises without obtaining the previous consent of the Landlord under this Lease; 3.10.4.4 provide for the inclusion in any sub-underleases granted out of the underlease (whether immediate or mediate) of covenants to the same effect as those contained in these clauses 3.10.4 and clause 3.10.5 3.10.5 On the grant of any underlease:- 3.10.5.1 to include provisions for the revision of the rent reserved by the underlease in an upward only direction to correspond in time and effect with the provisions for the revision of rent in this Lease; 3.10.5.2 not to reserve or take a premium or fine; 3.10.5.3 to reserve a rent which is the greater of the market rent as at the time of the grant of the underlease (assessed in accordance with the 12 principles in Schedule 2) or the proportionate part of the market rent of the Premises where only part of the Premises is underlet (such part of the market rent to be approved by the Landlord); and 3.10.5.4 to include such covenants of the underlessee as are not inconsistent with or impair the due performance and observance of the covenants of the Tenant in this Lease 3.10.6 Not to underlet the whole or any part of the Premises otherwise than by way of Unsecured Underletting 3.10.7 Not otherwise than by assignment or underletting permitted under this clause 3.10 to: 3.10.7.1 part with or share possession or occupation of the whole or any part of the Premises; or 3.10.7.2 grant to third parties any rights over the Premises 3.10.8 The preceding provisions of this clause 3.10 do not apply to any parting with possession or occupation or the sharing of occupation or sub-division of the Premises to or with any member of a group of companies of which the Tenant is itself a member if: 3.10.8.1 the interest in the Premises so created is and remains no more than a tenancy-at-will; and 3.10.8.2 the possession, occupation or subdivision are immediately determined if the Tenant and the relevant member cease for any reason whatsoever to be members of the same group of companies; and for this purpose two companies are members of a group if, and only if, one is a subsidiary of the other or both are subsidiaries of a third company, "subsidiary" having the 13 meaning given to it by Section 736 of the Companies Act 1985 3.11 REGISTRATION OF DISPOSITIONS OF THIS LEASE To produce to and leave with the Solicitors of the Landlord the document effecting the disposition (and in each case a certified copy for retention by the Landlord) within one month after any disposition of this Lease or the Premises (a "disposition" being an assignment, charge, transfer, underlease, assignment or surrender of any underlease, or on any transmission by death or otherwise documentary evidence of devolution affecting the Premises), and on each occasion to pay to the Solicitors such fee as they may reasonably require for the registration 3.12 ENFORCEMENT OF UNDERLEASES 3.1.2.1 Not without the consent of the Landlord to vary the terms, or waive the benefit, of any covenant of the underlessee or condition in an underlease of the Premises 3.12.2 Diligently to enforce the covenants of the underlessee and the conditions in an underlease of the Premises 3.12.3 Not without the consent of the Landlord accept any sum or payment in kind by way of commutation of the rent payable by an underlessee of the Premises 3.13 USER 3.13.1 Not without the consent of the Landlord to use the Premises other than as B1, B2 or B8 use 3.13.2 Nothing in this Lease implies or is to be treated as a warranty to the effect that the use of the Premises for those purposes is in compliance with all town planning laws and regulations now or from time to time in force 3.14 RESTRICTIONS AFFECTING USE OF THE PREMISES 3.14.1 Not to erect nor install in the Premises any engine, furnace, plant or machinery which causes noise fumes or vibration which can be heard smelled or felt outside the Premises 14 3.14.2 Not to store in the Premises any petrol or other specially inflammable explosive or combustible substance 3.14.3 Not to use the Premises for any noxious, noisy or offensive trade or business or for any illegal or immoral act or purpose 3.14.4 Not to hold any sales by auction on the Premises 3.14.5 Not to hold in or on the Premises any exhibition public meeting or public entertainment 3.14.6 Not to permit any vocal or instrumental music in the Premises so that it can be heard outside the Premises 3.14.7 Not to permit livestock of any kind to be kept on the Premises 3.14.8 Not to do in the Premises which may be or grow to be a nuisance, annoyance, disturbance, inconvenience or damage to the Landlord or its other tenants of the Building or to the owners tenants and occupiers of adjoining and neighbouring properties 3.14.9 Not to load or use the floors, walls, ceilings, or structure of the Premises so as to cause strain damage or interference with the structural parts, loadbearing framework, roof, foundations, joists and external walls of the Premises 3.14.10 Not to do or omit to do anything which may interfere with or which imposes an additional loading on any ventilation, heating, air conditioning or other plant or machinery serving the Premises 3.14.11 Not to use the Premises as a betting shop or betting office 3.14.12 Not to use the Premises for the sale of alcoholic liquor for consumption either on or off the Premises 3.14.13 Not to allow any person to sleep in the Premises nor to use the Premises for residential purposes 3.14.14 Not at any time to place in the Common Parts any goods, mats, trade empties, rubbish or other obstruction 15 3.14.15 Not to accumulate trade empties upon the Premises 3.14.16 Not to place leave or install any articles merchandise goods or other things in front of or elsewhere outside the Premises 3.14.17 Not to permit the drains to be obstructed by oil grease or other deleterious matter, but to keep thoroughly cleaned the Premises and the drains serving the Premises as often as may be necessary 3.14.18 Not to use any portion of the access roads or service area for the parking of vehicles otherwise than during the course of loading and unloading nor to carry out any repairs or maintenance to vehicles on the access roads or service area 3.14.19 To observe and perform or cause to be observed and performed the reasonable rules and regulations from time to time made by the Landlord in connection with the orderly and proper use of the Common Parts and the security of the Building and the whole of the site in the Landlord's ownership at Cotton Lane Derby 3.15 ADVERTISEMENTS AND SIGNS 3.15.1 Not to place of display on the exterior of the Premises or on the windows or inside the Premises so as to be visible from the exterior of the Premises any name, writing, notice, sign, illuminated sign, display of lights, placard, poster, sticker or advertisement other than: 3.15.1.1 a suitable sign of a size and kind first approved by the Landlord or the Landlord's Surveyor showing the Tenant's name and trade; 3.15.1.2 such other notices as the Landlord may in its discretion approve; and 3.15.1.3 normal window displays sale notices and price tickets attached and relating to the goods in the Premises (but not affixed to the window glass); 3.15.1.4 the name of the Tenant signwritten on the 16 entrance doors of the Premises in a style and manner approved by the Landlord or the Landlord's Surveyor; and 3.15.1.5 the name of the Tenant and any permitted sub-tenants displayed in the indicator board in the entrance lobby in the Building 3.15.2 If any name, writing, notice, sign, placard, poster, sticker or advertisement is placed or displayed in breach of these provisions, to permit the Landlord to enter the Premises and remove such name, writing, notice, sign, placard, poster, sticker or advertisement, and to pay to the Landlord on demand the expenses of so doing 3.16 COMPLIANCE WITH STATUTES ETC. 3.16.1 Except where such liability may be expressly within the Landlord's covenants in this Lease to comply in all respects with the provisions of all statutes for the time being in force and requirements of any competent authority relating to the Premises or anything done in or upon them by the Tenant, and to keep the Landlord indemnified against liability in consequence of the Tenant's failure to comply with them 3.16.2 In particular but without affecting the general operation of clause 3.16.1 3.16.2.1 to execute all works and do all things on or in respect of the Premises which are required under the Offices Shops and Railway Premises Act 1963; 3.16.2.2 to comply with all requirements under any present or future statute, order, by-law or regulation as to the use or occupation of or otherwise concerning the Premises; 3.16.2.3 to execute with all due diligence (commencing work within two months or sooner if necessary 17 and then proceeding continuously) all works to the Premises for which the Tenant is liable in accordance with this clause 3.16 and of which the Landlord has given notice to the Tenant; and, if the Tenant shall not comply with clause 3.16.2.3, to permit the Landlord to enter the Premises to carry out such works, and to indemnify the Landlord on demand for the expenses of so doing (including surveyors' and other professional advisers' fees), such expenses and any Interest on them to be recoverable as if they were rent in arrear 3.17 PLANNING PERMISSIONS 3.17.1 Not without the consent of the Landlord to make any application under the Town and Country Planning Acts, as defined in the Town and Country Planning Act 1990, to any local planning authority for permission to develop, including change of use of, the Premises 3.17.2 To indemnify the Landlord against any development charges, other charges and expenses payable in respect of such applications and to reimburse to the Landlord the costs it may properly incur in connection with such consent 3.17.3 To keep the Landlord indemnified against any expense incurred in consequence of the use of the Premises reverting to that existing before the application was made 3.17.4 Forthwith to give to the Landlord full particulars in writing of the grant of planning permission 3.17.5 Not to implement any planning permission if the Landlord makes reasonable objection to any of the conditions subject to which it has been granted 3.18 COMPLIANCE WITH TOWN PLANNING AND ENVIRONMENTAL REQUIREMENTS 3.18.1 To perform and observe the requirements of statutes and regulations relating to town and country planning and environmental protection applying to the Premises, and to 18 obtain any development or other consent permit or licence by reason of the development or manner of use of or on the Premises by the Tenant 3.18.2 To keep the Landlord indemnified against liability by reason of the Tenant's failure to obtain any requisite development or other consent permit or licence or in complying with the requirements of statutes and regulations 3.18.3 To give full particulars to the Landlord of any notice, or proposal for a notice, or order or proposal for an order, made given or issued to the Tenant under any statute or regulation relating to town and country planning, environmental protection or otherwise within seven days after the receipt of any such by the Tenant 3.18.4 Forthwith to take all reasonable and necessary steps to comply with any such notice or order 3.18.5 At the request and cost of the Landlord, to make or join with the Landlord in making such objections or representations against or in respect of any proposal for such notice or order as the Landlord may consider expedient 3.19 CLAIMS BY THIRD PARTIES 3.19.1 To keep the Landlord indemnified against liability in respect of any accident, loss or damage to person or property in the Premises 3.19.2 To keep the Landlord indemnified against liability of the Landlord to third parties by reason of breach by the Tenant of its obligations in this Lease 3.20 EXPENSES OF LANDLORD To pay to the Landlord on demand all expenses (including solicitors' costs, bailiffs' fees and surveyors' and architects' fees) incurred by the Landlord:- 3.20.1 incidental to or in proper contemplation of the preparation and service of a schedule of dilapidations during or after the 19 termination of this Lease and/or a notice under Section 146 and 147 of the Law of Property Act 1925, even if forfeiture is avoided otherwise than by relief granted by the Court; 3.20.2 in connection with or procuring the remedying of any breach of covenant on the part of the Tenant contained in this Lease including (without limitation) the recovery or attempted recovery of arrears of rent or additional rent due from the Tenant; and 3.20.3 in connection with every application for any consent or approval made under this Lease whether or not consent or approval is given 3.21 OBSTRUCTION OF WINDOWS OR LIGHTS AND EASEMENTS 3.21.1 Not to stop up or obstruct any windows of the Premises or any other buildings belonging to the Landlord 3.21.2 Not to permit any easement or similar right to be made or acquired into against or on the Premises 3.21.3 Where any such easement or right is or is attempted to be acquired, immediately to give notice of the circumstances to the Landlord, and at the request and cost of the Landlord to adopt such course as it may reasonably require for preventing the acquisition of the easement or right to such easement 3.22 CLEANING AND INSURANCE OF WINDOWS 3.22.1 To keep clean the glass in the windows of the Premises 3.22.2 To keep insured the glass in the windows of the Premises in the joint names of the Landlord and the Tenant in a sum equal to the full replacement cost against damage with an insurer of repute approved by the Landlord; and 3.22.3 To lay out the monies received in respect of such insurance in replacement with glass of at least the same quality and thickness as before, and to make good any deficiency out of the Tenant's own resources 20 3.23 VALUE ADDED TAX 3.23.1 To pay value added tax on taxable supplies of goods and services made by the Landlord in connection with this Lease, the consideration for which is to be treated as exclusive of value added tax chargeable on the payment 3.23.2 Where the Landlord is entitled under this Lease to recover from the Tenant the costs of goods and services supplied to the Landlord, but in respect of which the Landlord makes no taxable supply to the Tenant, to indemnify the Landlord against so much of the input tax on the cost for which the Landlord is not entitled to credit allowance under Section 26 of the Value Added Tax Act 1994 3.24 NOTICE "TO-LET" AND "FOR SALE" 3.24.1 To allow the Landlord or its agents to enter on the Premises at any time: 3.24.1.1 within six months next before the termination of this Lease to fix on the Premises a notice board for reletting the Premises; and 3.24.1.2 to fix on some part of the Premises a notice board for the sale of the interest of the Landlord 3.24.2 Not to remove or obscure any such notice board 3.24.3 To permit all persons authorised by the Landlord or its agents to view the Premises at reasonable hours without interruption in connection with any such letting or sale 4 PROVISOS THE PARTIES AGREE to the following provisos:- 4.1 PROVISO FOR RE-ENTRY 4.1.1 The Landlord may terminate this Lease by re-entering the Premises (or a part of them) itself or by an authorised agent if: 4.1.1.1 any rent remains unpaid twenty one days after becoming due for payment (whether or not formally demanded); or 21 4.1.1.2 the Tenant fails to perform or observe any of its covenants or the conditions in this Lease or allows any distress or execution to be levied its goods, or 4.1.1.3 an event of insolvency occurs in relation to the Tenant or one of the Tenants or any guarantor of the Tenant or one of the Tenants 4.1.2 Re-entry in exercise of the rights in clause 4.1.1 does not affect any other right or remedy of the Landlord for breach of covenant or condition by the Tenant occurring before the termination of this Lease 4.1.3 The expression "an event of insolvency" in clause 4.1.1. includes: 4.1.3.1 (in relation to a company or other corporation which is the Tenant or one of the Tenants or a guarantor) inability of the company to pay its debts, entry into liquidation either compulsory or voluntary (except for the purpose of amalgamation or reconstruction), the passing of a resolution for a creditors winding up, the making of a proposal to the company and its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs, the application to the court for an administration order, and the appointment of a receiver or administrative receiver; and 4.1.3.2 (in relation to an individual who is the Tenant or a guarantor) inability to pay or having no reasonable prospect of being able to pay his debts, the presentation of a bankruptcy petition, the making of a proposal to his creditors for a composition in satisfaction of his debts or a 22 scheme of an arrangement of his affairs, the application to the court for an interim order, and the appointment of a receiver or interim receiver; and in relation to the various events of insolvency they are, wherever appropriate, to be interpreted in accordance and conjunction with the relevant provisions of the Insolvency Act 1986 4.2 POWER FOR THE LANDLORD TO DEAL WITH ADJOINING PROPERTY 4.2.1 The Landlord may deal as it thinks fit with other property adjoining or nearby belonging to the Landlord, and may erect or permit to be erected on such property any buildings irrespective of whether they affect or diminish the light or air which may now or at any time be enjoyed by the Tenant in respect of the Premises 4.2.2 The Landlord may at all times, without obtaining any consent from or making any arrangement with the Tenant, alter reconstruct or modify in any way whatsoever or change the use of the Common Parts so long as proper means of access to and egress from the Premises are afforded and essential services are maintained at all times 4.3. ARBITRATION OF DISPUTES BETWEEN TENANTS If any dispute or disagreement at any time arises between the Tenant and the tenants and occupiers of the Building or any adjoining or neighbouring property belonging to the Landlord relating to the Conducting Media serving or easements or rights affecting the Premises the Building or any adjoining or neighbouring property, the dispute or disagreement is to be determined by the Landlord by which determination the Tenant is to be bound 4.4 EXEMPTION FROM LIABILITY IN RESPECT OF SERVICES 4.4.1 The Landlord is not to be liable to the Tenant for any loss damage or inconvenience which may be caused by reason of:- 4.4.1.1 temporary interruption of services during periods of inspection maintenance repair and renewal; 23 4.4.1.2 breakdown of or defect in any plant and machinery services or Conducting Media in the Premises the Building or neighbouring or adjoining property; or 4.4.1.3 events beyond the reasonable control of the Landlord 4.4.2 The Landlord's duty of care to the Tenant's employees agents workpeople and visitors in or about the Building does not go beyond the obligations involved in the common duty of care (within the meaning of the Occupiers Liability Act 1957) or the duties imposed by the Defective Premises Act 1972 4.5 ACCIDENTS The Landlord is not to be responsible to the Tenant or the Tenant's licensees nor to any other person for any:- 4.5.1 accident happening or injury suffered in the Premises; or 4.5.2 damage to or loss of any goods or property sustained in the Building (whether or not due to any failure of any security system for which the Landlord is in any way responsible); or 4.5.3 act omission or negligence of any employee of the Landlord in the Building 4.6 COMPENSATION FOR DISTURBANCE The Tenant is not entitled on quitting the Premises to claim from the Landlord any compensation unless and to the extent that any statutory right to compensation precludes the operation of this clause 4.7 REMOVAL OF PROPERTY AFTER DETERMINATION OF TERM 4.7.1 If after the Tenant has vacated the Premises following the termination of this Lease any property of the Tenant remains in the Premises, and the Tenant fails to remove it within fourteen days after being requested in writing by the Landlord 24 to do so, the Landlord may as the agent of the Tenant sell such property and hold the proceeds of sale, after deducting the costs and expenses of removal storage and sale reasonably and properly incurred by it, to the order of the Tenant 4.7.2 The Tenant will indemnify the Landlord against any liability incurred by it to any third party whose property has been sold by the Landlord in the bona fide mistaken belief (which is to be presumed unless the contrary be proved) that it belonged to the Tenant and was liable to be dealt with as such under this clause 4.7 4.8 NOTICES, CONSENT AND APPROVALS 4.8.1 Any notice served under or in connection with this Lease is to be in writing and be treated as properly served if compliance is made with either the provisions of Section 196 of the Law of Property Act 1925 (as amended by the Recorded Delivery Service Act 1962) or Section 23 of the Landlord and Tenant Act 1927 4.8.2 Any consent or approval under this Lease is required to be obtained before the act or event to which it applies is carried out or done and is to be effective only if the consent or approval is given in writing 4.9 Indemnify the Tenant in respect of any contamination or other environmental issues arising which are not applicable to or relevant to the Tenant's authorised use of the premises to remove any such materials from the site at the Landlord's own expense provided that the Tenant shall immediately inform the Landlord of the discovery of any such matter 25 5 LANDLORDS COVENANTS THE LANDLORD COVENANTS with the Tenant as follows:- 5.1 QUIET ENJOYMENT The Tenant, paying the rents reserved and performing the Tenant's covenants in this Lease, may lawfully and peaceably enjoy the Premises throughout the Term without interruption by the Landlord or by any person lawfully claiming through under or in trust for the Landlord 5.2 To keep in good repair and maintain rebuild and renew the Conducting Media the Building the Common Parts and those parts of the Premises for which the Tenant is not responsible for 5.3 To complete the works set out in the attached schedule of works, signed by the parties by no later than the ________ day of _________________ 1998 and in any event as soon as practicable to the reasonable satisfaction of the Tenant and in a good and workmanlike manner. The Tenant shall be deemed to have accepted that the works set out in the attached schedule have been satisfactorily completed if the Tenant shall take up occupation of the whole or any part thereof. In the event of there being any dispute between the parties as to whether the works shall have been completed to the satisfaction of the Tenant (and the Tenant shall not have taken up occupation of the whole or any part of the premises comprised in the works), the matter shall be referred to determination in accordance with clause 8 hereof 6 OBLIGATIONS IN SCHEDULES TO THIS LEASE The Landlord and the Tenant mutually covenant to observe and perform their respective obligations and the conditions in the Schedules 7 EXPERT DETERMINATION 7.1 In this Lease, where any issue is required to be dealt with by, or submitted for the determination of, an independent expert, the following provisions of this clause are to apply but, in case of conflict with other provisions specifically relating to expert determination 26 elsewhere in this Lease, those other provisions are to prevail to the extent of the conflict 7.2 The expert is to be appointed by the parties jointly, or if they cannot or do not agree on the appointment, appointed by whichever of the following is appropriate: 7.2.1 the President for the time being of the Royal Institution of Chartered Surveyors; 7.2.2 the President for the time being of the Institute of Chartered Accountants in England and Wales or in each such case the duly appointed deputy of the president or other person authorised by him to make appointments on his behalf; 7.3 the person so appointed is to act as an expert, and not as an arbitrator; 7.4 the expert so appointed must afford the parties opportunity within such a reasonable time limit as he may stipulate to make representations to him (accompanied by professional rental valuations, reports or other appropriate evidence in the relevant circumstances) and permit each party to make submissions on the representations of the other; and 7.5 the fees and expenses of the expert, including the cost of his nomination, are to be borne as the expert may direct (but in the absence of such a direction - by the parties in equal shares), but (unless they otherwise agree) the parties will bear their own costs with respect to the determination of the issue by the expert 7.6 If the expert refuses to act, becomes incapable of acting, or dies, the Landlord or the Tenant may require the appointment of another expert in this stead under paragraph 8.2 7.7 The determination of the independent expert, except in case of manifest error, is to be binding on the Landlord and the Tenant 8 LEGAL FEES Each party will pay its own legal costs and stamp duty on the Lease 9 STAMP DUTY CERTIFICATE It is certified that there is no agreement to which this Lease gives effect 27 10 COVENANT STATUS OF THIS LEASE This Lease is a new tenancy within the meaning of Section 1 of the Landlord and Tenant (Covenants) Act 1995 DELIVERED as a Deed on the date at the head of this Lease 11. BREAK CLAUSE The Tenant may on giving not less than six months' notice in writing to the Landlord determine this Lease and the term hereby granted on the second anniversary of the term provided it has paid the rent due up to such second anniversary and without prejudice to the right of either party to take action against the other in respect of antecedent breaches of covenant or obligation 28 SCHEDULE 1 PART 1 DESCRIPTION OF THE PREMISES ALL THAT Warehouse and offices known as Unit 6 Eastside Park, East Service Road, Raynesway, Derby including the right to use the car parking areas on the plan. PART 2 RIGHTS ENJOYED WITH DEMISE 1. The rights of ingress to and egress from the Premises in over and along all usual entrances staircases landings lifts and passageways leading thereto in part shown coloured brown on the plan annexed hereto in common with the Landlord and all other persons so authorised by the Landlord and all other persons entitled thereto 2. The right of free passage and running of water soil gas electricity telephone and other services in and through the Conducting Media made or to be made upon or through or under any part of the Building or upon through or under any adjacent land or buildings of the Landlord all such rights to be so far as necessary for the enjoyment of the Premises and in common with the Landlord and all others so authorised by the Landlord and all other persons entitled thereto 3. The right for the Tenant and all other persons authorised by the Tenant to enter upon the other parts of the Building and upon the said adjoining land and buildings of the Landlord (giving reasonable prior notice and in an emergency without notice) so far as may be reasonably necessary for the purpose of inspecting maintaining repairing and renewing and/or making connections with the Conducting Media 4. The right for the Tenant and the Tenant's employees servants agents customers and clients and contractors in the event of emergency only to use the fire escapes and emergency exits (if any) serving the Premises and any adjoining or adjacent parts of the Building and pass through any such adjoining or adjacent parts of the Building for the purpose of egress from the Premises in the event of emergency 5. The right of support and protection for the benefit of the Premises as is now enjoyed by the Premises from the adjoining parts of the Building 29 PART 3 EXCEPTIONS AND RESERVATIONS 1. The free passage and running of water soil gas electricity telephone and other services from and to other parts of the Building and from and to any adjoining buildings or land of the Landlord in and through the Conducting Media now or at any time during the Term laid made or to be laid and made in upon through or under the Premises 2. The right to construct and to maintain in over or under the Premises any easements or services for the benefit of any part of the Building or any adjoining property or buildings of the Landlord 3. The right at any time during the term (but except in cases of emergency only at reasonable times during normal business hours after giving reasonable prior notice to the Tenant and by prior appointment except where the Tenant unreasonably refuses to make an appointment within a reasonable time of the request from the Landlord) to enter (or in the cases of emergency to break and enter) upon the Premises in order: (a) To inspect cleanse repair mend remove or replace with others the Conducting Media referred to above (b) To inspect and execute works in connection with any of the easements or services referred to in this Schedule (c) To view the state and condition of and to repair and maintain the Building or any part of the Building and any adjoining buildings or land of the Landlord where such work would not otherwise be reasonably practicable (d) To carry out work or do anything whatsoever comprised within the Landlord's obligations herein contained whether or not the Tenant is liable hereunder to make a contribution (e) To exercise any of the rights possessed by the Landlord under the terms of this Lease 4. The right to erect scaffolding for the purpose of repairing or cleaning the exterior of the Building or the adjoining land or buildings of the Landlord notwithstanding that such scaffolding may temporarily interfere with the access to or enjoyment and user of the Premises provided that such interference is for 30 the minimum reasonable period and that access to the Premises is not significantly curtailed thereby 5. The rights of light air support shelter and all other easements and rights now or hereafter belonging to or enjoyed by all adjacent or neighbouring land and those parts of the Building not hereby demised any interest wherein in possession or reversion is at any time during the term vested in the Landlord 6. Full right and liberty at any time hereafter and from time to time to execute works and erections upon or to alter or rebuild any of the buildings erected on the Landlord's adjoining and neighbouring land or other parts of the Building and to use such adjoining and neighbouring lands and buildings and the other parts of the Building in such manner as it shall think fit notwithstanding that the access of light and air to the Premises may thereby be interfered with PROVIDED that in exercising the foregoing rights the Landlord shall cause as little interference as possible to the Premises and the business of the Tenant and shall forthwith make good any damage caused to the Premises by the exercise of the said rights SCHEDULE 2 RENT REVIEWS 1 THE REVIEW DATES The yearly rent payable under this Lease is to be reviewed on the expiry of the third year of the Term (referred to in this Schedule as "the review dates" and with effect on and from the review date the reviewed rent (as agreed or determined in accordance with this Schedule) is to become payable as the yearly rent reserved by this Lease 2 UPWARD ONLY RENT REVIEWS The reviewed rent is to be the greater of: 2.1 the yearly rent reserved under this Lease immediately preceding the review date; and 2.2 the market rent of the Premises at the review date 3 THE MARKET RENT For the purposes of this Lease, the expression "market rent" means the best 31 yearly rent at which the Premises might reasonably be expected to be let in the open market by a willing landlord to a willing tenant: 3.1 with vacant possession 3.2 for a term of six years from the review date having a rent review, in the same terms as this Lease, at the expiry of each period of three years throughout the term; 3.3 without the payment of a premium by a willing tenant; 3.4 subject to the provisions of this Lease, other than the length of the term and the amount of rent, but including these provisions for rent review; 3.5 the Premises have an area of approximately (4000) square feet 3.6 the Premises have been fitted out ready for occupation and immediate use for the willing tenant's business so that the willing tenant would not require a rent or other allowance at the review date for that purpose (but this assumption does not affect the operation of paragraph 4.3); 3.7 in case the Premises have been destroyed or damaged (or unfit for use and occupation by reason of damage to the Building) they have been fully reinstated (or rendered fit for use and occupation); 3.8 the covenants of the Tenant have been fully observed and performed; 3.9 there is not in operation any statute order or instrument regulation or direction which has the effect of regulating or restricting the amount of rent of the Premises which might otherwise be payable; 3.10 the Premises may be lawfully used throughout the Term as workshop and office premises within B1 B2 and B8 of the Town and Country (Use Classes) Order 1987 (and any actual restriction or qualification which may be imposed on such use by the terms of the user covenant in clause 3 or otherwise is to be disregarded) and that no capital is required to be expended 32 upon the Premises to enable them to be so used; and 3.11 the Tenant and anyone who may become the Tenant is a taxable person who makes only taxable supplies and no exempt supplies (words and expressions used in this paragraph 3.11 having the meanings assigned to them respectively in the Value Added Tax Act 1994 and the regulations made under that Act) and that demand for the Premises on the open market would not be reduced by reason of the Landlord having elected to waive exemption from value added tax in respect of them 4 MATTERS TO BE DISREGARDED In agreeing or determining the market rent the effect upon it of the following matters are to be disregarded: 4.1 the occupation of the Premises by the Tenant 4.2 any goodwill attached to the Premises by reason of the carrying on at the Premises of the business of the Tenant; 4.3 any improvements to the Premises made by the Tenant with the consent of the Landlord other than those: 4.3.1 made in pursuance of an obligation to the Landlord; 4.3.2 completed by the Tenant more than twenty one years before the review date; or 4.3.3 for which the Landlord has made a financial contribution; and 4.4 any works carried out by the Tenant which has diminished the market rent and in this paragraph 4 reference to "the Tenant" include predecessors in title to the Tenant, and sub-tenants of the Tenant or of the predecessors in title of the Tenant 5 PROCEDURE FOR DETERMINATION OF MARKET RENT 5.1 The Landlord and the Tenant are to endeavour to agree the market rent at any time not being earlier than twelve months before the review date, but if they have not agreed the market rent three months before the review date the amount of the 33 Market rent is to be determined by reference to the determination of an independent expert 5.2 The expert is to be nominated by the Landlord and the Tenant jointly, but, if they cannot or do not do so, then he is to be nominated by the President for the time being of the Royal Institution of Chartered Surveyors on the application either of the Landlord or of the Tenant 5.3 The expert nominated must be a chartered surveyor having not less than ten years' experience of leasehold valuation of property being put to the same or similar use as the Premises and of the property in the same region in which the Premises are situated 6 TIME LIMITS Time is not of the essense in agreeing or determining the reviewed rent or of appointing an expert. 7 RENTAL ADJUSTMENTS 7.1 If the market rent has not been agreed or determined in accordance with the provisions of this Schedule before the review date, then, until the market rent has been so agreed or determined, the Tenant will continue to pay on account rent at the rate of yearly rent payable immediately before the review date 7.2 The Tenant will pay to the Landlord within seven days after the time that the market rent has been agreed or determined all arrears of the reviewed rent which have accrued in the meantime, with interest equal to the base rate of Midland Bank Plc on each of the instalments of the arrears from the time that it would have become due if the market rent had then been agreed or determined until payment becomes due from the Tenant to the Landlord under this paragraph 7.2 8 REVIEWED RENT RESERVED IN PHASES The Landlord and the Tenant may, at any time before the market rent is 34 determined by an expert settle the reviewed rent in more than one amount and agree to reserve the amounts increasing in phases until the next review date or, if none, the expiry of the Term 9 MEMORANDUM OF RENT REVIEW The parties will cause a memorandum of the reviewed rent duly signed by the Landlord and the Tenant to be endorsed on or securely annexed to this Lease and the counterpart of this Lease 35 SCHEDULE 3 INSURANCE PROVISIONS 1 INSURED RISKS 1.1 "Insured Risks" means the risks and other contingencies against which the Premises and the Building are required to be, or which may from time to time be, insured under this Lease, but subject to any exclusions limitations and conditions in the policy of insurance 1.2 Insured Risks include, without limitation, fire, lightning, explosion, storm, tempest, flood, bursting and overflowing of water tanks apparatus or pipes, earthquake, aircraft (but not hostile aircraft) and other aerial devices dropped from aircraft, riot and civil commotion, malicious damage and such other risks as the Landlord may consider it prudent to insure 1.3 If a risk or contingency itemized, or otherwise included, as an Insured Risk, can no longer be insured or can only be insured at an uneconomic rate, the risk or contingency shall cease to be treated as an Insured Risk from the time that cover is withdrawn and the Landlord has notified the Tenant of its withdrawal 2 TENANT'S LIABILITY FOR INSURANCE PREMIUMS 2.1 The Tenant will pay to the Landlord on demand the due proportion of the insurance premiums incurred by the Landlord 2.2 Insurance premiums are to include all monies expended, or required to be expended, by the Landlord in effecting and maintaining cover against: 2.2.1 Insured Risks; 2.2.2 three years' loss of rent insurance; 2.2.3 such professional fees as may be incurred in connection with rebuilding or reinstatement of the Building; 2.2.4 the costs of demolition, shoring up, and site clearance works; 36 2.2.5 third party and public liability risks; and 2.2.6 value added tax liability on such items 2.3 The insurance cover may take into account cover for the effects of inflation and escalation of costs and fees, and the Landlord's estimate of the market rent of the Premises as defined in Schedule 2 in the context of ensuing rent reviews and the termination of the Lease 2.4 The due proportion of the insurance premiums for which the Tenant is liable is to be such proportion of the premiums incurred with respect to the Building as may fairly be attributed to the Premises by the Landlord or the Landlord's surveyor, and the apportionment may as appropriate take into account: 2.4.1 the net internal area (as defined in the Measuring Code) of the Premises relative to the aggregate net internal areas in the Building during the Term; 2.4.2 the different uses to which the various parts of the Building are put and the degree of special risk associated with those uses; 2.4.3 the cost of complying with requirements of the insurer; 2.4.4 an increase in the insurance premiums or expense of renewal resulting from any act or omission of the Tenant or any person occupying or enjoying the use of the Premises through or under the Tenant; 2.4.5 risks and contingencies that apply only to the Tenant; and 2.4.6 such other matters as may properly affect the apportionment of insurance premiums between the various tenants and occupiers of the Building; and the apportionment may where appropriate attribute the whole of a premium, or an increase in premium to the Tenant, and the decision of the Landlord or the Landlord's surveyor acting fairly in making apportionments is (except in the case of 37 manifest error) to be conclusive In this Schedule "due proportion" is to be interpreted accordingly 3 TENANT'S OBLIGATIONS IN RELATION TO INSURANCE COVER 3.1 The Tenant will not do anything which may render void or voidable the insurance of the Landlord on the whole or a part of the Building or which may cause insurance premiums to be increased 3.2 The Tenant will provide efficient fire extinguishers of a type approved by the Landlord, and will adopt such other precautions against Insured Risks as the Landlord or its insurers may consider appropriate 3.3 If the insurance of the Landlord is vitiated in whole or in part in consequence of an act or omission of the Tenant, persons occupying or enjoying the use of the Premises through or under the Tenant, or their respective employees workmen agents or visitors, the Tenant will pay to the Landlord on demand a sum equal to the amount of the insurance monies which have become irrecoverable in consequence of that act or omission 3.4 The Tenant may not insure the Premises for any of the Insured Risks in such a manner as would permit the insurer of the Landlord to average the proceeds of insurance, cancel insurance cover, or withhold insurance monies 3.5 The Tenant will notify the Landlord forthwith of the occurrence of damage to the Premises by any of the Insured Risks 3.6 If the Building is damaged by Insured Risks, the Tenant will pay to the Landlord on demand the due proportion of the amount of any uninsured excess to which the insurance cover of the Landlord is subject. 3.7 The obligations of the Tenant to repair and to yield up in repair the Premises are to remain operative to the extent that the insurance of the Landlord in respect of Insured Risks is vitiated 38 or insurance monies are withheld by reason of an act or omission of the Tenant, persons occupying or enjoying the use of the Premises through or under the Tenant, or their respective employees workmen agents or visitors, but do not otherwise operate in respect of damage to the Premises by Insured Risks 4 LANDLORD'S OBLIGATION TO INSURE AND REINSTATE 4.1 The Landlord will keep the Building insured with an insurer of repute against Insured Risks and other items referred to in paragraph 2.2 for the full cost of reinstatement, subject to such uninsured excess as the insurer may reasonably apply 4.2 Following the occurrence of damage to or destruction of the Building by an Insured Risk, the Landlord will diligently apply, or procure the application of, the proceeds of the insurance covering reinstatement and rebuilding costs for those purposes, and will make good any deficiency in the proceeds of the insurance out of its own resources 4.3 The obligations of the Landlord in paragraph 4.2 do not apply: 4.3.1 if the Landlord is unable, after using its reasonable endeavours to do so, to obtain any requisite planning permission or other consents for the reinstatement or rebuilding of the Building or of a building of similar size character and amenity; or 4.3.2 if the Landlord's insurance is vitiated by reason of an act or omission of the Tenant, persons occupying or enjoying the use of the Premises through or under the Tenant, or their respective employees workmen agents or visitors 4.4 Where the Building is substantially damaged or destroyed, the Tenant may not object to the reinstatement or rebuilding of the Building in a form which is not identical to the Building immediately before the damage or destruction occurred if the 39 Building as reinstated or rebuilt is of equivalent or better standard, and affords amenities which are not inferior to or deficient from those enjoyed by the Tenant before the occurrence of the damage or destruction 5 LANDLORD'S OBLIGATIONS IN RELATION TO INSURANCE 5.1 The Landlord will use its reasonable endeavours to procure that its insurers waive entitlement to rights of subrogation against the Tenant, persons occupying or enjoying the use of the Premises through or under the Landlord, and their respective employees workmen agents or visitors 5.2 The Landlord will notify its insurers of the Tenant's interest in the Premises and, if practicable, have it noted on the policies of insurance 5.3 The Landlord will provide the Tenant with a copy of its insurance policies (or other evidence of the conditions of insurance) on the Building, and at the request of the Tenant with a receipt for the payment of the last premium or other evidence of renewal and up-to-date details of the amount of cover 5.4 The Landlord will promptly notify the Tenant of any changes in its insurance cover or of the terms on which cover has been effected 5.5 The Landlord may retain for its exclusive benefit any discount on the insurance premiums or commission offered to it by its insurer 6 SUSPENSION OF RENT 6.1 Paragraph 6.2 applies if the Building or any part of it is at any time during the Term so damaged by an Insured Risk as to render the Premises or any part of them unfit for occupation use or enjoyment, except in the circumstances referred to in paragraph 4.3.2 6.2 The rent and additional rent reserved by this Lease, or a fair 40 proportion of them according to the nature and extent of the damage sustained, is to be suspended and cease to be payable until the Premises (excluding fitting out works and replacement of contents) have been reinstated and made fit for occupation use and enjoyment or, if earlier, until the expiry of three years from the occurrence of the damage 6.3 A dispute as to the amount of the abatement of the rent or the duration of the period of abatement is to be submitted to a single arbitrator, by whose decision the parties are to be bound, who is to be appointed by the parties jointly if they can agree on one, but if they do not agree, then by the President for the time being of the Royal Institution of Chartered Surveyors at the request of either party, and the arbitration is to be conducted under the Arbitration Acts 1950 - 1979 7 OPTIONS TO DETERMINE 7.1 If the Building or a substantial part of it (whether or not directly affecting the Premises) is destroyed or damaged by an Insured Risk so as to make continued use of the Premises impracticable, the Landlord may terminate this Lease by giving to the Tenant notice to that effect at any time within 12 months after the occurrence of the damage 7.2 If for any reason beyond the control of the Landlord it proves impossible to commence rebuilding or reinstatement of the Building within two years of the occurrence of the damage by an Insured Risk, the Landlord may terminate this Lease by giving to the Tenant notice to that effect 7.3 If the rebuilding or reinstatement of the Building has not been commenced two years after the occurrence of the damage by an Insured Risk, the Tenant may give notice to the Landlord of intention to terminate this Lease, and if the rebuilding or reinstatement work has not commenced in earnest within six months of the giving of the notice, this Lease is to terminate at 41 the expiry of the notice 7.4 The termination of this Lease under this paragraph 7 is not to affect any liability which has accrued at any time before the time of termination 8 RETENTION OF INSURANCE PROCEEDS On the termination of this Lease under paragraph 7, or if this Lease is terminated by the operation of the doctrine of frustration, the Landlord may retain for its exclusive benefit the proceeds of insurance SCHEDULE 4 FORM OF GUARANTEE ON ASSIGNMENT UNDER CLAUSE 3.10.2 1 GUARANTEE 1.1 The Guarantor[s] [jointly and severally] guarantee[s] to the Landlord that the Tenant will pay the rents reserved by and perform and observe all the Tenant's covenants in this Lease throughout the Term and any extension by statute of the tenancy created by this Lease and the Guarantor[s] will pay and make good to the Landlord on demand any losses damages costs and expenses suffered or incurred by the Landlord by reason of any failure of the Tenant to do so 1.2 This guarantee is to take effect immediately on the assignment of the Lease to the Tenant and is to remain in force for so long as and to the extent that the Tenant is not released by law from liability for the Tenant's covenants in this Lease 1.3 In the context of these guarantee provisions, references to the Tenant are to the assignee only (in its capacity as Tenant) with respect to whom this guarantee is given 2 NO WAIVER OR RELEASE OF LIABILITY The Guarantor[s] is not to be released from liability under these provisions by reason of:- 2.1 any forbearance the granting of any time or any other indulgence on the part of the Landlord, including (but without affecting the general operation of this paragraph 2) any 42 granting or extension of time under or varying the procedure set out in Schedule 2, paragraph 5; or 2.2 any variation of this Lease, whether or not made with the consent of the Guarantor[s], and the guarantee of the Guarantor[s] in paragraph 1 is to operate in relation to this Lease as it may be varied from time to time 3 GUARANTOR[S] TO ACCEPT NEW LEASE UPON DISCLAIMER 3.1 If this Lease is determined by re-entry by the Landlord or is effectively determined by disclaimer, the Guarantor[s] shall, if the Landlord by notice in writing within three months after the date of determination so requires take from the Landlord a lease of the Premises 3.2 The lease to be granted to the Guarantor[s] under paragraph 3.1 is to be on the following terms: 3.2.1 the term is to commence on the date of termination of this Lease and to be equal to the residue of the Term which would have remained unexpired at the date of this Lease had not then been terminated; 3.2.2 the yearly rent is to be the same as would have been payable under this Lease if it had continued and, if a rent review operative from a review date before the grant of the lease has not been completed, the Guarantor[s] will complete the rent review as if it had been the Tenant under this Lease; 3.2.3 the lease is otherwise to be on the same terms and conditions as would have applied under this Lease if it had continued undetermined; and 3.2.4 the Guarantor[s] [is] [are] to succeed to the rights and assume the liability of the Tenant under this Lease as if the Lease had continued undetermined 4 SUBORDINATION OF RIGHTS OF THE GUARANTOR[S] 4.1 With respect to any sums paid by the Guarantor[s] under this 43 Schedule and to any other rights which may accrue to the Guarantor[s] in respect of any sums so paid or liabilities incurred under this guarantee or in the observance performance or discharge of the obligations and covenants of the Tenant in this Lease, the Guarantor[s] shall rank and be entitled to enforce its rights only after all obligations and covenants under this guarantee have been fully observed and performed, and if they have not the Guarantor[s] shall not: 4.1.1 seek to recover from the Tenant, or any third party whether directly or by way of set-off lien counterclaim or otherwise or accept any money or other property or security or exercise any rights in respect of any sum which may be or become due to the Guarantor[s] on account of the failure by the Tenant to observe and perform or discharge such obligations or covenants in this Lease; 4.1.2 claim, prove or accept any payment in composition by way of winding-up, liquidation, bankruptcy or other form of insolvency of the Tenant in competition with the Landlord for any amount whatsoever owing to the Guarantor[s] by the Tenant; nor 4.1.3 exercise any right or remedy in respect of any amount paid by the Guarantor[s] under this Lease or any liability incurred by the Guarantor[s] in observing, performing or discharging the obligations and covenants of the Tenant 4.2 The Guarantor[s] warrant[s] that it has not taken, and undertakes with the Landlord that it will not without the consent of the Landlord; 4.2.1 take any security from the Tenant in respect of this guarantee and, if any such security is so taken notwithstanding, it shall be held on trust for the Landlord as security for the respective 44 liabilities of the Guarantor[s] and the Tenant; nor 4.2.2 be entitled to any right of proof in the bankruptcy, liquidation or other form of insolvency of the Tenant or exercise any other right of the Guarantor[s] discharging his liability in respect of such obligations and covenants THE COMMON SEAL OF IVYGROVE DEVELOPMENTS LIMITED was hereunto affixed in the presence of:- /s/ illegible --------------------------- Director /s/ illegible --------------------------- Secretary THE COMMON SEAL OF was hereunto affixed in the presence of:- /s/ illegible --------------------------- Director /s/ illegible --------------------------- Secretary 45 [SITE MAP FOR IDENTIFICATION PURPOSES ONLY] [GRAPHIC OMITTED] [BUILDING MAP FOR IDENTIFICATION PURPOSES ONLY] [GRAPHIC OMITTED] EX-10.13 33 0033.txt LEASE FOR OFFICE SPACE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This lease ("LEASE"), dated for reference purposes only, February 6, 2001, is made by and between ROBERT TYLER AND WILFRED HUSKINS ("LESSOR") and NEXSAN TECHNOLOGIES CORPORATION, A DELAWARE CORPORATION ("LESSEE"), collectively the "Parties," or individually a "PARTY"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 2122 Vineyard Avenue, Escondido, CA 92029, located in the County of San Diego, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) Approximately 4,800 square feet Freestanding Building on a lot of approximately 9,140 square feet (Zoned M-1) APN:232-4720-27 ("PREMISES"). (See also Paragraph 2). 1.3 TERM: Three (3) year and 0 months ("ORIGINAL TERM") commencing April 15, 2001 ("COMMENCEMENT DATE") and ending April 14, 2004 ("EXPIRATION DATE"). (See also Paragraph 3). 1.4 EARLY POSSESSION: February 15, 2001 ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3). 1.5 BASE RENT: $3,825.00 per month ("BASE RENT"), payable on the Fifteenth (15th) day of each month commencing April 15, 2001. (See also Paragraph 4) [ ] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted and/or for common area maintenance charges. 1.6 BASE RENT PAID UPON EXECUTION: $3,825.00 as Base Rent for the period April 15 - May 14, 2001. 1.7 SECURITY DEPOSIT: $4,137.00 ("SECURITY DEPOSIT"). (See also Paragraph 5). 1.8 AGREED USE: Technical support call center and warehouse of storage equipment for exchange. (See also Paragraph 6). 1.9 INSURING PARTY: Lessor is the "INSURING PARTY". The Annual "Base Premium" is $__________. (See also Paragraph 6) 1.10 REAL ESTATE BROKERS: (See also Paragraph 15) (a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes): [ ] _________________________ represents Lessor exclusively ("LESSOR'S BROKER"); [ ] ______________________ represents Lessee exclusively ("LESSEE'S BROKER"); or [X] Colliers International - Howard S. Zatkin represents both Lessor and Lessee ("DUAL AGENCY"). (b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of as agreed % of the total Base Rent for the brokerage services rendered by said Broker). 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by None ("GUARANTOR"). (See also Paragraph 37). 1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 58 and Exhibits "A", "B", all of which constitute a part of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less. 2.2 CONDITION. Lessor shall deliver the Premises broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements of the building, in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the surface and structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within (i) six (6) months as to the HVAC systems or (ii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense, except for the roof, foundations, and bearing walls which are handled as provided in Paragraph 7. 2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice if a non-compliance with this warranty within six (6) months following the Start Date correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows: (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Initials ------- ------- 1 - -------------------------------------------------------------------------------- ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR THE LESSEE'S INTENDED USE. WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED. - -------------------------------------------------------------------------------- The Parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executed at: Executed at: ----------------------- ----------------------- on: on: --------------------------------- --------------------------------- by LESSOR: by LESSEE: NEXSAN TECHNOLOGIES CORPORATION A DELAWARE CORPORATION - ------------------------------------ - ------------------------------------ By: By: --------------------------------- --------------------------------- Name Printed: Robert Tyler Name Printed: ---------------------- Title: Title: ------------------------------ ------------------------------ By: By: -------------------------------- -------------------------------- Name Printed: Wilfred Huskins Name Printed: Title: Title: ------------------------------ ------------------------------ Address: 15628 Cobalt Street Address: 21700 Oxnard Street, Suite 1850 Sylmar, CA 93142 Woodland Hills, CA 91367 Telephone: (818) 784-2652 Telephone: (866) 463-9726 Facsimile: (818) 364-0476 Facsimile: (866) 263-9726 Federal ID No. Federal ID No. --------------------- --------------------- NOTE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213) 687-8616 2 ADDENDUM TO LEASE DATED FEBRUARY 6, 2001 BY AND BETWEEN ROBERT TYLER AND WILFRED HUSKINS, AS LESSOR AND NEXSAN TECHNOLOGIES CORP., AS LESSEE 50. Lessor shall receive a Certificate of Insurance from the Lessee prior to Lessee's occupancy but not later than February 15, 2001. 51. Monthly rental payment to be in LESSOR'S POSSESSION by the 15TH of each month. (Checks should be mailed to, and made payable to): WILL HUSKINS 15628 COBALT STREET SYLMAR, CA 91342 52. Lessor gives Lessee permission to place a company sign on leased premises as long as approval has been received from the City of Escondido, conforming with all ordinances and regulations. 53. Lessee shall obtain Lessor's prior written approval to construct (at Lessee's sole expense) any tenant improvements. PRIOR to commencing of any construction, Lessee shall deliver to Lessor all plans and specification for Lessor's approval, which shall not be unreasonably withheld. Lessee agrees to furnish Lessor a copy of the building permit, improvement plan, conform to all current building codes, ADA and/or any other requirements and to pay all applicable fees. Lessee shall warrant a lien-free completion of all tenant improvements. Lessor shall post a "Notice of Non-Responsibility" on the premises. 54. Lessee shall accept leased premises in its current "as is" condition: 55. MONTHLY RENT SCHEDULE: $3,825.00 Gross - Commencing on April 15, 2001 through 14, 2002 $3,978.00 Gross - Commencing on April 15, 2002 through 14, 2003 $4,137.00 Gross - Commencing on April 15, 2003 through 14, 2004 56. AMERICANS WITH DISABILITIES ACT: Lessee, at Lessee's expense, shall comply with all laws, rules orders, ordinances, directions, regulations, and requirements of federal state, county, and municipal force, which shall impose any duty upon Lessor or Lessee with respect to the use, occupation, or alteration of the Premises, including without limitation the Americans with Disabilities Act. Premises means the leased space, not the entire facility. (See attached Exhibit "A"). 57. HAZARDOUS MATERIALS: See Addendum made a part of this lease as Exhibit "B". 58. TOTAL AMOUNT DUE UPON LEESSEE'S EXECUTION OF LEASE: Year 1- First two months pre-paid rent = $ 7,650.00 Year 2- First two months pre-paid rent = $ 7,956.00 Year 3- First two months pre-paid rent = $ 8,274.00 Security Deposit = $ 4,137.00 ---------- TOTAL AMOUNT DUE = $28,017.00 Initials ------------- ------------- EXHIBIT "A" NOTICE TO OWNERS AND PROSPECTIVE BUYERS OR TENANTS OF REAL PROPERTY REGARDING THE AMERICANS WITH DISABILITIES ACT (ADA) - -------------------------------------------------------------------------------- The government of the United States has recently enacted the Americans With Disabilities Act (ADA), a federal law codified at 42/USC Section 12101 et seq. Among other requirements of the ADA that could apply to your property, this act is intended to make owners and tenants of certain types of business establishments defined as "public accommodations" provide facilities that are equally accessible to persons with a variety of disabilities. State and local laws may also impose requirements. The real estate brokers in this transaction are not qualified to advise you as to what, if any, changes may be required now, or in the future. We recommend that owners and tenants consult attorneys and design professionals of their choice for information regarding these matters and the impact, if any, on the proposed lease or purchase agreement and the property. These are legal issues and you are responsible for conducting your own independent investigation of these issues. Colliers International cannot give legal advice on these issues. LESSOR: LESSEE: ROBERT TYLER AND WILFRED HUSKINS NEXSAN TECHNOLOGIES CORPORATION, A DELAWARE CORPORATION BY: BY: ------------------------------- ------------------------------- ROBERT TYLER BY: ------------------------------- WILFRED HUSKINS DATE: DATE: ----------------------------- ----------------------------- EXHIBIT "B" HAZARDOUS MATERIALS 1. Prohibition of Storage. Lessee shall not cause or permit any Hazardous Material (as hereinafter defined) to be brought upon, kept or used in or about the Premises, the Building or the Project by Lessee, its agents, employees, contractors or invitees in a manner or for a purpose prohibited by any governmental agency or authority. If Lessee breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials on the Premises caused or permitted by Lessee (including Hazardous Materials specifically permitted and identified below) results in contamination of the premises, or if contamination of the Premises by Hazardous Material otherwise occurs for which Lessee is legally liable to Lessor for damage resulting therefrom, then Lessee shall indemnify, defend and hold Lessor, its agents and contractors harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including without limitation diminution in value of the Premises or any portion of the Project, damages for the loss or restriction on use of rentable of usable space or of any amenity of the Premises or Project, damages arising from any adverse impact on marketing of space in the premises or the project, and sums paid in settlement of claims, attorneys fees, consultant fees and expert fees) which arise during or after the Lease Term as a result of such contamination. With respect to the foregoing, Lessee acknowledges that it is familiar with Section 1542 of the California Civil Code which reads "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if know by him must have materially affected his settlement with the debtor...." and hereby releases Lessor from any known claims and waives all rights they may have under Section 1542 of the Civil Code or under any other stature or common law principle of similar effect. 1.1 Clean-up. This indemnification of Lessor by Lessee pursuant to Subsection 1 above includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal state or local governmental agency or political subdivision because Hazardous Materials present in the soil or ground water on or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises caused or permitted by Lessee results in any contamination of the Premises, Lessee shall promptly take all actions at its sole expense as are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Material to the Premises, provided that Lessor's approval of such action shall first be obtained which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project. 1.2 Business. Lessor acknowledges that it is not the intent of this Exhibit to prohibit Lessee from operating its business as described in Section 6 above. Lessee may operate its business according to the custom of the industry so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all applicable governmental requirements. As a material inducement to Lessor to allow Lessee to use Hazardous Materials in connection with its business, Lessee agrees to deliver to Lessor within 30 days of Lease execution, and specifically prior to the Commencement Date a list identifying each type of Hazardous Material to be present on the Premises and setting forth any and all governmental approvals or permits required in connection with the presence of Hazardous Materials on the Premises ("Hazardous Material List"). Lessee shall deliver to Lessor an updated Hazardous Materials List at least once a year and shall also deliver an updated Hazardous Material list before any new Hazardous Materials are brought onto the Premises or on or before the date Lessee obtains any additional permits or approvals. 2. Termination of Lease. Notwithstanding the provisions of Paragraph 1 above, Lessor shall have the right to terminate the Lease in Lessor's sole and absolute discretion in the event that (i) any use of the Premises by Lessee involves the generation or storage, use, treatment or disposal of Hazardous Material in a manner or for a purpose prohibited by any governmental agency or authority; (ii) Lessee has been required by any lender or governmental authority to take remedial action in connection with Hazardous Material contaminating the Premises if the contamination resulted from Lessee's action or use of the Premises (unless Lessee is diligently seeking compliance with such remedial action); or (iii) Lessee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal or storage of a Hazardous Material on the Premises (unless Lessee is diligently seeking compliance with such enforcement order). Initials -------------- -------------- 3. Assignment and Subletting. Notwithstanding the provision of Paragraph 1 above, if (i) any anticipated use of the Premises by any proposed assignee or Lessee involves the generation or storage, use, treatment or disposal of Hazardous Material in a manner or for a purpose prohibited by any governmental agency or authority, (ii) the proposed assignee or Lessee has been required by any prior Lessor, lender or governmental authority to take remedial action in connection with Hazardous Material contaminating a property if the contamination resulted from such party's action or use of the property in question or (iii) the proposed assignee or Lessee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal or storage of a Hazardous Material, it shall not be unreasonable for Lessor to withhold its consent to an assignment or subletting to such proposed assignee or Lessee. 4. Lessor's Right to Perform Tests. At any time prior to the expiration of the Lease Term, Lessor shall have the right to enter upon the Premises at all reasonable times in order to conduct appropriate tests of water and soil and to deliver to Lessee the results of such tests to demonstrate that contamination in excess of permissible levels has occurred as a result of Lessee's use of the Premises. Lessee shall further be solely responsible for and shall defend, indemnify and hold the Lessor, its agents and contractors harmless from and against all claims, costs and liabilities including actual attorneys' fees and costs, arising out of or in connection with any removal, clean up, restoration and materials required hereunder to return the Premises and any other property of whatever nature to their condition existing prior to the appearance of the Hazardous Materials. 5. Lessee's Obligation. Lessee's obligations under this Exhibit B shall survive the termination of the Lease. During any period of time employed by Lessee after the termination of this Lease to complete the removal from the premises of any such Hazardous Materials, Lessee shall continue to pay the full rental in accordance with this Lease, which rental shall be prorated daily. 6. Definition of "Hazardous Material." As used herein, the term "Hazardous Material" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. The term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined as a "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under Sections 25115, 25117 or 25122.7, or listed pursuant to Section 2514, of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a "hazardous substance" under Section 25315 of the California Health and Safety Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous material," "hazardous substance" or "hazardous waste" under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Substances), (iv) petroleum, (v) asbestos, (vi) listed under Article 9 and defined as hazardous or extremely hazardous pursuant to Article II of Title 22 of the California Administrative Code, Division 4, Chapter 20, (vii) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601). Initials: ------------- EX-23.1 34 0034.txt CONSENT OF KPMG CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors Nexsan Technologies Limited: We consent to the inclusion in the registration statement on Form SB-2 of Nexsan Corporation of our report dated January 4, 2001, relating to the balance sheet of Nexsan Technologies Limited as of March 31, 2000, and the related statements of operations, stockholders' equity (deficit) and comprehensive income, and cash flows for the year then ended and to the reference to our firm under the heading "Experts" in the registration statement. /s/ KPMG Nottingham, United Kingdom March 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----