10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                         

000-12230

(Commission file number)

BAKBONE SOFTWARE INCORPORATED

(Exact name of registrant as specified in its charter)

Canada	Not Applicable
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
10145 Pacific Heights Boulevard, Suite 500
San Diego, CA	92121
(Address of principal executive offices)	(Zip Code)

(858) 450-9009

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Shares, no par value

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as described in Rule 12b-2 of the Act).    Yes  x    No  ¨

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of September 30, 2003 was $83,950,000.*

*Excludes the Common Shares held by executive officers, directors and shareholders whose ownership exceeds 5% of the Common Shares outstanding as of September 30, 2003. The calculation does not reflect a determination that such persons are affiliates for any other purposes.

Number of Common Shares, no par value, outstanding as of May 31, 2004 was 64,527,858.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2004 Annual Meeting of Shareholders, to be filed subsequent to the date hereof, are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended March 31, 2004.

BAKBONE SOFTWARE INCORPORATED

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I		Page
Item 1.	Business	1
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Submission of Matters to a Vote of Security Holders	7
PART II
Item 5.	Market for Company’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	8
Item 6.	Selected Consolidated Financial Data	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
Item 9A.	Controls and Procedures	37
PART III
Item 10.	Directors and Executive Officers of the Company	38
Item 11.	Executive Compensation and Other Matters	38
Item 12.	Security Ownership of Certain Beneficial Owners And Management	38
Item 13.	Certain Relationships and Related Transactions	38
Item 14.	Principal Accountant Fees and Services	38
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	39

PART I

Item 1. BUSINESS

This Annual Report (including the following section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Annual Report. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.

Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Business Risks” in Item 7 below, as well as those discussed elsewhere in this Annual Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Overview

The Company is currently incorporated under the federal jurisdiction of Canada. The Company originally engaged in mineral exploration activities, but those activities ceased during 1999, leaving the Company as a public shell corporation traded on the Toronto Stock Exchange. In March of 2000, the Company changed its name from Net Resources, Inc. to BakBone Software Incorporated and began a series of transactions resulting in its current corporate structure. The Company currently has three operating subsidiaries, BakBone Software, Inc., BakBone Software Ltd. and BakBone Software KK, and one non-operating subsidiary, BakBone Acquisition Corp.

We are a global provider of data protection software that enables the effective backup and recovery of business critical data and information. Our NetVault product allows organizations to efficiently and cost-effectively protect data within heterogeneous storage environments. Our product is designed to be easy to install, use, maintain and support, while providing our end-users with what we believe is a substantially lower total cost of ownership than competitive products. We have also designed our product to be modular and to work within an open standards environment, allowing NetVault to integrate easily with our end-users’ information technology infrastructure and evolve with our end-users’ needs. We believe that NetVault is well positioned to satisfy the needs of organizations seeking an affordable data protection solution.

We market and sell NetVault through an indirect global sales channel comprised of approximately 200 storage-focused resellers, distributors and original equipment manufacturers, or OEMs. We have developed OEM relationships with companies such as NCR Teradata, Network Appliance and Sony Electronics, each of which has integrated NetVault into certain product offerings. Our end-users consist of domestic and international businesses and organizations of all sizes and across numerous industries. We operate in three primary regions: North America; the Pacific Rim; and Europe, Middle East, and Africa, or EMEA.

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Our business strategy is to gain significant market share in the data protection software market through continued product innovation and sales channel expansion, while maintaining profitable growth. We intend to achieve this strategy by:

• expanding our technology leadership in data protection;

• enhancing our relationships with OEMs;

• strengthening and growing our indirect distribution channels;

• increasing our penetration of large organizations; and

• ensuring the interoperability between our product and other information technology.

Our common shares trade on the Toronto Stock Exchange under the symbol “BKB” and on the over the counter bulletin board market in the United States under the symbol “BKBOF.” We operate and report using a fiscal year ending March 31. Our corporate headquarters is located at 10145 Pacific Heights Boulevard, Suite 500, San Diego, CA, 92121, and our telephone number is (858) 450-9009.

Our Product

Our product, NetVault, is data protection software that permits computer network administrators to maintain “backup” or duplicate copies of documents, data, images and records. NetVault also enables the recovery of this data if files are lost or corrupted in any way. NetVault utilizes a modular design to deliver maximum performance while supporting flexible implementation strategies. This modular design is composed of two key parts: our core product and application plug-in modules, or APMs. The core product contains key functionality that manages fundamental backup and recovery processes, contains auto discovery features and interfaces with specific operating systems. APMs attach to the core product to adapt it for backup and recovery within specific network architectures and with numerous applications and databases. NetVault further allows end-users to rapidly add and configure new servers, devices and clients, and controls them from a central location. Additionally, NetVault enables end-users to customize a combination of recovery methods that meet specific business needs. NetVault is designed to operate within a wide range of operating systems, applications, server platforms and storage systems—all with a common user interface. The key benefits of our product include:

• Lower total cost of ownership: We believe NetVault provides end-users with a substantially lower total cost of ownership than competitive products. NetVault’s advanced architecture allows for quick and easy installation and on-going administration. NetVault typically requires little or no upfront or ongoing professional services to implement and configure due to auto discovery, self-configuration and self-installation features. NetVault’s modular design allows for faster adaptation within changing storage architectures and more rapid support of new applications, databases, devices and operating systems. This generally results in lower ongoing internal administration and support costs than competing products. These attributes provide scalability of our solution as an organization grows in size and its computing and storage environments evolve. We provide the option for end-users to download over the Internet fully functioning versions of NetVault, upgrades and application plug-in modules at the initial implementation and as their computing environments and data protection needs change. We believe no competing product offers an equivalent download option. As a result of these factors, we believe that we offer our end-users data protection at a more attractive price than competing solutions over the lifecycle of the product.

• Strong support of network attached storage, or NAS: Our data protection solution allows backup and recovery to occur between and among multiple NAS and other storage hardware devices in a quick and cost-efficient manner. Our NetVault product has been designed to support and interoperate with the Network Data Management Protocol, or NDMP, which is the industry standard protocol for moving data within and among NAS devices. This allows us to deliver a higher level of support for the rapidly growing NAS architecture. We believe we are the only data protection vendor to support all five backup

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implementations of NDMP in our product. Our in-depth understanding of NDMP has allowed NetVault to achieve unique NAS backup capabilities. We believe NetVault is the only data protection product that allows for the backup of NAS data from heterogeneous systems outside of NAS. Existing solutions allow for homogeneous NAS to NAS backup. Our solution allows for backup between and among NAS and other storage hardware devices, including both disk and tape systems. Due in part to our leadership in NAS architecture, Network Appliance has chosen to integrate our solution into their product lines as an OEM partner.

• Extensive experience and capabilities in Linux: We support the rapidly growing Linux operating system in addition to Unix, Windows 2000/NT, NetWare, Mac OS and numerous other operating systems. As organizations increasingly utilize Linux for database and application deployment, there has also been an increase in the demand for Linux-based backup server platforms. In 1997 we began developing NetVault on the Linux operating system, as well as on the Windows 2000/NT and Unix operating systems. We believe that NetVault offers superior functionality and integration with applications and systems operating on Linux in comparison to data protection software solutions that were not developed using Linux. Solutions not developed using Linux have to be converted, or ported, to Linux, and often lose functionality in the process. Today, we support more than 35 Linux-based applications, including the 10 leading Linux distributions, which we believe is more than any other data protection software vendor.

• Seamless backup and recovery for tape and disk: NetVault provides end-users the ability to backup to both disk and tape and incorporates a multi-tier backup and recovery strategy. When backing up to disk, NetVault creates a virtual tape library, with drives, slots and media on disk to take advantage of the random access nature of disk-based devices to improve the performance of existing backup and recovery processes. As the trend of backup to disk for near-term critical data has grown, the need to further safeguard this data through subsequent backup to tape has also increased. This strategy of disk to disk to tape backup provides for rapid recovery from disk of more critical data while allowing additional protection of this data through the use of tape. Unlike our competitors’ products, NetVault writes backup data identically to tape and disk. This allows NetVault to seamlessly recover this data directly from tape with limited disruption and at high levels of performance. Competing products require additional time for the staging process of recovered data from tape back to intermediary disk and then to the original disk device.

• Flexible architecture capable of supporting evolving computing environments: NetVault is based on a modular architecture, which allows us to rapidly develop APMs for a variety of existing, as well as new and diverse computing environments. We have developed APMs to provide integration and interoperability with over 900 combinations of databases, applications and operating systems and their various versions and releases. Furthermore, our modular architecture enables us to easily and cost effectively develop new APMs, allowing us to more quickly respond to our end-users’ needs as computing environments evolve. As a result, we provide long-term and rapid support to our end-users as their computing environments and data protection needs evolve.

End-Users

Our sales and marketing strategy is focused on licensing our products and providing services to small and medium-sized businesses and organizations, as well as large enterprise environments through a combination of software, post-contract support and, to a lesser degree, professional services. We generally offer non-exclusive, perpetual software licenses through our channel partners to end-users and do not offer term-based software licenses. Maintenance contracts generally cover a period of one year, and after contract expiration, our customers have the right to purchase maintenance contract renewals, which generally cover a period of one year. Our product is used by end-user customers in a wide variety of industries, businesses, governments and applications. Our end-user customers include, among others, financial service providers, retailers, insurance companies, Internet service providers, law firms, real estate companies, educational institutions, science and biotech organizations, healthcare institutions, and domestic and international government agencies.

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Product Distribution

We distribute our products to end-users primarily through a multi-tiered global network of resellers that include value added resellers and value added distributors. We have an extensive network of resellers and distributors in North America, the Pacific Rim and EMEA. Our partnerships with resellers and distributors allow our products to reach end-users that we would not otherwise have the resources to identify. The reseller and distributor partnerships are the primary means by which our products are distributed, and a majority of our revenue is derived from our relationships with these resellers and distributors. We continually seek to partner with the premier resellers and distributors available in our three geographic regions, and our strategy going forward is to expand and improve the quality of our reseller and distributor partnerships. In addition, we intend to add relationships with systems integrators.

We have also focused on the development and growth of our major OEM relationships with NCR Teradata, Sony Electronics and Network Appliance. Members of our sales force work closely with our OEM partners to define and customize products, conduct on-site testing and provide engineering and field application engineering support. We derive, and believe we will continue to derive, a significant portion of our revenues from a limited number of customers. For the fiscal year ended March 31, 2004, NCR Teradata accounted for approximately 12% of our consolidated revenues. We believe that our solutions significantly complement and expand the solutions provided by our OEMs. In addition to maintaining and expanding our existing OEM relationships, our strategy is to grow our business by adding new OEM partners.

Research and Development

Our industry is subject to rapid technological advancements, changes in customer requirements, developing industry standards and new product introductions and enhancements. As a result, our success depends, in part, on our ability to continue to improve our software solution in a cost-effective and timely manner to address emerging customer and market needs. Our core development division is in Poole, United Kingdom, and our APM development division is in San Diego, California. We also conduct development activities in Tokyo, Japan that are focused on adapting our software for use in the Pacific Rim region.

Our research and development expenditures in fiscal 2002, 2003 and 2004 totaled $4.2 million, $5.0 million and $4.8 million, respectively. Research and development expenditures in fiscal 2002, 2003 and 2004 were primarily related to upgrading the existing NetVault core software and APMs, as well as to developing new APMs. We also incurred research and development expenditures related to MagnaVault through November of 2002, when we made the decision to “end of life” the product. We focus our current research and development efforts on new features and functionality for our NetVault product to address new market opportunities and to meet changing customer needs. These projects include the continued introduction of new APMs, improvements in the performance and functionality of NetVault, product adaptations to meet the needs of new hardware offerings entering the market and the integration of new technologies to address the evolving data protection marketplace. We anticipate that we will have significant future research and development expenses in order to continue to provide a high quality product that enables us to maintain and enhance our competitive position while increasing market share.

Intellectual Property

Our software products rely on our internally developed intellectual property and other proprietary rights. We rely primarily on a combination of copyright, trade secret laws, confidentiality procedures, contractual provisions and trademarks to protect our intellectual property and other proprietary rights. However, we believe that these measures afford only limited protection of our intellectual property and other proprietary rights. We license our software products primarily under shrink wrap licenses that are included as part of the product packaging. Shrink wrap licenses are not negotiated with or signed by individual customers, and purport to take effect upon the opening of the product package or use of the software license key. The legal enforceability of shrink wrap

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licenses is uncertain in many jurisdictions, including some of the foreign countries in which we sell our products. We also generally enter into confidentiality agreements with our employees and technical consultants. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing the unauthorized use of our products is difficult and we are unable to determine the extent to which piracy of our software products exists. In addition, the laws of some foreign countries, including those in which we sell our products, do not protect our proprietary rights as fully as do the laws of the United States.

Competition

We operate in a segment of the intensely competitive storage management software market. This market is characterized by rapidly changing technology and evolving standards. We have a number of competitors that vary in size and scope and breadth of products offered. Many of our competitors have greater financial resources than we do in the areas of sales, marketing, branding and product development, and we expect to face additional competition from these competitors in the future. Our current competitors include, but are not limited to, Veritas Software Corporation, EMC Corporation, IBM’s Tivoli division, Computer Associates and CommVault Systems, Inc. Some of these companies compete against us by offering a full suite of storage management tools, including software that addresses data protection. We also face competition from a number of smaller companies who, like us, focus solely or primarily on the data protection software market. Furthermore, our OEM partners, who do not currently compete with us, could decide to compete with us by offering their own data protection solutions that exclude our software, and other storage equipment vendors may enter our market either through acquisition of competing technologies or products, or through development of their own data protection software solutions. Although many of our competitors may have significantly more financial and technical resources than we do, we believe we compete favorably based on the technical strengths of our product offering relative to our competitors.

Seasonality

Historically our business results have been generally weakest in our first quarter, primarily due to the purchasing cycles exhibited by our customers. Our other three quarters have not shown any consistent performance trends relative to each other.

Employees

As of March 31, 2004, we had 175 employees, including 44 in research and development, 76 in sales and marketing, 24 in customer support, and 31 in general administration. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

Executive Officers

Our executive officers and their ages as of March 31, 2004 are as follows:

Keith G. Rickard, age 57, has served as our President, Chief Executive Officer since June 2001. Additionally, Mr. Rickard has served as a Director of BakBone since September 2001. Prior to joining BakBone, Mr. Rickard was president of Sterling Software’s storage management division from February 1997 to October 1999 where he was responsible for all aspects of Sterling’s storage management software product suite, including worldwide sales, marketing, engineering and business development. Prior to that, Mr. Rickard held various positions at Sterling Software from June 1980 to February 1997. Mr. Rickard holds a B.S. in Mathematics from the University of London.

John Fitzgerald, age 33, has served as our Chief Financial Officer since January 2002. Prior to becoming our Chief Financial Officer, Mr. Fitzgerald served as our corporate controller from January 2001 to January 2002.

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Prior to joining BakBone, Mr. Fitzgerald consulted for high technology companies in the areas of SEC reporting, initial public offerings and strategic planning from April 1999 to January 2001. From January 1996 to April 1999, Mr. Fitzgerald worked for the accounting firm of Arthur Andersen. Mr. Fitzgerald holds a B.S. in Business Administration from San Diego State University.

Fabrice Helliker, age 36, has served as our Vice President, Engineering since March 2000. Since 1992, Mr. Helliker has served in many capacities at BakBone, as well as its predecessor companies and has successfully led several of our NetVault development teams and re-architecture efforts. Mr. Helliker holds a B.S. with Honors in Computer Science from Brighton University, United Kingdom.

Scott Petersen, age 48, has served as our Vice President, North American Sales since August 2002. Prior to joining BakBone, Mr. Petersen served as the Vice President of Sales at Actionpoint, Inc. (now known as Captiva Software Corporation), a publicly-held provider of data management software, from June 2000 to August 2002 where he was responsible for Actionpoint’s sales efforts. Prior to joining Actionpoint, Mr. Petersen served as the Vice President of Sales of the storage management division of Sterling Software, which was subsequently acquired by Computer Associates, from May 1995 to June 2000. Mr. Petersen holds a B.S. with an emphasis in Finance and Marketing from Old Dominion University.

Patrick Clarke, age 39, has served as our Vice President, Europe, Middle East, Africa since February 2004. Prior to joining BakBone, Mr. Clarke was the Vice President, Europe, Middle East and Africa Operations for Overland Storage, a publicly held company providing data storage management solutions, from April 2001 to February 2004. Prior to joining Overland Storage, Mr. Clarke was the director of sales and a member of the board of directors of Asbis Enterprises, a supplier of computer components, from May 1999 to February 2001.

Adrian Michael Jones, age 38, has served as our Senior Vice President, Worldwide Alliances and OEMs since February 2004. Prior to joining BakBone, Mr. Jones was employed at Quantum Corporation, a provider of data storage solutions, from November 1993 to February 2004, where he served in several capacities and most recently held the position of Vice President of Worldwide Sales. Mr. Jones holds a Electronics Engineering degree from Oxford College of Engineering, England.

Howard Weiss, age 36, has served as our Managing Director, Asian Operations since October 2000. Prior to joining BakBone, Mr. Weiss served as a Director of Phoenix Technologies Japan, a global system-enabling solutions provider for PCs and servers from December 1992 to July 2000. Prior to joining Phoenix Technologies, Mr. Weiss was a sales manager at MCM Japan, a distributor of computer and network security equipment, from May 1990 to December 1992. Mr. Weiss is fluent in Japanese and holds a Bachelor of Arts from the University of Michigan.

Ken Hudak, age 46, has served as our Vice President, Customer Support since April 2004. Mr. Hudak joined the Company in August of 2001 as our director of US sales support. Mr. Hudak brings 25 years of experience and oversees all customer support for offices in San Diego and Poole, England. Prior to joining BakBone, Mr. Hudak was vice president of technical support and services at Orchestria Corporation in Sacramento. Additionally, Mr. Hudak has held director level positions in sales support at Action Point, Sterling Software, and Landmark Systems.

Additional Information

We provide our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports free of charge under “Investor Relations” on our website at www.bakbone.com as soon as reasonably practicable after we electronically file this material with, or furnish this material to, the United States Securities and Exchange Commission, or SEC. The information contained on our

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website is not part of this Annual Report. You may also read and copy the documents to which we refer at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of the SEC’s regional offices at 7 World Trade Center, Suite 1300, New York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. In addition, the SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We are required to file reports and other information with the securities commission in each of the provinces of Ontario, Alberta and British Columbia, Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document gathering and retrieval system, as well as on our website at www.bakbone.com under “Investor Relations”.

Item 2. Properties

We currently lease 25,000 square feet in San Diego, California, for our corporate headquarters and our North American sales and development facility. We also lease approximately 7,850 square feet in Poole, United Kingdom, for our EMEA sales and development facility and approximately 6,000 square feet in Tokyo, Japan, for our Pacific Rim sales and development facility. In addition to these facilities, we also lease small sales offices throughout the world. In order to accommodate expected growth in headcount, we plan on either expanding our existing facilities in San Diego or locating new facilities that suit our needs. Our processes for production of software units shipped to customers entail the assembly of the software CD, the manual and any additional collateral material in product specific packaging and, as such, occupy minimal space.

Item 3. Legal Proceedings

At March 31, 2004, there were no material pending legal proceedings to which the Company was a party or of which any of its property was subject.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2004.

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PART II

Item 5. Market for Company’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information.

Our common shares have been listed and posted for trading on the Over the Counter Bulletin Board in the United States since November 2002, and on the Toronto Stock Exchange in Canada since March 2000. The following table sets forth the high and low sales prices of the common shares as reported on the Over the Counter Bulletin Board and the Toronto Stock Exchange during the periods indicated:

		Over the Counter Bulletin Board (U.S. $)				Toronto Stock Exchange (Canadian $)
		High		Low		High		Low
Fiscal 2004	Fourth Quarter	$	3.29	$	2.32	$	4.38	$	3.10
	Third Quarter		3.84		1.42		5.01		1.90
	Second Quarter		1.90		1.20		2.55		1.72
	First Quarter		1.62		0.57		2.15		0.90
Fiscal 2003	Fourth Quarter		1.25		0.56		1.92		0.84
	Third Quarter		1.05		0.37		1.60		0.75
	Second Quarter		—		—		2.80		1.31
	First Quarter		—		—		3.10		1.60

As of May 31, 2004, there were approximately 362 holders of record of our common shares. On May 28, 2004, the last reported sales price on the Over the Counter Bulletin Board was $1.48. On May 31, 2004, the last reported sales price on the Toronto Stock Exchange was CDN $2.11. As May 31, 2004 was a trading holiday in the United States, the closing price per the Over the Counter Bulletin Board on the immediately preceding trading day is disclosed.

Dividends.

We have never declared or paid any cash dividends on our common shares and do not anticipate paying such cash dividends in the foreseeable future. We currently anticipate that we will retain all of our future earnings for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operation, financial condition and other factors as the board of directors, in its discretion, deems relevant.

Equity Compensation Plans.

Information about our equity compensation plans at March 31, 2004 that were either approved or not approved by our shareholders was as follows:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance
Equity compensation plans approved by security holders(1)	5,724,977	$	1.62	4,141,063
Equity compensation plans not approved by security holders	—		—	—
Total	5,724,977	$	1.62	4,141,063

⁽¹⁾ Consists of three plans: our 2000 Stock Option Plan, 2002 Stock Option Plan and 2003 Stock Option Plan.

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Additional information regarding our stock option plans and plan activity for fiscal 2002, 2003 and 2004 is provided in our consolidated financial statements. See “Notes to Consolidated Financial Statements, Note 8—“Shareholders’ Equity”.

Recent Sales of Unregistered Securities.

In July 2003, we sold and issued 22,000,000 Series A convertible preferred shares in exchange for an aggregate purchase price of CDN$22.0 million (US$15.7 million). In connection with the offering of the convertible preferred shares, we paid an aggregate of $1.5 million in underwriting discounts and commissions to Citigroup Capital Markets. The preferred shares were sold to accredited investors pursuant to a Series A Preferred Share Purchase Agreement with the investors. The issuance of Series A convertible preferred shares was deemed exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. The investors in this transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the preferred share certificates issued in the transaction.

From April 1, 2003, through March 31, 2004, 14 option holders exercised options for an aggregate of 416,960 of our common shares pursuant to options granted under our 2002 Stock Option Plan and 2003 Stock Option Plan. The exercise prices per share ranged from CDN$1.18 to CDN$2.27. No consideration was paid to us by any recipient of any of the foregoing options for the initial grant of such options. We have received aggregate consideration of approximately CDN$650,000 in connection with the exercise of these options. These issuances were deemed exempt from registration under the Securities Act in reliance on Regulation S promulgated thereunder as transactions involving the offer and sale of our securities outside the United States.

Purchases of Equity Securities by the Company and Affiliated Purchasers.

We did not repurchase any of our equity securities, nor were any equity securities purchased on our behalf by any affiliated purchasers, during the quarter ended March 31, 2004. We have not publicly announced any repurchase plan or program for our equity securities.

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Item 6. Selected Consolidated Financial Data (in thousands, except per share and share data)

	Year ended December 31, 1999(1)			Two months ended February 29, 2000(1)			Two months ended April 30, 2000			Eleven months ended March 31, 2001			Year ended March 31,
													2002(2)			2003(2)			2004
													(restated)			(restated)
Condensed Consolidated Statements of Operations:
Revenues	$	2,573		$	384		$	168		$	3,233		$	6,609		$	17,918		$	27,107
Cost of revenues		745			64			18			629			1,158			1,650			2,994
Gross profit		1,828			320			150			2,604			5,451			16,268			24,113
Operating expenses (excluding stock-based compensation)		1,577			247			541			25,419			25,108			24,411			25,604
Stock-based compensation		—			—			32,241			18,563			21,219			11,641			347
Total operating expenses		1,577			247			32,782			43,982			46,327			36,052			25,951
Operating income (loss)		251			73			(32,632	)		(41,378	)		(40,876	)		(19,784	)		(1,838	)
Other (expense) income		(2	)		(9	)		221			302			(388	)		(260	)		(160	)
Income (loss) before income taxes		249			64			(32,411	)		(41,076	)		(41,264	)		(20,044	)		(1,998	)
Provision for income taxes		—			—			—			—			—			510			951
Net income (loss)	$	249		$	64			(32,411	)		(41,076	)		(41,264	)		(20,554	)		(2,949	)
Beneficial conversion feature on preferred stock								—			—			—			—			7,221
Net loss attributable to common shareholders							$	(32,411	)	$	(41,076	)	$	(41,264	)	$	(20,554	)	$	(10,170	)
Net loss per common share
Basic and diluted							$	(3.46	)	$	(1.20	)	$	(0.90	)	$	(0.37	)	$	(0.17	)
Weighted-average common shares outstanding:
Basic and Diluted								9,372,655			34,246,961			45,697,111			55,536,923			60,882,811

⁽¹⁾ The selected financial data for these periods reflects the operations of NetVault Holdings, Ltd. prior to its acquisition by the Company in March of 2000.

⁽²⁾ The selected financial data for 2002 and 2003 has been restated to reflect the effect of the restatement adjustments as described in Note 3 to the accompanying consolidated financial statements.

Consolidated Balance Sheet Data:	As of April 30, 2000		As of March 31, 2001			As of March 31, 2002		As of March 31, 2003		As of March 31, 2004
						(restated)		(restated)
Cash and cash equivalents	$	20,511	$	3,115		$	5,502	$	5,045	$	19,399
Working capital		19,895		(1,124	)		6,439		2,644		16,187
Total assets		27,065		19,778			18,868		18,035		35,177
Total shareholders’ equity		25,681		14,188			10,243		7,056		20,324

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled “Business Risks” and elsewhere in this Annual Report.

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Overview

We are a global provider of data protection software through our product, NetVault. We sell NetVault through our indirect global sales channel comprised primarily of storage-focused resellers, distributors and OEMs. Our channel customers remarket and distribute our product to end-users consisting of small and medium-sized businesses and organizations, as well as large enterprises. Over the past few years, we have significantly increased our revenues through a combination of factors, including enhancing the features of NetVault to address the needs of larger organizations, expanding our relationships with existing channel partners and obtaining new reseller and OEM customers. Although our revenues have increased substantially, we experienced continued net losses through fiscal 2004. As a result, as of March 31, 2004, we had an accumulated deficit of $145.5 million.

We have derived the majority of our historical revenues from licenses of our NetVault product and related maintenance contracts. We anticipate that NetVault will account for substantially all of our revenues for the foreseeable future.

We currently operate in three primary regions: North America, the Pacific Rim and EMEA. For the year ended March 31, 2004, our North American, Pacific Rim and EMEA operations contributed 39%, 37% and 24% of our revenues, respectively, compared to 42%, 38% and 20% of our revenues, respectively, for the year ended March 31, 2003. From a global perspective, we have focused on expanding our distribution channels and OEM relationships. In particular, we have OEM relationships with NCR Teradata, Sony Electronics and Network Appliance. We anticipate that these relationships will continue to be material to our business for the foreseeable future. We also recently entered into an OEM arrangement with Snap Appliance. Although we did not procure any license or maintenance sales through this arrangement in fiscal 2004, we expect to generate license and maintenance sales from this contract in the foreseeable future. A significant component of our business strategy is to increase our OEM revenues by expanding our existing relationships and establishing new OEM relationships with hardware and software vendors.

We generate revenues primarily through a combination of software licenses and related maintenance contracts. We generally offer non-exclusive, perpetual software licenses through our channel partners to end-users and do not offer term-based software licenses. Maintenance contracts generally cover a period of one year, and after contract expiration, our customers have the right to purchase maintenance contract renewals, which generally cover a period of one year.

We license software to resellers in arrangements under which they purchase a combination of software, post-contractual support and/or professional services (collectively “multiple element arrangements”). Post-contractual support includes rights to unspecified upgrades and enhancements, and telephone support. Professional services relate to implementation services and training. For each of these types of arrangements, we have established vendor specific objective evidence, or VSOE, of fair value for all elements in the multiple element arrangement, and thus, revenue is allocated to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. We determine VSOE of fair value of post-contractual support based on substantive renewal rates for the same term post-contractual support.

We also license software under several OEM agreements, which are segregated into two categories for revenue recognition purposes. Certain OEM arrangements involve multiple elements where VSOE of fair value exists for all undelivered elements but VSOE of fair value does not exist for one or more delivered elements. Under these arrangements revenue is recognized using the residual method, whereby, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming the price is fixed or determinable, delivery has occurred and collectibility is probable. Revenue allocated to post-contractual support is recognized ratably over the arrangement period, which is generally one year. One OEM customer has a specific right of return, whereby the customer is contractually permitted to return our product during the arrangement period. We account for potential returns from this customer in accordance

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with Statement of Financial Accounting Standards, or SFAS, 48, “Revenue Recognition When Right of Return Exists”. We use historical returns experience with this customer to estimate potential returns and to establish the appropriate sales returns allowance.

We have also entered into multiple element arrangements with certain OEM customers under which, in addition to providing software licenses and maintenance services, we make a commitment to the customer to provide unspecified future software products. As VSOE of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are initially deferred and subsequently recognized ratably over the arrangement period. Revenue recognized under these arrangements is included under “Development Software Solutions” in Note 15 to the consolidated financial statements.

Portions of our Pacific Rim revenues are currently denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our product more expensive and, therefore, potentially less competitive in those markets. A majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the substantial volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results. There can be no assurances that we will not experience currency losses in the future. We have not previously undertaken hedging transactions to cover currency exposure, and we do not currently intend to engage in hedging activities.

Cost of revenues consists of the direct cost of providing customer support, including salary and benefits of staff working in our customer support departments, as well as associated costs of computer equipment, telephone and other general costs necessary to maintain support for our end-users. Also included in cost of revenues are third party software license royalties and the direct costs of raw materials and packaging for products shipped to customers. The direct costs of raw materials and packaging are nominal as products shipped to customers consist of a CD, manual, printed box and other media. Product costs for these items individually and in the aggregate are minimal, and we have little risk of inventory obsolescence due to the small quantities of these items needed to fill our customers’ orders and the short lead time to acquire additional materials. Raw material purchases are held in inventory until the sale of the related software product, at which time the cost per unit sold is released to cost of revenues.

Sales and marketing expenses consist primarily of payroll, commissions, participation at trade shows, web advertising and travel costs for our worldwide sales and marketing staff. Commissions are part of our sales personnel’s compensation package, which is based on the procurement of sales orders and subsequent collection of customer receivables. As we expand our sales and marketing force, we expect sales and marketing expenses to increase in absolute dollars, but to decrease as a percentage of revenues.

Research and development expenses consist primarily of salary and related costs for our worldwide engineering staff. Our Poole, United Kingdom and San Diego, California offices include engineering personnel responsible for the development effort of NetVault and our APMs, respectively. We expect to continue to devote substantial additional resources to research and development such that these expenses will increase in absolute dollars, but is expected to remain consistent as a percentage of revenues.

General and administrative expenses include salaries and benefits for our corporate personnel and other expenses, such as facilities costs and professional services. We expect general and administrative expenses to increase in the future on an absolute dollar basis, but to decrease as a percentage of revenues, reflecting growth in operations and other factors.

Our provision for income taxes is comprised of two primary components: royalty withholding taxes and federal, state, and foreign income taxes. Currently, BakBone, Inc., our U.S. operating subsidiary, and BakBone

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Ltd., our U.K. operating subsidiary, earn intercompany royalty revenues from BakBone KK, our Japanese operating subsidiary, for NetVault license sales procured by BakBone KK. For every royalty dollar earned by BakBone, Inc. and BakBone Ltd., 10% of the royalty amount must be withheld and remitted to the Japanese tax authority. The withholding tax is generally recorded in the same period as the NetVault license transaction that generates the tax. The United States and Japan recently ratified a treaty that, among other things, eliminated the 10% royalty withholding tax for transactions between U.S. and Japanese companies, effective July 1, 2004. We expect the elimination of the withholding tax to have a positive impact on our results of operations and cash flows.

We also recognize a provision for income taxes that relates to income generated. Historically, we have accumulated losses from operations, but certain tax regulations in the state of California limit the usage of tax loss carry forwards to offset income earned. The state regulations limiting the Company’s usage of tax loss carry forwards expired, effective March 31, 2004. We expect that the expiration of these state regulations will have a positive impact on our future results of operations and cash flows. In addition, we are subject to alternative minimum tax (AMT) at the federal tax jurisdictional level. AMT creates a tax credit that is available to offset regular federal income tax generated in the future, if any.

Conversion to U.S. GAAP

In connection with our past filings with securities regulators in Canada and the United States, we prepared and presented our financial data in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). The financial information presented in this Annual Report has been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and, accordingly, the information in this Annual Report differs in certain material respects from the information previously published. In particular, our historical financial statements published in accordance with Canadian GAAP for periods prior to March 31, 2002 differ from those presented in this Annual Report in part because Canadian GAAP required that we consolidate the results of operations of foreign subsidiaries that are not permitted to be consolidated under U.S. GAAP. The treatment of stock-based compensation in fiscal 2000, 2001 and 2002 also differs materially under U.S. GAAP and Canadian GAAP. As a result, the financial data included in this Annual Report reflects changes to the previously reported stock-based compensation charges. In addition to these specific differences, various other differences exist between U.S. and Canadian GAAP, all of which are discussed in “Notes to Consolidated Financial Statements- Note 17, Differences Between Accounting Principles Generally Accepted in the United States and in Canada.” We intend to continue to publish our financial information in the future in accordance with U.S. GAAP in reports on Form 10-K, 10-Q and 8-K and otherwise. To the extent required by securities regulations in Canada in order to maintain our listing on the Toronto Stock Exchange, we will publish reconciliations to Canadian GAAP in our future filings with regulatory authorities in Canada.

Restatement of Prior Period Financial Statements

In connection with the preparation of this Annual Report, we determined that our previously published financial statements reflected several errors in fiscal 2002 and 2003, and the first three quarters of fiscal 2004. These financial statements did not properly reflect the treatment of certain deferred stock-based compensation charges and the revenue recognition related to specific customer contracts. Several additional adjustments were also identified. The financial statements included in this Annual Report for fiscal 2002 and 2003, and as of March 31, 2002 and 2003 reflect the appropriate characterization of certain stock-based compensation charges and other noted adjustments.

The financial statements for fiscal 2004 and as of March 31, 2004, including the quarterly results for fiscal 2004, reflect the appropriate revenue recognition for certain customer contracts and other noted adjustments. Investors should rely solely on the financial statements in this Annual Report and not on the previously published reconciliations from Canadian GAAP to U.S. GAAP, or on any other previously reported financial statements. A complete discussion of the restated financial data is included in Note 3 to our consolidated financial statements included in this Annual Report.

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Internal Controls Over Financial Reporting

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results may be misstated, we could fail to meet our public reporting obligations, our reputation may be harmed and investors may lose confidence in our reported financial results.

In connection with the audit of our financial statements for the fiscal year ended March 31, 2004, our independent auditors have issued a letter to our Audit Committee in which they noted certain matters involving our internal controls and operation that they consider to be “reportable conditions”, as defined under standards established by the American Institute of Certified Public Accountants, or AICPA, including our revenue recognition practices for certain customer contracts and our accounting for domestic and international income taxes. In addition, our independent auditors have advised us that they consider these matters to be “material weaknesses” that, by themselves or in combination, result in a more than remote likelihood that a material misstatement in our financial statements will not be prevented or detected by our employees in the normal course of performing their assigned functions. See “Item 9A-Controls and Procedures.”

Application of Critical Accounting Policies

The preparation of our financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, valuation allowance for deferred tax assets and valuation of goodwill. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe there are several accounting policies that are critical to understanding our historical and future performance. These policies affect the reported amounts of revenue and other significant areas that involve management’s judgments and estimates. These significant accounting policies are:

• revenue recognition;

• allowance for doubtful accounts;

• valuation allowance for deferred tax assets; and

• valuation of goodwill.

These policies, and our procedures related to these policies, are described below.

Revenue recognition

We recognize software license revenue in accordance with AICPA Statement of Position 97-2, “Software Revenue Recognition”. We derive revenues from licensing software and providing maintenance services to two distinct groups of customers: resellers and OEMs.

For software license arrangements that do no require significant modifications or customization of the software, and that do not contain commitments made by us to provide the customer with unspecified additional software products, we recognize software license revenue when all of the following are met:

• Persuasive Evidence of an Arrangement Exists. It is our practice to require a purchase order signed by the customer for arrangements involving resellers. For arrangements involving OEMs, we require a contract signed by both the customer and BakBone.

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• Delivery Has Occurred. We deliver software by both physical and electronic means. Both means of delivery transfer title and risk to the customer. Physical delivery terms are generally FOB shipping point. For electronic delivery of the software, delivery is complete when the customer has been provided electronic access to their software. Our arrangements do not generally contain customer acceptance provisions.

• The Vendor’s Fee is Fixed or Determinable. Fees are generally considered fixed and determinable when payment terms are within our standard payment terms. In general, we do not offer return rights or customer acceptance provisions.

• Collectibility is Probable. Customers must meet collectibility requirements pursuant to our credit policy. We perform a collectibility assessment for each new reseller and OEM partner. For contracts that do not meet our collectibility criteria, revenue is recognized when cash is received.

We license software to resellers in arrangements under which they purchase a combination of software, post-contractual support and/or professional services (collectively “multiple element arrangements”). Post-contractual support includes rights to unspecified upgrades and enhancements, and telephone support. Professional services relate to implementation services and training. For these types of arrangements, we have established vendor specific objective evidence, or VSOE, of fair value for all elements in the multiple element arrangement, and thus, revenue is allocated to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. We determine VSOE of fair value of post-contractual support based on substantive renewal rates for the same term post-contractual support.

We also license software under several OEM agreements, which are segregated into two categories for revenue recognition purposes. Certain OEM arrangements involve multiple elements where VSOE of fair value exists for all undelivered elements, but VSOE of fair value does not exist for one or more delivered elements. Under these arrangements revenue is recognized using the residual method, whereby, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming delivery has occurred and collectibility is probable. Revenue allocated to post-contractual support is recognized ratably over the arrangement period, which is generally one year. One OEM customer has a specific right of return, whereby the customer is contractually permitted to return our product during the arrangement period. We account for potential returns from this customer in accordance with SFAS No. 48, “Revenue Recognition When Right of Return Exists”. We use historical returns experience with this customer to estimate potential returns and to establish the appropriate sales returns allowance.

We have also entered into multiple element arrangements with certain OEM customers under which, in addition to providing software licenses and maintenance services, we make a commitment to the customer to provide unspecified future software products. As VSOE of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are initially deferred and subsequently recognized ratably over the arrangement period. Revenue recognized under these arrangements is included under “Development Software Solutions” in Note 15 to the consolidated financial statements.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for bad debt expense. We determine the adequacy of this allowance by evaluating individual customer accounts receivable, considering the customer’s financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Valuation allowance for deferred tax assets

In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. These differences result in deferred tax assets and liabilities. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in each tax jurisdiction during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to reduce our valuation allowance, which could materially impact our financial position and results of operations.

Valuation of goodwill

We have recorded goodwill in connection with the acquisitions we have completed in prior periods. In accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, we review our goodwill for impairment as of April 1^st of each fiscal year or when an event or a change in facts and circumstances indicates the fair value of a reporting unit may be below its carrying amount. For segment reporting, we have historically reported our results of operations based on our primary product offerings: NetVault and MagnaVault. Subsequent to November 2002, when we decided to “end of life” the MagnaVault product, we operate in a single business segment. SFAS No. 142 defines a reporting unit as an operating segment, or one unit below. For purposes of its transitional and annual goodwill impairment analyses, we have divided our operating segment into reporting units, which are based on our geographic reporting entities: North America, EMEA, and the Pacific Rim. Events or changes in facts and circumstances that it considers as impairment indicators include the following:

• significant underperformance of our business relative to expected operating results;

• significant adverse economic and industry trends;

• significant decline in our market capitalization for an extended period of time relative to net book value; and

• expectations that a reporting unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. We compare the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities of BakBone to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of each reporting unit exceeds its fair value, an indication exists that each reporting unit’s goodwill may be impaired and we then perform the second step of the impairment test. If the fair value of each reporting unit exceeds its carrying amount, no further analysis is required.

Step 2. We compare the implied fair value of each reporting unit’s goodwill, determined by allocating each reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. If the carrying amount of each reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

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Results of Operations

Investors should rely solely on the financial statements in this Annual Report and not on the previously published reconciliations from Canadian GAAP to U.S. GAAP, or on any other previously reported financial statements.

Comparison of operating results for the years ended March 31, 2004 and 2003 (restated)

Revenues

Revenues increased 51% to $27.1 million for the year ended March 31, 2004, from $17.9 million for the year ended March 31, 2003. Revenues for the year ended March 31, 2004 consisted of $21.2 million in licensing revenues, $5.3 million in service revenues, and $589,000 in development software solutions revenues, compared to revenues for the year ended March 31, 2003, which consisted of $15.3 million in licensing revenues and $2.6 million in service revenues. We generated no development software solutions revenue during the year ended March 31, 2003.

In November 2002, we decided to “end of life” the MagnaVault product line, effective January 1, 2003. During the year ended March 31, 2004, we entered into several MagnaVault license arrangements due to customer demand for the product. Included in the revenues during the year ended March 31, 2004 was MagnaVault licensing and service revenues of $566,000 and $204,000, respectively. During the year ended March 31, 2003, MagnaVault licensing revenues were $905,000 and service revenues were $462,000. We do not expect to continue to generate a consistent or material revenue stream from this product line.

Licensing revenues. During the year ended March 31, 2004, we generated significant OEM licensing revenues through NCR Teradata. Our relationships with existing resellers and the establishment of new reseller relationships led to significant licensing revenues growth. Furthermore, we continued the expansion of our business into new territories, primarily within the Pacific Rim and EMEA regions, which led to licensing revenues growth.

In North America, licensing revenues for the year ended March 31, 2004 increased 24% to $7.3 million, from $5.9 million for the year ended March 31, 2003. Licensing revenues growth in North America was driven by both the OEM and reseller channels. The increase in OEM-driven licensing revenues was due primarily to increased sales activity through our relationship with NCR Teradata. During the year ended March 31, 2004, we also continued to establish new reseller relationships, while leveraging existing relationships in North America, to grow revenues through our reseller channel.

In the Pacific Rim, licensing revenues for the year ended March 31, 2004 increased 38% to $8.7 million, from $6.3 million for the year ended March 31, 2003. The Pacific Rim grew licensing revenues through both the reseller and OEM sales channels. During fiscal 2003 and 2004, we expanded our Pacific Rim operations, particularly in China and Korea, and also strengthened existing operations. These expansion efforts contributed to the increase in licensing revenues for the year ended March 31, 2004.

In EMEA, licensing revenues for the year ended March 31, 2004 increased 70% to $5.2 million, from $3.1 million for the year ended March 31, 2003. EMEA experienced increased licensing revenues from the reseller and OEM channels. Increased sales to existing resellers, supplemented by sales to new resellers, helped to drive licensing revenues higher. Furthermore, licensing revenues increased due to the geographic expansion of our operations in EMEA, most notably in Germany and France. The growth in OEM licensing revenues was due to the strength of our worldwide relationship with NCR Teradata, which accounted for all of EMEA’s OEM licensing revenues during the year ended March 31, 2004.

Service revenues. In North America, service revenues for the year ended March 31, 2004 increased 75% to $2.7 million, from $1.5 million for the year ended March 31, 2003. In the Pacific Rim, service revenues for the

17

year ended March 31, 2004 grew 144% to $1.3 million, from $532,000 for the year ended March 31, 2003. In EMEA, service revenues for the year ended March 31, 2004 increased 137% to $1.3 million, from $550,000 for the year ended March 31, 2003. The worldwide growth in service revenues is directly related to increased licensing revenues from sales to new customers and to maintenance contract renewals from existing customers.

Development Software Solutions revenues. During fiscal 2003 and 2004, we entered into OEM arrangements, under which, we committed to provide unspecified additional software products to the OEM partners during the respective arrangement periods. As such, revenue from the arrangements is classified as “Development Software Solutions” and is recognized ratably over the applicable arrangement period. Through March 31, 2004, we had billed and collected $4.4 million under these arrangements, $589,000 of which was recognized as revenue during fiscal 2004, resulting in $3.8 million of deferred revenue as of March 31, 2004. We expect to recognize annual revenues of approximately $850,000 through fiscal 2008 from these arrangements.

Cost of revenues

Cost of revenues for the year ended March 31, 2004 totaled $3.0 million with a gross margin of 89% compared with cost of revenues of $1.7 million with a gross margin of 91% for the year ended March 31, 2003. The increase in cost of revenues in absolute dollars was due to increased product costs associated with the overall increase in sales volume, additions in customer support headcount and increases in third party software license royalties.

Sales and marketing expenses

Sales and marketing expenses increased $3.2 million, or 26%, to $15.3 million for the year ended March 31, 2004, from $12.1 million for the year ended March 31, 2003. The increase was attributable primarily to increases in headcount, and commissions and bonuses, as well as to marketing costs associated with the release of a new version of our product. Headcount increased primarily in the Pacific Rim and EMEA as we expanded our sales operations in those regions. The increase in performance-based payments was a direct function of revenue growth during the year ended March 31, 2004.

Research and development expenses

Research and development expenses decreased $151,000, or 3%, to $4.8 million for the year ended March 31, 2004, from $5.0 million for the year ended March 31, 2003. The overall decrease was due primarily to a reduction in headcount surrounding the November 2002 “end of life” of the MagnaVault product line. We have made recent research and development hires, but, as of March 31, 2004, we had not reached the pre-November 2002 research and development headcount level. We expect that research and development expenses will increase in fiscal 2005 due to planned headcount increases during the period.

General and administrative expenses

General and administrative expenses decreased $558,000, or 9%, to $5.4 million for the year ended March 31, 2004, from $6.0 million for the year ended March 31, 2003. The decrease in general and administrative expenses relates mainly to the decrease in professional service expenses. During the year ended March 31, 2003, we incurred significant, non-recurring legal and accounting costs in conjunction with a corporate restructuring, through which we reduced our subsidiaries from seven to four. Furthermore, we incurred legal costs in connection with an external review of our intellectual property portfolio, which also took place during the year ended March 31, 2003. This decrease was offset partially by increased legal and accounting costs relating to corporate governance compliance and public reporting requirements, as well as to increased insurance expenses during the year ended March 31, 2004.

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Stock-based compensation

During the years ended March 31, 2003 and 2004, we recorded stock-based compensation expense related to the amortization of deferred stock-based compensation. From fiscal 2000 through fiscal 2003, we granted various equity instruments to employees and non-employees that required us to recognize stock-based compensation expense. The intrinsic value of these equity instruments granted to employees was recorded in accordance with APB No. 25, which requires the excess of market price over the grant price, which is referred to as the intrinsic value, to be recorded as stock-based compensation. In general, the intrinsic value is deferred and amortized over the vesting period of the underlying equity instrument. Furthermore, we also recorded stock-based compensation during the year ended March 31, 2003 in connection with the issuance of warrants to non-employees for services rendered. The fair value of these equity issuances was calculated using the Black-Scholes option-pricing model and was recorded as stock-based compensation during the year ended March 31, 2003. A complete discussion of these equity transactions is included in Note 9 to our consolidated financial statements included in this Annual Report. A summary of the stock-based compensation charges recorded during the years ended March 31, 2003 and 2004 is included below (in thousands):

	Years ended March 31,
	2003		2004
Stock options issued with exercise prices less than fair market value	$	373	$	—
Employee Benefit Trust (EBT)		9,116		85
Incentive shares		1,519		262
Advisors’ stock warrants		535		—
Employee option modifications		98		—
Total stock-based compensation	$	11,641	$	347

Stock-based compensation decreased $11.3 million during the year ended March 31, 2004 from the year ended March 31, 2003 primarily due to the timing of deferred stock-based compensation amortization. In general, our stock-based compensation charges are recorded over the vesting period of the underlying equity instrument. A majority of the deferred stock-based compensation charges recorded in prior periods had been amortized fully as of March 31, 2003, thus resulting in a lesser charge incurred during the year ended March 31, 2004.

Special charges

In November 2002, we implemented a plan to “end of life” our MagnaVault product. During the year ended March 31, 2003, and in connection with the MagnaVault exit activities, we recorded a charge of $415,000, which was comprised of charges related to employee severance of $87,000, an idle facility of $192,000 and fixed asset impairment and other exit costs of $136,000. We did not incur any special charges during the year ended March 31, 2004.

Amortization of intangible assets

In connection with our acquisition of BakBone KK in March 2002, we recorded $221,000 in separately identifiable intangible assets. These intangible assets are amortized over the estimated useful life, or four years. Thus, we recognized $55,000 in amortization expense during each of the years ended March 31, 2003 and 2004.

Impairment of goodwill

In connection with our decision to “end of life” our MagnaVault product, we recorded a goodwill impairment charge of $888,000, which represents the amount by which the carrying value of the MagnaVault-related goodwill exceeded its estimated fair value as of March 31, 2003. We did not incur any goodwill impairment charges during the year ended March 31, 2004.

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Provision for income taxes

During the years ended March 31, 2003 and 2004, we recorded provisions for income taxes of $510,000 and $951,000, respectively. During the years ended March 31, 2003 and 2004, certain transactions between our foreign subsidiaries triggered tax liabilities of $510,000 and $586,000, respectively, in certain jurisdictions in which we do business. Furthermore, we recorded an aggregate provision for federal, state, and foreign income taxes of $365,000 during the year ended March 31, 2004 related to taxable income generated during the period. Although we generated losses during the year ended March 31, 2004, certain permanent and temporary revenue and expense recognition differences exist between financial statement and tax reporting resulting in the tax provision. Historically, we have accumulated net operating losses, but certain tax regulations limit the usage of tax loss carry forwards to offset income earned. As we expand our business worldwide, we may become subject to additional tax liabilities in new tax jurisdictions.

Comparison of operating results for the years ended March 31, 2003 (restated) and 2002 (restated)

Revenues

Revenues increased 171% to $17.9 million for the year ended March 31, 2003, from $6.6 million for the year ended March 31, 2002. Revenues for the year ended March 31, 2003 consisted of $15.3 million in licensing revenues and $2.6 million in service revenues, compared to revenues for the year ended March 31, 2002, which consisted of $5.2 million in licensing revenues and $1.4 million in service revenues.

The year ended March 31, 2003 included $6.3 million and $532,000 in licensing and service revenues, respectively, from our Japanese subsidiaries, compared to $812,000 and $7,000 in licensing and service revenues, respectively, for the year ended March 31, 2002. The results of operations of our Japanese subsidiaries were not consolidated until we acquired in excess of 50% ownership of each subsidiary in the fourth quarter of fiscal 2002.

Licensing revenues. Licensing revenues growth worldwide was driven by growth in both our OEM and reseller sales channels, as well as by the consolidation of revenues generated by our Japanese subsidiaries. During the year ended March 31, 2003, we generated significant OEM licensing revenues from NCR Teradata. Our relationships with existing resellers and the establishment of new reseller relationships led to significant licensing revenues growth through our reseller channel. Furthermore, we continued the expansion of our business into new territories, which led to licensing revenues growth.

In North America, licensing revenues for the year ended March 31, 2003 increased 96% to $5.9 million, compared to $3.0 million for the year ended March 31, 2002. Licensing revenues growth in North America was driven by both the OEM and reseller channels. During the year ended March 31, 2003, we established many new reseller relationships, while leveraging existing relationships, to grow revenues through the reseller channel. Prior to fiscal 2003, North America OEM licensing revenues were relatively insignificant in terms of consolidated revenues, but fiscal 2003 experienced significant OEM licensing revenues growth.

In the Pacific Rim, licensing revenues for the year ended March 31, 2003 were $6.3 million, compared to $812,000 for the year ended March 31, 2002. The increase was due to the consolidation of our Japanese subsidiaries and to organic revenue growth. Our Pacific Rim operations experienced success during the year ended March 31, 2003 through both the reseller and OEM sales channels. During fiscal 2003, we expanded our Pacific Rim business operations into new territories, including China and Korea, and strengthened existing Pacific Rim operations.

In EMEA, licensing revenues for the year ended March 31, 2003 increased 125% to $3.1 million, compared to $1.4 million for the year ended March 31, 2002. Increased sales to existing resellers, supplemented by sales to new resellers, and the maturation of our relationship with NCR Teradata, helped to drive revenues higher. Furthermore, licensing revenues increased as we expanded our operations in several territories, most notably Germany, during the year ended March 31, 2003.

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Service revenues. In North America, service revenues for the year ended March 31, 2003 increased 49% to $1.5 million, from $1.0 million for the year ended March 31, 2002. In the Pacific Rim, service revenues for the year ended March 31, 2003 were $532,000, compared to $7,000 for the year ended March 31, 2002. In EMEA, service revenues for the year ended March 31, 2003 increased 45% to $550,000, compared to $379,000 for the year ended March 31, 2002. The worldwide growth in service revenues is directly related to the increased licensing revenues from sales to new customers and to maintenance contract renewals from existing customers. Additionally, the consolidation of our Japanese subsidiaries contributed to higher service revenues during the year ended March 31, 2003.

Cost of revenues

Cost of revenues for the year ended March 31, 2003 totaled $1.7 million with a gross margin of 91%, compared with cost of revenues of $1.2 million with a gross margin of 82% for the year ended March 31, 2002. The decrease in cost of revenues as a percent of total revenues for the year ended March 31, 2003 compared to the year ended March 31, 2002 was due primarily to the overall increase in service revenues and to the consolidation of our Japanese subsidiaries.

Sales and marketing expenses

Sales and marketing expenses increased $3.8 million, or 46%, to $12.1 million for the year ended March 31, 2003, compared to $8.3 million for the year ended March 31, 2002. The increase was attributable primarily to an increase in performance-based payments, commissions and bonuses, which were a result of increased revenues, and to the consolidation of our Japanese subsidiaries’ sales and marketing expenses.

Research and development expenses

Research and development expenses increased $724,000, or 17%, to $5.0 million for the year ended March 31, 2003, from $4.2 million for the year ended March 31, 2002. The overall increase was due primarily to increased salaries and travel expenditures. In November 2002, headcount was reduced in conjunction with the MagnaVault exit activities. Although headcount between March 31, 2002 and 2003 remained stable, year-over-year salary expense increased due to the hiring that took place during the first half of fiscal 2003.

General and administrative expenses

General and administrative expenses increased $959,000, or 19%, to $6.0 million for the year ended March 31, 2003, from $5.0 million for the year ended March 31, 2002. The increase in general and administrative costs related primarily to increases in payroll expenses and insurance premiums, and to the consolidation of our Japanese subsidiaries’ general and administrative expenses.

Stock-based compensation

During the years ended March 31, 2002 and 2003, we recorded stock-based compensation related to the amortization of deferred stock-based compensation and to the issuance of various equity instruments. A summary of the stock-based compensation charges recorded during the years ended March 31, 2002 and 2003 is included below (in thousands):

	Years ended March 31,
	2002		2003
Stock options issued with exercise prices less than fair market value	$	4,820	$	373
EBT		9,780		9,116
Incentive shares		6,548		1,519
Advisors’ stock warrants		71		535
Modification of employee options		—		98
Total stock-based compensation	$	21,219	$	11,641

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Stock-based compensation decreased $9.6 million during the year ended March 31, 2003 from the year ended March 31, 2002 due in large part to the fully vested provisions of one incentive share grant made during the year ended March 31, 2002. The fair value of $4.0 million was recognized during the year ended March 31, 2002. Furthermore, the decrease during the year ended March 31, 2003 was also due to the timing of equity forfeitures. During the year ended March 31, 2002, the Company recorded a stock-based compensation charge of $3.9 million related to the cancellation of certain employee options associated with the August 2001 voluntary employee stock option cancel and regrant program.

Special charges

In November 2002, we implemented a plan to “end of life” our MagnaVault product. In the third quarter of fiscal 2003 and in connection with the MagnaVault exit activities, we recorded a charge of $415,000, which was comprised of charges related to employee severance of $87,000, an idle facility of $192,000 and fixed asset impairment and other exit costs of $136,000. We did not incur any special charges during the year ended March 31, 2002.

Amortization of Intangible Assets

In connection with our acquisition of BakBone KK in March 2002, we recorded $221,000 in separately identifiable intangible assets. These intangible assets are amortized over the estimated useful life, or four years. Thus, we recognized $55,000 in amortization expense during the year ended March 31, 2003. We incurred no such charge during the year ended March 31, 2002.

Amortization of investment in affiliate

During the year ended March 31, 2002, we incurred $854,000 in amortization expense related to our purchase of a minority interest in BakBone KK in March of 2000. In March 2002, we acquired a majority interest in BakBone KK and discontinued the usage of the equity method of accounting for this subsidiary. Accordingly, the investment in affiliate balance was eliminated and, as such, we did not incur an amortization charge during the year ended March 31, 2003.

Amortization of goodwill

Effective April 1, 2002 and pursuant to SFAS No. 142, goodwill is no longer amortized, but is reviewed periodically for impairment. Therefore, we incurred no amortization expense during the year ended March 31, 2003 compared to $3.9 million of amortization expense during the year ended March 31, 2002.

Impairment of goodwill

We recorded goodwill impairment charges of $888,000 and $2.8 million for the years ended March 31, 2003 and 2002, respectively. The impairment charges in fiscal 2003 and 2002 relate to goodwill booked in connection with our June 2000 acquisition of Tracer Technologies, Inc. (Tracer) and its MagnaVault product line.

In connection with our acquisition of Tracer, we acquired exclusive intellectual property rights to MagnaVault. Since the initial acquisition date and through the MagnaVault “end of life” in November 2002, we marketed and sold MagnaVault as a stand-alone software product. MagnaVault revenues were flat during the first three quarters of the year ended March 31, 2002, with a notable decrease during the fourth quarter of the year ended March 31, 2002. Based on MagnaVault’s sales performance during the fourth quarter of the year ended March 31, 2002, we performed an impairment analysis of the Tracer goodwill. As of March 31, 2002, we determined that the carrying value of the Tracer goodwill exceeded its fair value as determined by the estimated discounted cash flows expected to be generated by the underlying assets. Therefore, we recorded an impairment charge of $2.8 million in the accompanying consolidated statement of operations for the year ended March 31, 2002, reflecting the difference between the carrying value and discounted projected future cash flows.

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During the first two quarters of fiscal 2003, total revenues generated by MagnaVault experienced a continued decline. This trend continued into the third quarter of fiscal 2003, and in November 2002, management decided to “end of life” the MagnaVault product, whereby all activities, with the exception of customer support, related to MagnaVault would cease permanently, effective December 31, 2002. In connection with this decision, we terminated several employees and closed our Maryland office facility. Based on this triggering event, in accordance with SFAS No. 142, we were required to perform an impairment analysis on the MagnaVault-related goodwill during the year ended March 31, 2003. The first step in the impairment analysis involved comparing the carrying values of the MagnaVault reporting units to their fair values. It was determined that the carrying values of the reporting units exceeded the estimated fair values, consequently, step two of the impairment test was required. As a result of step two, the related goodwill was deemed impaired and we recognized charges of $442,000 and $446,000 in the third and fourth quarters of fiscal 2003, respectively. These charges represented the amount by which the goodwill’s carrying value exceeded its estimated fair value. As of March 31, 2003, all MagnaVault-related goodwill had been amortized or written-off.

Provision for income taxes

During the year ended March 31, 2003, we recognized a provision for income taxes related to transactions between our foreign subsidiaries. Certain transactions between our foreign subsidiaries trigger tax liabilities in the respective jurisdictions in which we do business. Income taxes arising out of these transactions were immaterial during the year ended March 31, 2002.

Quarterly Operating Results

The following tables set forth unaudited quarterly operating information and financial data for each of the eight quarters beginning April 1, 2002 and ended March 31, 2004. This data has been prepared on the same basis as the audited consolidated financial statements contained elsewhere in this Annual Report and, in the opinion of management, includes all adjustments necessary for the fair presentation of the information for the periods presented. This information should be read in conjunction with the consolidated financial statements and related notes. The operating results and financial data in any quarter are not necessarily indicative of the results that may be expected for any future period.

Throughout fiscal 2004, we publicly reported our quarterly results in Canada and the United States under Canadian GAAP. As a part of the detailed review of our accounting practices discussed earlier, certain errors were identified in the revenue recognition of certain customer contracts for each of the first three quarters of fiscal 2004. Investors should rely solely on the U.S. GAAP quarterly financial data in this Annual Report which reflects the appropriate revenue recognition for these contracts and not on any other previously published quarterly results.

We believe that future operating results will be subject to quarterly fluctuations, and, as a result, we believe that results of operations for interim periods should not be relied upon as any indication of the results to be expected in any future period.

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	Fiscal Quarter Ended
	(in thousands)
	Jun-02			Sep-02			Dec-02			Mar-03			Jun-03			Sep-03			Dec-03			Mar-04
	(restated)			(restated)			(restated)			(restated)
Revenues	$	3,585		$	3,980		$	4,832		$	5,521		$	5,517		$	6,333		$	7,260		$	7,997
Cost of revenues		321			390			405			534			796			683			759			756
Gross profit		3,264			3,590			4,427			4,987			4,721			5,650			6,501			7,241
Operating expenses:
Sales and marketing		3,139			2,893			3,025			3,068			3,563			3,506			3,899			4,362
Research and development		1,241			1,343			1,233			1,146			1,126			1,079			1,171			1,436
General and administrative		1,479			1,542			1,407			1,537			1,457			1,010			1,203			1,737
Stock-based compensation		3,605			3,262			3,004			1,770			153			90			90			14
Special charges		—			—			415			—			—			—			—			—
Amortization of intangible assets		14			14			13			14			14			14			13			14
Impairment of goodwill		—			—			442			446			—			—			—			—
Total operating expenses		9,478			9,054			9,539			7,981			6,313			5,699			6,376			7,563
Operating (loss) income		(6,214	)		(5,464	)		(5,112	)		(2,994	)		(1,592	)		(49	)		125			(322	)
Interest expense, net		(29	)		(32	)		(38	)		(83	)		(38	)		(8	)		16			29
Foreign exchange gain (loss), net		9			(15	)		(29	)		(24	)		(5	)		(18	)		(15	)		(40	)
Other expense, net		(1	)		(1	)		(10	)		(7	)		—			(18	)		(48	)		(15	)
(Loss) income before income taxes		(6,235	)		(5,512	)		(5,189	)		(3,108	)		(1,635	)		(93	)		78			(348	)
Provision for income taxes		22			24			79			385			128			55			235			533
Net loss		(6,257	)		(5,536	)		(5,268	)		(3,493	)		(1,763	)		(148	)		(157	)		(881	)
Beneficial conversion feature on preferred stock		—			—			—			—			—			7,221			—			—
Net loss attributable to common shareholders	$	(6,257	)	$	(5,536	)	$	(5,268	)	$	(3,493	)	$	(1,763	)	$	(7,369	)	$	(157	)	$	(881	)
	Fiscal Quarter Ended
	Jun-02			Sep-02			Dec-02			Mar-03			Jun-03			Sep-03			Dec-03			Mar-04
	(restated)			(restated)			(restated)			(restated)
Revenues		100%			100%			100%			100%			100%			100%			100%			100%
Cost of revenues		9%			10%			8%			10%			14%			11%			10%			9%
Gross profit		91%			90%			92%			90%			86%			89%			90%			91%
Operating expenses:
Sales and marketing		88%			73%			63%			56%			65%			56%			54%			55%
Research and development		35%			34%			26%			21%			21%			17%			16%			18%
General and administrative		41%			39%			29%			28%			27%			16%			17%			22%
Stock-based compensation		101%			82%			62%			32%			3%			1%			1%			—
Special charges		—			—			9%			—			—			—			—			—
Amortization of intangible assets		—			—			—			—			—			—			—			—
Impairment of goodwill		—			—			9%			8%			—			—			—			—
Total operating expenses		265%			228%			198%			145%			116%			90%			88%			95%
Operating (loss) income		-174%			-138%			-106%			-55%			-30%			-1%			2%			-4%
Interest expense, net		-1%			-1%			-1%			-2%			—			—			—			—
Foreign exchange gain (loss), net		—			—			-1%			—			—			—			—			—
Other expense, net		—			—			—			—			—			—			-1%			—
(Loss) income before income taxes		-175%			-139%			-108%			-57%			-30%			-1%			1%			-4%
Provision for income taxes		—			1%			2%			7%			2%			1%			3%			7%
Net loss		-175%			-138%			-110%			-64%			-32%			-2%			-2%			-11%
Beneficial conversion feature on preferred stock		—			—			—			—			—			114%			—			—
Net loss attributable to common shareholders		-175%			-138%			-110%			-64%			-32%			-116%			-2%			-11%

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Liquidity and Capital Resources

We have financed our operations primarily through private placements and public offerings of equity instruments in the Provinces of British Columbia, Alberta and Ontario, Canada, and through a private placement of Series A convertible preferred shares in the United States. We have also financed our operations through issuances of common shares upon exercise of warrants and stock options and, more recently, by generating cash from operations.

We derive cash from operations primarily from cash collected on software license and software maintenance contract sales. Net cash provided by operating activities was $841,000 during the year ended March 31, 2004, as opposed to cash used in operating activities of $3.1 million for the year ended March 31, 2003. The shift from negative to positive operating cash flows between the periods reflects the increase in sales volume, and correlated cash collections, between the periods. The increase in sales during the year ended March 31, 2004 has also served to increase our accounts receivable and deferred revenue balances. Based on the payment terms of our sales arrangements, and the timing of revenue recognition under certain OEM contracts and service contracts, our cash receipts frequently do not occur in the same period as the recognition of related revenue.

Net cash used in investing activities was $534,000 and $413,000 for the years ended March 31, 2004 and 2003, respectively, which consisted almost entirely of expenditures on capital equipment.

We generated significant cash from financing activities during the year ended March 31, 2004. In July 2003, we raised proceeds of $13.6 million, net of $2.1 million in offering costs, through the issuance of Series A convertible preferred shares. Furthermore, we generated financing cash flows of $1.2 million and $500,000 from the exercise of warrants and stock options, respectively, during the year ended March 31, 2004. These cash inflows were offset partially by a $1.7 million repayment of a term loan and $115,000 in payments on capital lease obligations. Cash provided by financing activities of $2.7 million during the year ended March 31, 2003 consisted primarily of $1.3 million from the exercise of warrants associated with a fiscal 2002 private placement, the release of $804,000 in restricted cash amounts, $1.0 million in proceeds, net of $75,000 in offering costs, from a fiscal 2003 private placement, and $144,000 from the exercise of stock options. These cash inflows were offset partially by payments of $298,000 and $202,000 related to a note payable and capital lease obligations, respectively. As of March 31, 2004 we had no indebtedness outstanding other than $97,000 in capital lease obligations.

Currently we have no material cash commitments other than our normal recurring trade payables, expense accruals and operating and capital leases, all of which are currently expected to be funded through existing working capital and future cash flows from operations. Aside from these recurring operating expenses, we expect to expend $1.0 million on capital expenditures in fiscal 2005. We anticipate continued growth of our business in existing territories and expansion of our business operations into new territories, as well as headcount additions in both the sales, and the research and development functions in fiscal 2005.

We believe that our cash and cash equivalent balances will be sufficient to satisfy our cash requirements for at least the next twelve months. Although we cannot accurately anticipate the effect of inflation or foreign exchange markets on our operations, we do not believe these external economic forces have had, or are likely in the foreseeable future to have, a material impact on our results of operations. We are focused on preserving and improving cash and our overall liquidity position by growing revenues, managing our accounts receivable, and continuously monitoring expenses.

At March 31, 2004, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had

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engaged in such relationships. We do not have relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed elsewhere in this Annual Report.

At March 31, 2004, our outstanding commitments included (in thousands):

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Capital lease obligations	$	97	$	55	$	42	$	—	$	—
Operating lease obligations	$	2,016	$	1,263	$	753	$	—	$	—
Total	$	2,113	$	1,318	$	795	$	—	$	—

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 146, Accounting for Costs Associated with Exit and Disposal Activities. SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 was effective for exit or disposal activities initiated after December 31, 2002 and the adoption of SFAS No. 146 did not have a material impact on our financial position, results of operations or cash flows.

FASB Interpretation No. 45, or FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was issued in November 2002. FIN 45 requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for interim and annual periods ending after December 15, 2002, and are applicable to certain guarantees issued before December 31, 2002. We adopted FIN 45 disclosure requirements as of December 31, 2002. The adoption of the provisions for recognition and initial measurement did not have a material impact on our financial position, results of operations or cash flows. See Note 14 “Guarantees” in the notes to the consolidated financial statements contained in this Annual Report for more information.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. We have adopted the transition and annual disclosure requirements of SFAS No. 148 which are effective for fiscal years ending after December 15, 2002 and have elected to continue to account for employee stock options under APB No. 25. The interim disclosure requirements are effective for interim periods commencing after December 15, 2002. The adoption of this standard did not have a material effect on our financial position, results of operations or cash flows.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We do not expect that EITF Issue No. 00-21 will have a material impact on our financial position, results of operations or cash flows. In December 2003, the SEC published Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition. This SAB updates portions of the SEC staff’s interpretive guidance provided in SAB 101. SAB 104

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deletes interpretive material no longer necessary, and conforms the interpretive material retained, because of pronouncements issued by the FASB’s EITF on various revenue recognition topics. The adoption of SAB 104 did not have a material impact on our financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling financial interest or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. Development-stage entities that have sufficient equity invested to finance the activities they are currently engaged in and entities that are businesses, as defined in FIN 46, are not considered VIEs. The provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. In October 2003, the FASB deferred the effective date of FIN 46 for pre-existing VIEs to no later than February 2004. In December 2003, the FASB issued a revision to FIN 46 (FIN 46-R), which incorporated the October 2003 deferral provisions and clarified and revised the accounting guidance for VIEs. All VIEs, regardless of when created, are required to be evaluated under FIN 46-R no later than the quarter ended March 31, 2004. We adopted FIN 46-R, effective March 31, 2004, and the adoption did not have a material effect on our financial condition, results of operations or cash flows. As of March 31, 2004, we have not identified any VIEs that would require consolidation or any significant exposure to VIEs that would require disclosure.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150), which requires that certain financial instruments be presented as liabilities that were previously presented as equity or as temporary equity. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is generally effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 had no material impact on our financial position or results of operations.

In December 2003, the SEC published Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. This SAB updates portions of the SEC staff’s interpretive guidance provided in SAB 101. SAB 104 deletes interpretive material no longer necessary, and conforms the interpretive material retained, because of pronouncements issued by the FASB’s EITF on various revenue recognition topics. The adoption of SAB 104 did not have a material impact on our financial position, results of operations or cash flows.

Impact of Inflation

The primary inflationary factor affecting our operations is labor costs and we do not believe that inflation has materially affected earnings during the past four years. Substantial increases in costs and expenses, particularly labor and operating expenses, could have a significant impact on our operating results to the extent that such increases cannot be passed along to customers and end-users.

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BUSINESS RISKS

You should consider each of the following factors, as well as the other information in this Annual Report in evaluating our business and our prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common shares could decline. You should also refer to the other information set forth in this Annual Report, including our financial statements and the related notes.

We have incurred substantial net losses since inception and we may not be able to maintain profitability.

We have incurred operating and net losses since inception of our operations in March 2000. Our net losses were $41.3 million, $20.6 million and $2.9 million for the fiscal years ended March 31, 2002, 2003 and 2004, respectively. As of March 31, 2004, our accumulated deficit was $145.5 million. We cannot assure you that we will be able to achieve or maintain positive cash flow from operations in future periods. If we cannot achieve and sustain operating profitability, we may not be able to meet our working capital requirements, which would have a material adverse effect on our business, financial condition and results of operations.

Our short operating history makes it difficult to evaluate our business and prospects.

We began our current line of business with the acquisition of NetVault Holdings, Ltd. in March 2000. As a company with a relatively short operating history, we face risks and uncertainties frequently encountered by companies in new and rapidly evolving markets, including:

• the implementation and successful execution of our business strategy and our sales and marketing initiatives;

• retention of current value-added resellers, distributors and original equipment manufacturers and attraction of new value-added resellers, distributors and original equipment manufacturers;

• our ability to respond effectively to competitive and technological developments related to our product and technologies;

• our ability to attract, retain and motivate qualified personnel; and

• our ability to effectively manage our anticipated growth.

If we fail to address any of these risks and uncertainties successfully, our business, results of operations, financial condition and prospects may be materially adversely affected.

Competition in our target markets could reduce our sales.

We operate in a segment of the intensely competitive storage management software market. This market is characterized by rapidly changing technology and evolving standards. We have a number of competitors that vary in size and scope and breadth of products offered. Many of our competitors have greater financial resources than we do in the areas of sales, marketing, branding and product development, and we expect to face additional competition from these competitors in the future. Our current competitors include, but are not limited to, Veritas Software Corporation, EMC Corporation, IBM’s Tivoli division, Computer Associates and CommVault Systems, Inc. Some of these companies compete against us by offering a full suite of storage management tools, including software that addresses data protection. We also face competition from a number of smaller companies who, like us, focus solely or primarily on the data protection software market. Furthermore, our OEM partners, who do not currently compete with us, could decide to compete with us by offering their own data protection solutions that exclude our software, and other storage equipment vendors may enter our market either through acquisition of competing technologies or products, or through development of their own data protection software solutions.

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Our existing and future competitors could introduce products with superior features, scalability and functionality at lower prices than our product. Most of our competitors provide broad suites of storage management software solutions and thus could gain market share by bundling existing or new data protection products with other more established storage products or by acquiring or forming strategic alliances with our other competitors. If our competitors are successful in gaining market share, our business, operating results, and financial condition could be adversely affected.

Our future revenues depend upon continued market acceptance of our NetVault product.

We derive substantially all of our revenues from our NetVault product, and we expect that this concentration of revenues will continue for the foreseeable future. If the market does not continue to accept this product, our revenues will decline significantly, and this would negatively affect our operating results. Factors that may affect the market acceptance of our NetVault product include the performance, price and total cost of ownership of our product and the availability, functionality and price of competing products and technologies. Many of these factors are beyond our control.

We derive a significant amount of revenues from only a few customers.

We have derived, and believe we will continue to derive, a significant portion of our revenues from a limited number of customers. During the fiscal year ended March 31, 2004, one of our OEM customers, NCR Teradata accounted for 12% of our revenues. If any of our largest customers were to reduce purchases from us, our business would be adversely affected. In addition, we do not have contracts with our key customers that require such customers to make any minimum purchases from us. Therefore, we cannot be sure that these customers will continue to purchase our product at current levels, or at all. As a result, a significant customer in one period may decide not to purchase our product in a subsequent period, which would have an adverse impact on our revenues.

We rely on indirect sales channels such as value-added resellers, distributors and OEMs, and this makes it difficult for us to predict our revenues.

We rely, and will continue to rely, on our indirect sales channel for the marketing and distribution of our product. Our agreements with value-added resellers and distributors do not contain exclusivity provisions and in most cases may be terminated by either party without cause and with limited or no notice. Many of our resellers also carry other product lines that are competitive with ours. These resellers may not give a high priority to the marketing of our product. Rather, they may give a higher priority to other products, including the products of competitors, or may not continue to carry our product. Events or occurrences of this nature could seriously harm our business, operating results and financial condition. In addition, we may not be able to retain our current resellers or successfully recruit new resellers. Any such changes in our distribution channels could seriously harm our business, operating results and financial condition.

Our strategy is also to develop significant partnerships with key hardware and software providers to integrate NetVault into their offerings to support more robust data protection solutions. We may fail to implement this strategy successfully. We are currently investing, and will continue to invest, resources to develop this channel. Such investments, if not successful, could seriously harm our operating margins. Before we can sell our product to an OEM, we must engage in a lengthy sales cycle and develop a version of our software customized for and integrated with the hardware or software product of the OEM. This process, which can take up to 12 months or more, requires the commitment of OEM personnel and resources, and we compete with other suppliers for these resources. Any delays in completing this process or any failure to timely develop a customized and integrated version of our software for an OEM would adversely affect our ability to sell our product.

Sales of our product through our OEMs depend on the success of our OEMs in developing and effectively marketing new products, applications and product enhancements on a timely and cost-effective basis that meet

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changing customer needs and respond to emerging industry standards and other technological changes. If our OEMs do not meet these challenges, then our revenues may not meet our expectations.

The OEMs that we partner with may incorporate the technologies of other companies in addition to, or to the exclusion of, our technologies, and are not obligated to purchase our product from us and they may not continue to include our product with their products. In addition, we have no control over the shipping dates or volumes of systems the OEMs ship. Our OEM customers compete with one another. If one of our OEM customers views the product we have developed for another OEM as competing with its products, it might decide to stop doing business with us, which could adversely affect our business and operating results. The inability to recruit, or the loss of, important OEMs could seriously harm our business, operating results and financial condition. Finally, should one of our OEM partners acquire a competitive product to ours, our OEM revenues would likely decline.

Failure to manage our growth could adversely affect our business.

If we fail to manage our growth effectively, our business and operating results could be adversely affected, which could cause the market price of our stock to fall. We expect to continue to grow our operations domestically and internationally, and to hire additional employees. The growth in our operations and staff has placed, and will continue to place, a significant strain on our management systems and resources. If we fail to manage our future anticipated growth, we may experience higher operating expenses, and we may be unable to meet the expectations of securities analysts or investors with respect to future operating results. To manage this growth we must continue to:

• improve our financial and management controls, reporting systems and procedures;

• add and integrate new employees;

• manage our relationship with our resellers, distributors and OEMs;

• control expenses; and

• expand geographically dispersed operations.

We may need to commit a significant amount of funds to obtain additional systems and facilities to accommodate our current and future anticipated growth. To the extent this anticipated growth does not occur or occurs more slowly than we anticipate, we may not be able to reduce expenses to the same degree. Any failure to manage our growth effectively could seriously harm our business and operating results.

Because our intellectual property is critical to the success of our business, our operating results would suffer if we are unable to adequately protect or enforce our intellectual property rights.

Our proprietary technologies are crucial to our success and ability to compete. We rely primarily on a combination of copyrights, trade secret laws, contractual provisions and trademarks to establish and protect our intellectual property rights in our proprietary technologies. Sometimes our product is licensed under “shrink wrap” license agreements that do not require a physical signature by the end-user licensee and therefore may be unenforceable under the laws in some jurisdictions. We presently have no patents pending or issued; however, we are investing resources to attempt to gain patent protection for some of our proprietary technology. We cannot assure you that any patents will be issued to us or that the benefit we derive from any patents, if and when issued, will necessarily equal or exceed the costs of obtaining such patents. Our general practice is to enter into confidentiality or license agreements with employees, consultants and customers and seek to control access to and distribution of our source code, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our product or to obtain and use information that we regard as proprietary. Policing unauthorized use of our proprietary information is difficult. Other parties also may independently develop or otherwise acquire equivalent or superior technology.

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In addition, the laws in some countries in which our product is or may be developed, manufactured or sold may not protect our intellectual property rights to the same extent as the laws of the United States, or at all. Our failure to protect our intellectual property rights could have a material adverse effect on our business.

We may become involved in costly and lengthy patent infringement or intellectual property litigation which could seriously harm our business.

In recent years, there has been significant litigation in the United States and in foreign countries involving patents and other intellectual property rights. We may become party to litigation in the future as a result of an alleged infringement of others’ intellectual property. From time to time, we receive inquiries from other companies concerning whether we used their proprietary information or technology. It also is possible that patent holders will assert patent rights which apply broadly to our industry, and that such patent rights, if valid, may apply to our product or technology. Any claims that we improperly use another party’s proprietary information or technology or that we infringe another party’s intellectual property, with or without merit, could adversely affect or delay sales of our product, result in costly and time-consuming litigation, divert our technical and management personnel, or require us to develop non-infringing technology or enter into royalty or licensing arrangements, any of which could adversely affect our business. We cannot be certain that the necessary licenses will be available or that they can be obtained on commercially reasonable terms. If we were to fail to obtain such royalty or licensing agreements in a timely manner or on reasonable terms, our business and our operating results could be materially adversely affected.

Our foreign operations and international revenues create special challenges that could adversely affect our operating results.

We have significant operations outside of the United States, including a significant portion of our engineering and sales operations, and we generate a significant portion of our revenues from sales outside the United States. It is our intention to expand our international operations in order to increase our revenues from sales outside the United States. As of March 31, 2004, we had 47 employees in EMEA and 42 employees in the Pacific Rim out of 175 total employees. Our foreign operations and revenues are subject to a number of risks, including:

• potential loss of proprietary information due to piracy, misappropriation or weaker intellectual property protection laws or weaker enforcement of such laws;

• imposition of foreign laws and other governmental controls, including trade restrictions, as well as the burdens of complying with a wide variety of multiple local, country and regional laws;

• unexpected domestic and international political or regulatory changes;

• fluctuations in currency exchange rates and economic instability such as higher interest rates and inflation;

• lack of acceptance of localized product, if any, in foreign countries;

• longer negotiation and accounts receivable payment cycles;

• difficulties in managing international operations;

• potentially adverse tax consequences, including restrictions on the repatriation of earnings; and

• difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations.

Our continued growth and profitability will require further expansion of our international operations. To expand international operations successfully, we must establish additional foreign operations, hire additional personnel and recruit additional international resellers, all of which will require significant management attention

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and financial resources. If we fail to further expand our international operations and revenues, we may not achieve our anticipated growth.

Portions of our Pacific Rim revenues are currently denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our product more expensive and, therefore, potentially less competitive in those markets. A majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the substantial volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results. There can be no assurances that we will not experience currency losses in the future. We have not previously undertaken hedging transactions to cover currency exposure, and we do not currently intend to engage in hedging activities.

Our success depends on our ability to keep pace with rapid technological developments in the storage industry.

Our future success depends, in part, on our ability to address the rapidly changing needs of organizations by developing and introducing new product updates and features on a timely basis. To achieve this objective we must extend the operation of our product to new platforms and keep pace with technological developments and emerging industry standards. To achieve broad acceptance of our software, we must obtain certifications from hardware vendors approving our software for use as a data protection solution on their platforms. This process requires continual testing and development, and we must invest significant technical resources in adapting our product to the changing hardware specifications. If we are unsuccessful in obtaining new certifications, the market for our software may be limited. Moreover, software products typically have a limited life cycle, and it is difficult to estimate when they will become obsolete. We must therefore continually develop and introduce innovative products and/or upgraded versions of our existing product before the current software has completed its life cycle. Our failure to do so may result in our inability to achieve and sustain the level of sales required for success.

Our quarterly revenues and operating results may fluctuate significantly, which could cause the market price of our stock to be extremely volatile.

We may experience a shortfall in revenues in any given quarter in relation to our plans or investor expectations. Any such shortfall in revenues would harm our operating results and could cause the market price of our stock to fall substantially. You should not rely on the results of any prior periods as an indication of our future performance. If we have a shortfall in revenues in any given quarter, our efforts to reduce our operating expenses in response will likely lag behind the shortfall in revenues. Therefore, any significant shortfall in revenues will likely have an immediate adverse effect on our operating results for that quarter. Our revenues in general, and our licensing revenues in particular, are difficult to forecast and are likely to fluctuate significantly from quarter-to-quarter due to a number of factors, many of which are outside of our control. These factors include:

• the timing and magnitude of sales;

• historical sales patterns in the IT industry which often involve customer purchase decisions being made at or near the end of each calendar quarter;

• the timing of large enterprise transactions which are typified by long solicitation and decision periods and often remain highly uncertain until the sale is actually completed;

• the introduction, timing and market acceptance of new products by us and our competitors;

• the rate of growth of NAS and SAN technology deployment;

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• the rate of adoption and associated growth of the Linux operating system;

• the extent to which our customers renew maintenance contracts with us;

• changes in our pricing policies and distribution terms; and

• the possibility that our customers may defer purchases in anticipation of new products or product updates by us or by our competitors.

Our stock price is volatile.

The market price and trading volume of our common shares has been subject to significant volatility, and this trend may continue. The value of our common shares may decline regardless of our operating performance or prospects. Factors affecting our market price include:

• our perceived prospects;

• variations in our operating results and whether we have achieved our key business targets;

• sales or purchases of large blocks of our stock;

• changes in, or our failure to meet, our earnings estimates;

• the restatement of previously reported financial information;

• changes in securities analysts’ buy/sell recommendations;

• differences between our reported results and those expected by investors and securities analysts;

• announcements related to business performance and prospects by us or our competitors;

• market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;

• developments in the financial markets; and

• general economic, political or stock market conditions.

Recent events have caused stock prices for many companies, including ours, to fluctuate in ways unrelated or disproportionate to their operating performance. The general economic, political and stock market conditions that may affect the market price of our common shares are beyond our control. The market price of our common shares at any particular time may not remain the market price in the future. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities, and we may be subject to a heightened risk of securities class action litigation due to the recent volatility in our stock and our recent restatement of previously published financial information.

Litigation, or any regulatory proceeding or action, may be time consuming, expensive and distracting from the conduct of our business, and the outcome of litigation, or any potential regulatory proceeding or action, is difficult to predict. The adverse resolution of any lawsuit, or regulatory proceeding or action, could have a material adverse effect on our business, results of operations and financial condition. To the extent expenses incurred in connection with litigation, or any potential regulatory proceeding or action, are not covered by available insurance, such expenses could adversely affect our cash position.

Our product may contain significant defects, which may result in liability and/or decreased sales.

Software products frequently contain errors or failures, especially when first introduced or when new versions are released. Despite our best efforts to test our product, we might experience significant errors or failures in our product, or it might not work with other hardware or software as expected, which could delay the development or release of new products or new versions of our product and adversely affect market acceptance

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of our products. End-user customers use our product for applications that are critical to their businesses, and they have a greater sensitivity to product defects than the market for other software products generally. Our end-users and distribution partners may claim that we are responsible for damages to the extent they are harmed by any failure of our product.

If we were to experience significant delays in the release of new products or new versions of our product, or if customers were dissatisfied with product functionality or performance, we could lose revenue or be subject to liability for service or warranty costs, and our business and operating results could be adversely affected.

If we make acquisitions that fail to result in anticipated benefits or are unable to successfully integrate any acquisition, our business would suffer.

We have in the past, and may in the future, acquire businesses, products or technologies that we believe complement or expand our existing business. To the extent that we make any acquisitions in the future, our success will depend in part upon our ability to integrate the people, products and business lines we acquire into our operations. In addition, we will need to work with an acquired company’s customers and business partners to expand relationships based upon the broader range of products and services that may be available from us. In some instances, we may need to discontinue relationships with business partners whose interests are no longer aligned with ours. We must also accomplish the synergies we identified during the acquisition process. Failure to execute on any of these elements of the integration process could seriously harm our business, operating results or financial condition. We may pay for acquisitions in cash, but we cannot be certain that additional funds will be available to us on favorable terms, if at all. In lieu of paying cash, we could issue stock as consideration for an acquisition that would dilute existing shareholders’ percentage of ownership, incur substantial debt or assume contingent liabilities.

We cannot assure you that any acquired businesses, products or technologies will generate sufficient revenue and net income to offset the associated costs of the acquisitions or that such acquisitions will not result in other adverse effects. Moreover, from time to time, we may enter into negotiations for the acquisition of businesses, products or technologies but be unable or unwilling to consummate the acquisitions under consideration. This could cause significant diversion of managerial attention and resources.

Our future capital needs are uncertain, and we may need to raise additional funds in the future which may not be available on acceptable terms or at all.

Our capital requirements will depend on many factors, including:

• acceptance of, and demand for, NetVault;

• the costs of developing new products, services or technologies;

• the extent to which we invest in new technology and product development;

• the number and timing of acquisitions and other strategic transactions; and

• the costs associated with the growth of our business, if any.

Our existing sources of cash and cash flows may not be sufficient to fund our activities. As a result, we may need to raise additional funds, and such funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or convertible debt securities to raise additional funds, our existing shareholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing shareholders. If we incur additional debt, it would increase our leverage relative to our earnings or to our equity capitalization. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.

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Our success depends on retaining key personnel, including our executive officers, and hiring and retaining other qualified employees.

Our future growth and success depends on the continued contributions of our senior management as well as our ability to hire and retain other key engineering, sales and marketing and operations personnel as needed. If we are unable to hire and retain qualified employees, our business and operating results may be adversely affected. We need to hire and retain qualified personnel to support the planned expansion of our business and to meet the anticipated increase in customer demand for our product and services. All of our employees are free to terminate their employment with us at any time, and we have an employment agreements with only several members of management. Competition for people with the skills we require is intense, particularly in the San Diego area where our headquarters are located, and the high cost of living in this area makes our recruiting and compensation costs higher. As a result, we expect to continue to experience increases in compensation costs. We cannot assure you that we will be successful in hiring or retaining new personnel.

We rely upon software licensed from third parties, and if it became unavailable to us, we could be required to modify our software or to acquire a license or right to use alternative technology.

We license and use software owned by third parties in our business, some of which is incorporated into our product. These third party software licenses may not continue to be available to us on acceptable terms. Also, these third parties may from time to time receive claims that they have infringed the intellectual property rights of others, including patent and copyright infringement claims, which may affect our ability to continue licensing this software. Our inability to use any of this third party software could result in shipment delays or other disruptions in our business, which could materially and adversely affect our business and operating results.

Because we are a Canadian corporation, certain civil liabilities and judgments may be unenforceable against us by U.S. investors.

We are incorporated under the laws of Canada and some of our directors are residents of Canada. As a result, it may be difficult for our U.S.-based shareholders to initiate a lawsuit within the United States. It may also be difficult for shareholders to enforce a U.S. judgment in Canada or elsewhere or to succeed in a lawsuit in Canada or elsewhere based only on violations of U.S. securities laws.

We are subject to the risk of additional litigation and regulatory proceedings or actions in connection with the restatement of prior period financial statements.

We may in the future be subject to class actions, other securities litigation or other proceedings or actions arising in relation to the restatement of our prior period financial statements. In connection with the announcement of the restatements, we notified the appropriate regulatory authorities, including the SEC, the Ontario Securities Commission and the Toronto Stock Exchange, or our intent to restate previously reported results.

Litigation and any potential regulatory proceeding or action may be time consuming, expensive and distracting from the conduct of our business, and the outcome of litigation and any potential regulatory proceeding or action is difficult to predict. The adverse resolution of any specific lawsuit or any potential regulatory proceeding or action could have a material adverse effect on our business, results of operations and financial condition. To the extent expenses incurred in connection with litigation or any potential regulatory proceeding or action (which may include substantial fees of attorneys and other professional advisors and potential obligations to indemnify officers and directors who may be parties to such actions) are not covered by available insurance, such expenses could adversely affect our cash position.

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If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. Our independent auditors have reported material weaknesses in our internal controls that, if not remedied, could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock.

As described in Item 9A of this Annual Report, our independent auditors identified certain matters involving our internal controls and operations that they considered to be “reportable conditions”, as defined by the American Institute of Certified Public Accountants, including revenue recognition practices for certain customer contracts and our ability to account for domestic and international income taxes. In addition, our independent auditors have advised us that they consider these matters to be “material weaknesses” that, by themselves or in combination, result in a more than remote likelihood that a material misstatement in our financial statements will not be prevented or detected by our employees in the normal course of performing their assigned functions.

As a result of these findings, we have implemented, and continue to implement, actions to address these deficiencies and to enhance the reliability and effectiveness of our internal controls and operations. However, we cannot assure you that the measures we have taken to date or any future measures will remediate the material weaknesses reported by our independent accountants or that we will implement and maintain adequate controls over our financial processes and reporting in the future. Our independent auditors have not evaluated the measures we have taken or plan to take to address the material weaknesses described above. In addition, we cannot assure you that additional material weaknesses or reportable conditions in our internal controls will not be discovered in the future.

Any failure to remediate the material weaknesses reported by our independent auditors or implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. Moreover, we will be required to expend significant resources to design, implement and maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our consolidated financial statements through adverse changes in financial market prices and rates. Our market risk exposure results primarily from fluctuations in foreign exchange rates. Portions of our Pacific Rim revenues are currently denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our product more expensive and, therefore, potentially less competitive in those markets. A majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the substantial volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results. There can be no assurances that we will not experience currency losses in the future. We have not previously undertaken hedging transactions to cover currency exposure, and we do not currently intend to engage in hedging activities.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements at March 31, 2003 and 2004, and for the years ending March 31, 2002, 2003 and 2004 and the Report of our independent registered public accounting firm, are included in this Annual Report on pages F-1 through F-44.

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Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

BakBone maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to BakBone’s management, including its Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In connection with the completion of its audit of, and the issuance of an unqualified report on, the Company’s consolidated financial statements for the fiscal year ended March 31, 2004, BakBone’s independent auditors, KPMG LLP, issued a letter to our Audit Committee in which they noted certain matters involving BakBone’s internal controls and operation that they consider to be “reportable conditions”, as defined under standards established by the American Institute of Certified Public Accountants, or AICPA, including our revenue recognition practices for certain customer contracts and our ability to account for domestic and international income taxes. Reportable conditions are matters coming to the attention of our independent auditors that, in their judgment, relate to significant deficiencies in the design or operation of internal controls and could adversely affect BakBone’s ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. In addition, KPMG has advised us that they consider these matters to be “material weaknesses” that, by themselves or in combination, result in a more than remote likelihood that a material misstatement in our financial statements will not be prevented or detected by our employees in the normal course of performing their assigned functions. As a result of these findings, BakBone’s Audit Committee has authorized and directed management to fully implement actions to address these deficiencies and to enhance the reliability and effectiveness of BakBone’s control procedures.

To address the inappropriate revenue recognition for certain customer contracts, BakBone has refined its formal revenue contract review process that includes analyzing all contracts to identify provisions that impact software revenue recognition under AICPA Statement of Position 97-2, “Software Revenue Recognition.” This analysis, while previously employed, will be improved by enhanced documentation and analysis by experienced accounting personnel who are versed in software revenue recognition.

To address issues with our ability to account for foreign and domestic income taxes, we plan on hiring an experienced Corporate Tax Manager that has a thorough understanding of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, international tax, state tax, value added tax, and other tax matters that pertain to BakBone and our business. The Corporate Tax Manager will be responsible for preparing our income tax provision in accordance with GAAP. BakBone plans on adding the Corporate Tax Manager before the end of its second fiscal quarter of 2005.

As required by SEC Rule 13a-15(b), BakBone carried out an evaluation, under the supervision and with the participation of its management, including its CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2004. Based on the foregoing, our CEO and CFO determined that deficiencies identified by KPMG LLP caused our disclosure controls and procedures not to be effective at a reasonable assurance level. However, the CEO and CFO noted that BakBone is actively seeking to remedy the deficiencies identified herein and did not note any other material weaknesses or significant deficiencies in our disclosure controls and procedures during their evaluation. BakBone continues to improve and

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refine its internal controls. This process is ongoing, and BakBone seeks to foster an exemplary internal control environment.

Based upon the issues raised by KPMG LLP and BakBone’s evaluation of its disclosure controls and procedures, BakBone has restated its financial statements for fiscal years 2002 and 2003, and the first three quarters of fiscal 2004 to properly reflect stock-based compensation charges, revenue recognition for a limited number of customer contracts, and for certain other non-material adjustments. See Note 3 to BakBone’s Consolidated Financial Statements.

Other than as summarized above, there have been no changes in BakBone’s internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

PART III

Item 10.     Directors and Executive Officers of the Company

The information relating to directors of the Company is incorporated by reference from our Definitive Proxy Statement filed in connection with the Company’s Annual Meeting of Shareholders to be held August 4, 2004 as set forth under the caption “Election of Directors”. Information regarding executive officers is set forth in Item I of Part I of this Annual Report under the caption “Executive Officers”.

Item 11.     Executive Compensation and Other Matters

The information relating to executive compensation is incorporated by reference to the Proxy Statement under the caption “Executive Compensation and Other Matters.”

Item 12.     Security Ownership of Certain Beneficial Owners and Management

The information relating to ownership of equity securities of the Company by certain beneficial owners and management is incorporated by reference to the Proxy Statement under the caption “General Information-Stock Ownership of Certain Beneficial Owners and Management.”

Item 13.     Certain Relationships and Related Transactions

The information relating to certain relationships and related transactions is incorporated by reference to the Proxy Statement under the caption “Certain Transactions.”

Item 14.     Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Proxy Statement under the caption “Fees Paid to KPMG LLP”.

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PART IV

Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a) The following documents are filed as part of this Annual Report:

		Page Number
(1)	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets as of March 31, 2003 and 2004	F-2
	Consolidated Statements of Operations for the years ended March 31, 2002, 2003 and 2004	F-3
	Consolidated Statements of Shareholders’ Equity and Comprehensive Loss for the years ended March 31, 2002, 2003 and 2004	F-4
	Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2003 and 2004	F-6
	Notes to Consolidated Financial Statements	F-7
	Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(2)	Exhibits. The Exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report.

(b) Reports on Form 8-K.

A report on Form 8-K was filed by the Company on May 20, 2004, furnishing a press release entitled “BakBone Reports Fourth Quarter and Fiscal 2004 Operating Results and Revises Prior Period Financial Statements” described therein.

(c) Exhibits.

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

BakBone Software Incorporated:

We have audited the consolidated balance sheets of BakBone Software Incorporated and subsidiaries as of March 31, 2003 and 2004, and the related consolidated statements of operations, shareholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended March 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BakBone Software Incorporated and subsidiaries as of March 31, 2003 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2004, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, the Company has restated its consolidated financial statements as of March 31, 2003 and for each of the years in the two-year period ended March 31, 2003.

KPMG LLP

San Diego, California

June 25, 2004

F-1

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED BALANCE SHEETS

March 31, 2003 and 2004

(in thousands, except share data)

	March 31,
	2003			2004
	(restated)
ASSETS
Current assets:
Cash and cash equivalents	$	5,045		$	19,399
Accounts receivable, net of allowance for doubtful accounts of $87 and $135, respectively		4,822			7,383
Other assets		850			1,286
Total current assets		10,717			28,068
Property and equipment, net		2,239			1,942
Intangible assets, net		166			111
Goodwill		4,269			4,269
Other assets		644			787
Total assets	$	18,035		$	35,177
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	865		$	926
Accrued liabilities		3,147			4,078
Current portion of deferred revenue		2,409			6,877
Current portion of note payable		1,652			—
Total current liabilities		8,073			11,881
Deferred revenue, excluding current portion		2,837			2,930
Other liabilities		69			42
Total liabilities		10,979			14,853
Commitments and contingencies
Shareholders’ equity:
Series A convertible preferred stock, no par value, zero and 22,000,000 shares authorized, respectively, zero and 18,000,000, issued and outstanding, respectively, liquidation preference of $20,650		—			11,160
Share capital, no par value, unlimited shares authorized, 58,625,216 64,526,608 shares issued and outstanding, respectively		143,543			154,916
Share capital held by subsidiary		(66	)		—
Employee benefit trust		(1	)		(5	)
Deferred compensation		(359	)		(12	)
Accumulated deficit		(135,305	)		(145,475	)
Accumulated other comprehensive loss		(756	)		(260	)
Total shareholders’ equity		7,056			20,324
Total liabilities and shareholders’ equity	$	18,035		$	35,177

See accompanying notes to consolidated financial statements.

F-2

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended March 31, 2002, 2003 and 2004

(in thousands, except per share and share data)

	Year ended March 31,
	2002			2003			2004
	(restated)			(restated)
Revenues	$	6,609		$	17,918		$	27,107
Cost of revenues		1,158			1,650			2,994
Gross profit		5,451			16,268			24,113
Operating expenses:
Sales and marketing		8,281			12,125			15,330
Research and development		4,239			4,963			4,812
General and administrative		5,006			5,965			5,407
Stock-based compensation *		21,219			11,641			347
Special charges		—			415			—
Amortization of intangible assets		—			55			55
Amortization of goodwill		3,939			—			—
Amortization of investment in affiliate		854			—			—
Impairment of goodwill		2,789			888			—
Total operating expenses		46,327			36,052			25,951
Operating loss		(40,876	)		(19,784	)		(1,838	)
Interest expense, net		(69	)		(182	)		(1	)
Foreign exchange gain (loss), net		110			(59	)		(78	)
Other expense, net		(422	)		(19	)		(81	)
Equity in loss of affiliates, net		(7	)		—			—
Loss before income taxes		(41,264	)		(20,044	)		(1,998	)
Provision for income taxes		—			510			951
Net loss		(41,264	)		(20,554	)		(2,949	)
Beneficial conversion feature on preferred stock		—			—			7,221
Net loss attributable to common shareholders	$	(41,264	)	$	(20,554	)	$	(10,170	)
Net loss per common share:
Basic and diluted	$	(0.90	)	$	(0.37	)	$	(0.17	)
Weighted-average common shares outstanding:
Basic and diluted		45,697,111			55,536,923			60,882,811
* Stock-based compensation includes the following:
Sales and marketing	$	2,777		$	1,371		$	—
Research and development		12,011			8,289			276
General and administrative		6,431			1,981			71
	$	21,219		$	11,641		$	347

See accompanying notes to consolidated financial statements.

F-3

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

Years ended March 31, 2002, 2003 and 2004

(in thousands, except share data)

	Series A convertible preferred stock			Share capital				Share capital held by subsidiary			Employee benefit trust			Deferred compen- sation			Accum- ulated deficit			Accumulated other compre- hensive income (loss)			Compre- hensive income (loss)			Total share- holders’ equity
	Shares	Amount		Shares	Amount
BALANCE, MARCH 31, 2001	—	$	—	41,747,922	$	121,715		$	—		$	(412	)	$	(32,526	)	$	(73,487	)	$	(1,102	)				$	14,188
Public offering, net of offering costs	—		—	7,170,400		5,337			—			—			—			—			—						5,337
Private placement, net of offering costs	—		—	440,834		322			—			—			—			—			—						322
Change in fair value of unallocated Employee Benefit Trust shares	—		—	—		(236	)		—			236			—			—			—						—
Issuance of share capital upon exercise of stock options	—		—	13,000		9			—			—			—			—			—						9
Special warrants, net of issue costs	—		—	3,000,000		9,706			—			—			—			—			—						9,706
Issuance of share capital upon exercise of warrants	—		—	749,525		769			—			—			—			—			—						769
Cancellation of equity instruments	—		—	—		(328	)		—			—			328			—			—						—
Share capital held by subsidiary	—		—	—		66			(66	)		—			—			—			—						—
Stock-based compensation (as restated)	—		—	—		213			—			—			21,006			—			—						21,219
Comprehensive loss:
Net loss (as restated)	—		—	—		—			—			—			—			(41,264	)		—		$	(41,264	)		(41,264	)
Unrealized loss on equity securities	—		—	—		—			—			—			—			—			(13	)		(13	)		(13	)
Foreign currency translation adjustment	—		—	—		—			—			—			—			—			(30	)		(30	)		(30	)
Comprehensive loss																							$	(41,307	)
BALANCE, MARCH 31, 2002 (as restated)	—		—	53,121,681		137,573			(66	)		(176	)		(11,192	)		(114,751	)		(1,145	)					10,243
Issued to acquire interests in subsidiaries	—		—	2,100,000		2,877			—			—			—			—			—						2,877
Private placement, net of offering costs	—		—	1,917,788		1,000			—			—			—			—			—						1,000
Change in fair value of unallocated Employee Benefit Trust shares	—		—	—		(175	)		—			175			—			—			—						—
Issuance of share capital upon exercise of stock options	—		—	217,000		144			—			—			—			—			—						144
Issuance of share capital upon exercise of warrants	—		—	1,268,747		1,316			—			—			—			—			—						1,316
Deferred compensation recorded on equity issuances	—		—	—		240			—			—			(240	)		—			—						—
Cancellation of equity instruments	—		—	—		(65	)		—			—			65			—			—						—
Stock-based compensation (as restated)	—		—	—		633			—			—			11,008			—			—						11,641
Comprehensive loss:
Net loss (as restated)	—		—	—		—			—			—			—			(20,554	)		—		$	(20,554	)		(20,554	)
Unrealized gain on equity securities	—		—	—		—			—			—			—			—			13			13			13
Foreign currency translation adjustment	—		—	—		—			—			—			—			—			376			376			376
Comprehensive loss																							$	(20,165	)
BALANCE, MARCH 31, 2003 (as restated)	—		—	58,625,216		143,543			(66	)		(1	)		(359	)		(135,305	)		(756	)					7,056

See accompanying notes to consolidated financial statements.

F-4

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended March 31, 2002, 2003 and 2004

(in thousands, except share data)

continued…

	Series A convertible preferred stock					Share capital				Share capital held by subsidiary		Employee benefit trust			Deferred compen- sation			Accumulated deficit			Accumulated other compre- hensive income (loss)			Compre- hensive income (loss)			Total share- holders’ equity
	Shares		Amount			Shares	Amount
Preferred offering, net of offering costs	22,000,000			13,640		—		—			—		—			—			—			—						13,640
Beneficial conversion feature on preferred stock	—			—		—		7,221			—		—			—			(7,221	)		—						—
Conversion of preferred shares to share capital	(4,000,000	)		(2,480	)	4,000,000		2,480			—		—			—			—			—						—
Change in fair value of unallocated Employee Benefit Trust shares	—			—		—		4			—		(4	)		—			—			—						—
Issuance of share capital upon exercise of stock options	—			—		416,960		500			—		—			—			—			—						500
Issuance of share capital upon exercise of warrants	—			—		1,484,432		1,217			—		—			—			—			—						1,217
Sales of share capital held by subsidiary	—			—		—		(49	)		66		—			—			—			—						17
Stock-based compensation	—			—		—		—			—		—			347			—			—						347
Comprehensive loss:
Net loss	—			—		—		—			—		—			—			(2,949	)		—		$	(2,949	)		(2,949	)
Unrealized gain on equity securities	—			—		—		—			—		—			—			—			48			48			48
Foreign currency translation adjustment	—			—		—		—			—		—			—			—			448			448			448
Comprehensive loss																								$	(2,453	)
BALANCE, MARCH 31, 2004	18,000,000		$	11,160		64,526,608	$	154,916		$	—	$	(5	)	$	(12	)	$	(145,475	)	$	(260	)				$	20,324

See accompanying notes to consolidated financial statements.

F-5

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended March 31, 2002, 2003 and 2004

(in thousands)

	Year ended March 31,
	2002			2003			2004
	(restated)			(restated)
Cash flows from operating activities:
Net loss	$	(41,264	)	$	(20,554	)	$	(2,949	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		5,703			954			964
Stock-based compensation		21,219			11,641			347
Non-cash special charges		—			104			—
Impairment of goodwill		2,789			888			—
Loss on disposal of capital assets		443			—			—
Other non-cash charges, net		(124	)		—			—
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net		(1,885	)		(1,533	)		(2,561	)
Other assets		(10	)		(262	)		(531	)
Accounts payable		(723	)		220			61
Accrued liabilities		425			1,358			949
Deferred revenue		626			4,127			4,561
Net cash (used in) provided by operating activities		(12,801	)		(3,057	)		841
Cash flows from investing activities:
Capital expenditures		(433	)		(415	)		(534	)
Acquisitions of businesses, net of cash acquired		(117	)		—			—
Cash acquired through acquisitions		700			—			—
Proceeds from sale of capital assets		41			2			—
Net cash (used in) provided by investing activities		191			(413	)		(534	)
Cash flows from financing activities:
Restricted cash balances		66			804			—
Payments of capital lease obligations		(177	)		(202	)		(115	)
Payments on note payable		(812	)		(298	)		(1,652	)
Payments of related party loans		(12	)		(63	)		—
Proceeds from issuance of Series A convertible preferred stock, net of offering costs		—			—			13,640
Proceeds from issuance of special warrants		9,734			—			—
Proceeds from public offering		5,681			—			—
Proceeds from private placement		332			1,075			—
Offering costs related to common stock equity financings		(382	)		(75	)		—
Proceeds from exercise of stock options		9			144			500
Proceeds from exercise of warrants		769			1,316			1,217
Proceeds from sale of share capital held by subsidiary		—			—			17
Net cash provided by financing activities		15,208			2,701			13,607
Effect of exchange rate changes on cash and cash equivalents:		(211	)		312			440
Net increase (decrease) in cash and cash equivalents		2,387			(457	)		14,354
Cash and cash equivalents, beginning of period		3,115			5,502			5,045
Cash and cash equivalents, end of period	$	5,502		$	5,045		$	19,399
Cash paid during the period for:
Interest	$	287		$	204		$	120
Income taxes	$	—		$	60		$	208
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Acquisition consideration classified in accrued liabilities	$	170		$	—		$	—
Non-cash investing and financing activity:
Equipment acquired under capital leases	$	—		$	89		$	70
Investment received from sale of non-operating subsidiaries	$	126		$	—		$	—
Share capital issued in connection with acquisitions	$	—		$	2,877		$	—
Share capital to be issued in connection with acquisitions	$	2,877		$	—		$	—

See accompanying notes to consolidated financial statements.

F-6

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003 and 2004

(1) Organization and Significant Accounting Policies

Description of Business

BakBone Software Incorporated (“BakBone” or the “Company”), a Canadian federal company, is an international data protection solution provider that develops and distributes data backup, restore, and disaster recovery software for network storage and open systems environments. BakBone delivers scalable solutions that address the complex demands of large enterprise environments, as well as small-to-medium-sized businesses. The Company’s products are distributed primarily through a select global network of Original Equipment Manufacturers (“OEM” or “OEMs”), Value Added Resellers (“VAR” or “VARs”), Value Added Distributors (“VAD” or “VADs”), and other solution providers.

Basis of Presentation

The accompanying consolidated financial statements of BakBone have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s consolidated financial statements were filed previously in Canadian GAAP, and the Company filed its annual reports with the Securities Exchange Commission (“SEC”) as a foreign private issuer (“FPI”) through its Annual Report on Form 20-F. The Company is filing its initial Annual Report on Form 10-K, as the Company no longer satisfies the FPI criteria.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. The Company consolidates all majority-owned and controlled subsidiaries and applies the equity method of accounting for investments between 20% and 50%. A company must own or demonstrate control of greater than 50% of an acquired entity’s voting shares in order to consolidate the entity. As the Company did not control greater than 50% of the voting interests in BakBone KK, a Japanese subsidiary, until the March 2002 minority interest acquisition, and in Tracer KK, a Japanese subsidiary, until the January 2002 minority interest acquisition, the Company used the equity method of accounting for these subsidiaries up to the respective acquisition dates. Accordingly, up to the respective minority interest acquisition dates, the results of operations of BakBone KK and Tracer KK have been included in “Equity in loss of affiliates, net” in the accompanying consolidated statements of operations.

Subsequent to March 31, 2002, the consolidated financial statements include the accounts of the Company and its subsidiaries, all of which were wholly owned as of this date.

Foreign Currency

The asset and liability accounts of the Company’s foreign subsidiaries are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, and revenue and expense items are translated at the average exchange rate during the reporting period. Foreign currency translation gains and losses are included in “Accumulated other comprehensive loss” as a separate component of Shareholders’ equity.

F-7

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

The financial statements of the Company’s foreign subsidiaries where the functional currency has been determined to be the local currency are translated into U.S. dollars using current rates of exchange for assets and liabilities and rates of exchange that approximate the rates in effect at the transaction date for revenues, expenses, gains and losses. Certain transactions of the Company’s foreign subsidiaries are denominated in currencies other than the subsidiaries’ local currency. Gains or losses resulting from these transactions are included in the Company’s results of operations as incurred and historically have been immaterial.

Cash and Cash Equivalents

Cash and cash equivalents consist of money market instruments, commercial paper and other highly liquid investments with original maturities of three months or less from the date of purchase.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company limits its exposure to credit loss by placing its cash and cash equivalents in short-term investments with high credit quality financial institutions. The Company has accounts receivable related to license and maintenance fees typically with credit terms of 30-60 days. The Company provides allowance for doubtful accounts against accounts receivables for estimated losses that may result from customers’ inability to pay. The amount of the allowance is determined by analyzing known uncollectible accounts, aged receivables, and economic conditions in the customers’ industry, historical losses and changes in customer creditworthiness. Write-offs to date have not been material.

The Company had one customer that comprised 16% and 12% of total revenues for the years ended March 31, 2003 and 2004, respectively, and 25% and 11% of total accounts receivable as of March 31, 2003 and 2004. No one customer accounted for 10% or more of total revenues or accounts receivable during the year ended March 31, 2002.

Fair Value of Financial Investments

The carrying amounts shown for the Company’s cash and cash equivalents, accounts receivable and accounts and notes payable approximate their fair value due to the short-term maturities of these instruments.

Marketable Securities

Marketable securities consist of an investment in a public company, which was classified as available for sale and carried at fair value with unrealized gains or losses reported in a separate component of accumulated other comprehensive loss. The fair value of the investment was immaterial at March 31, 2004, and is included in non-current “Other assets” in the accompanying Consolidated Balance Sheets.

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the assets’ useful lives as follows:

Computer equipment and software	3–5 years
Furniture and fixtures	5–7 years
Leasehold improvements	Shorter of estimated useful life or life of lease

F-8

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Impairment of Long-Lived Assets

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, on April 1, 2002. The adoption of SFAS No. 144 did not have a material effect the Company’s consolidated financial statements. In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Goodwill

The Company has recorded goodwill in connection with the acquisitions it has completed in prior periods. In accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, the Company reviews its goodwill for impairment as of April 1st of each fiscal year or when an event or a change in facts and or circumstances indicates the fair value of a reporting unit may be below its carrying amount. For segment reporting, the Company has historically reported its results of operations based on its primary product offerings: NetVault and MagnaVault. Subsequent to November 2002, when the Company made the decision to “end of life” the MagnaVault product, the Company operates in a single business segment. SFAS No. 142 defines a reporting unit as an operating segment, or one unit below. For purposes of its transitional and annual goodwill impairment analyses, the Company has divided its operating segment into reporting units, which are based on the Company’s geographic reporting entities: North America, EMEA, and the Pacific Rim. Events or changes in facts and circumstances that it considers as impairment indicators include the following:

• significant underperformance of the Company’s business relative to expected operating results;

• significant adverse economic and industry trends;

• significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and

• expectations that a reporting unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities of BakBone to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of each reporting unit exceeds its fair value, an indication exists that each reporting unit’s goodwill may be impaired and we then perform the second step of the impairment test. If the fair value of each reporting unit exceeds its carrying amount, no further analysis is required.

F-9

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Step 2. The Company compares the implied fair value of each reporting unit’s goodwill, determined by allocating each reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. If the carrying amount of each reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Employee Benefit Trust (EBT)

In connection with the NetVault Holdings Ltd. acquisition in March 2000, 2.1 million of the Company’s common shares were placed in trust and allocated to United Kingdom employees. Upon allocation of EBT shares to employees, the company records the intrinsic value of the shares as deferred compensation and amortizes the intrinsic value to stock-based compensation expense over the applicable vesting period. The Company records the aggregate value of unallocated EBT shares in share capital and in employee benefit trust, a contra equity account, using the closing price per share on the Toronto Stock Exchange (TSE) as of the end of each reporting period.

The Company incurs a National Insurance Contribution (NIC) liability in the United Kingdom, which is a tax on earned income, whenever an employee removes shares from the EBT. The NIC liability incurred equates to a percentage of the fair value of common shares removed on the date of removal. The Company recognizes the NIC liability in accordance with Emerging Issues Task Force, or EITF, Issue No. 00-16, “Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation”. Accordingly, the NIC liability for EBT-related employee payroll taxes is recognized on the date of the event triggering the measurement and payment of the tax to the taxing authority.

Revenue Recognition

The Company recognizes software license revenue in accordance with the American Institute of Certified Public Accountants, Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition”. Accordingly, the Company recognizes revenue upon delivery, provided all significant obligations have been met, persuasive evidence of an arrangement exits, fees are fixed or determinable, collection is probable, and the Company is not involved in significant production, customization, or modification of the software or services that are essential to the functionality of the software.

The Company licenses software to resellers in arrangements under which they purchase a combination of software, post-contractual support and/or professional services (collectively “multiple element arrangements”). Post-contractual support includes rights to unspecified upgrades and enhancements, and telephone support. Professional services relate to implementation services and training. For these types of arrangements, the Company has established vendor specific objective evidence, or VSOE, of fair value for all elements in the multiple element arrangement, and thus, revenue is allocated to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. The Company determines VSOE of fair value of post-contractual support based on substantive renewal rates for the same term post-contractual support.

The Company also licenses software under several OEM agreements, which are segregated into two categories for revenue recognition purposes. Certain OEM arrangements involve multiple elements where VSOE of fair value exists for all undelivered elements but VSOE of fair value does not exist for one or more delivered elements. Under these arrangements revenue is recognized using the residual method, whereby, the fair value of

F-10

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming delivery has occurred and collectibility is probable. Revenue allocated to post-contractual support is recognized ratably over the arrangement period, which is generally one year. One OEM customer has a specific right of return, whereby the customer is contractually permitted to return our product during the arrangement period. The Company accounts for potential returns from this customer in accordance with SFAS No. 48, “Revenue Recognition When Right of Return Exists.” The Company uses historical returns experience with this customer to estimate potential returns and to establish the appropriate sales returns allowance.

The Company has also entered into multiple element arrangements with certain OEM customers under which, in addition to providing software licenses and maintenance services, the Company makes a commitment to the customer to provide unspecified future software products. As VSOE of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are initially deferred and subsequently recognized ratably over the contract term. Revenue recognized under these arrangements is included under “Development Software Solutions” in Note 15 to the consolidated financial statements.

Product Development Costs

Product development costs related to research, design and development of software applications are charged to expense as incurred. To date, completion of working models of the Company’s applications and the general release of the products have substantially coincided. As a result, the Company has not capitalized any application development costs as no such costs have been incurred.

Stock-Based Compensation

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock –based compensation. Under APB No. 25, when the exercise price of the Company’s employee stock options is equal to or greater than the fair value of the underlying stock on the date of grant, no compensation expense is recognized. Certain of the Company’s stock options have been granted with exercise prices below the fair value of the Company’s common stock as determined by the current market price per the Toronto Stock Exchange (TSE) on the date of grant. For these stock options, the Company has recorded deferred stock-based compensation for the difference between their exercise prices and such estimated fair values which is being amortized to expense on a straight-line method over the stock option’s vesting period.

Compensation for equity instruments issued to non-employees has been determined in accordance with SFAS No. 123 as amended and interpreted.

F-11

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Pro forma information regarding net loss is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the grant date using the Black-Scholes method for option pricing with the following assumptions (in thousands, except per share data):

	Year ended March 31,
	2002			2003			2004
Weighted-average risk free interest rate		3.50	%		3.72	%		2.76	%
Expected option life		3.26			2.83			4.62
Stock price volatility		70	%		100	%		97	%
Expected dividend yield		0	%		0	%		0	%
Weighted average fair value of options	$	0.79		$	0.73		$	1.10

Future pro forma results of operations under SFAS No. 123 may be materially different from actual amounts reported. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. The pro forma results of operations are summarized below (in thousands, except per share data):

	Year ended March 31,
	2002			2003			2004
	(restated)			(restated)
Net loss attributable to common shareholders—as reported	$	(41,264	)	$	(20,554	)	$	(10,170	)
Add: stock-based employee compensation expense included in reported net loss attributable to common shareholders		21,148			11,105			347
Less: total stock-based employee compensation expense determined under the fair value method for all awards		(22,265	)		(16,384	)		(3,038	)
Pro forma net loss attributable to common shareholders	$	(42,381	)	$	(25,833	)	$	(12,861	)
Net loss per share:
Basic and diluted—as reported	$	(0.90	)	$	(0.37	)	$	(0.17	)
Basic and diluted—pro forma	$	(0.93	)	$	(0.47	)	$	(0.21	)

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is the total of net loss and all other non-owner changes in shareholders’ equity. The Company’s other accumulated comprehensive loss consists of foreign currency translation adjustments and unrealized gains or losses on available-for-sale investments. Such amounts are excluded from net loss and are reported in accumulated other comprehensive loss in the accompanying consolidated financial statements.

F-12

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Accumulated other comprehensive loss as of March 31, 2002, 2003 and 2004 is as follows (in thousands):

	Foreign currency translation adjustment			Unrealized gain (loss) on marketable securities			Total
Balance at March 31, 2001	$	(1,102	)	$	—		$	(1,102	)
Current period change		(30	)		(13	)		(43	)
Balance at March 31, 2002		(1,132	)		(13	)		(1,145	)
Current period change		376			13			389
Balance at March 31, 2003		(756	)		—			(756	)
Current period change		448			48			496
Balance at March 31, 2004	$	(308	)	$	48		$	(260	)

Income Taxes

The Company applies the asset and liability method of accounting for deferred income taxes, under which future income tax assets and liabilities are determined based on temporary differences and are measured using the current tax rates and laws expected to apply when these differences reverse. In preparing the consolidated financial statements, the Company estimates its income tax liability in each of the jurisdictions in which it operates by estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. These differences result in deferred tax assets and liabilities. Significant management judgment is required in assessing the realizability of the Company’s deferred tax assets. In performing this assessment, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In the event that actual results differ from its estimates or the Company adjusts its estimates in future periods, the Company may need to reduce its valuation allowance, which could materially impact its financial position and results of operations.

Net Loss Per Share

In accordance with SFAS No. 128, Earnings Per Share, basic net loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Potentially dilutive securities are not considered in the calculation of net loss per common share as their inclusion would be anti-dilutive.

F-13

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

The following table summarizes potential common shares that are not included in the denominator used in the basic and diluted net loss per share calculation because to do so would be antidilutive:

	Year ended March 31,
	2002	2003	2004
Stock options	2,755,813	3,305,255	5,724,977
Warrants	1,733,909	1,568,892	80,000
Shares held in EBT	473,003	4,000	4,000
Series A convertible preferred stock	—	—	18,000,000
Total anti-dilutive instruments	4,962,725	4,878,147	23,808,977

Reclassification

Certain prior period amounts shown in the consolidated financial statements have been reclassified to conform to the current presentation.

Segment Information

The Company follows the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires public companies to report financial and descriptive information about their reportable operating segments. The Company identifies its operating segments based on how management internally evaluates separate financial information, business activities and management responsibility. The Company has determined that it operates in two segments, which are the Company’s two product lines, NetVault and MagnaVault. Revenues are generated from the licensing of software and sale of support services. Total assets, capital expenditures, depreciation and amortization, interest income and operating expenses are not disclosed by operating segment as they are not specifically related to a particular product line. In November 2002, the Company decided to “end of life” the MagnaVault product line. See Note 11, “Special Charges”, for a description of the “end of life” accounting treatment. Currently, the Company believes it operates in a single business segment, but has voluntarily included MagnaVault revenues in Note 15, “Segment Information”, for comparative purposes.

Recently Issued Accounting Standards

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 is an amendment to SFAS No. 123 providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and also provides additional disclosures about the method of accounting for stock-based employee compensation. Amendments are effective for financial statements for fiscal years ending after December 15, 2002. The Company has currently chosen to not adopt the voluntary change to the fair value based method of accounting for stock based employee compensation, pursuant to SFAS No. 148, which, if adopted, could have a material effect on its consolidated financial position or results of operations.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

F-14

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling financial interest or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. Development-stage entities that have sufficient equity invested to finance the activities they are currently engaged in and entities that are businesses, as defined in FIN 46, are not considered VIEs. The provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. In October 2003, the FASB deferred the effective date of FIN 46 for pre-existing VIEs to no later than February 2004. In December 2003, the FASB issued a revision to FIN 46 (FIN 46-R), which incorporated the October 2003 deferral provisions and clarified and revised the accounting guidance for VIEs. All VIEs, regardless of when created, are required to be evaluated under FIN 46-R no later than the quarter ended March 31, 2004. The Company adopted FIN 46-R, effective March 31, 2004, and the adoption did not have a material effect on its consolidated financial condition, results of operations or cash flows. As of March 31, 2004, the Company has not identified any VIEs that would require consolidation or any significant exposure to VIEs that would require disclosure.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150), which requires that certain financial instruments be presented as liabilities that were previously presented as equity or as temporary equity. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is generally effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s consolidated financial position or results of operations.

In December 2003, the SEC published Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. This SAB updates portions of the SEC staff’s interpretive guidance provided in SAB 101. SAB 104 deletes interpretive material no longer necessary, and conforms the interpretive material retained, because of pronouncements issued by the FASB’s EITF on various revenue recognition topics. The adoption of SAB 104 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

(2) Balance Sheet Details

Allowance for doubtful accounts consists of the following activity for the years ended March 31, 2002, 2003 and 2004 (in thousands):

	2002			2003			2004
Beginning balance	$	12		$	72		$	87
Additions to allowance		87			57			62
Direct allowance write-offs		(27	)		(42	)		(14	)
Ending balance	$	72		$	87		$	135

F-15

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Property and equipment consists of the following (in thousands):

		March 31,
Class	Useful Life	2003			2004
Computer equipment and software	3–5 years	$	3,051		$	3,747
Furniture and fixtures	5–7 years		632			668
Leasehold improvements	Lease term		517			498
Less: Accumulated depreciation and amortization			(1,961	)		(2,971	)
Net property plant and equipment		$	2,239		$	1,942

Accrued liabilities consists of the following (in thousands):

	March 31,
	2003		2004
	(restated)
Accrued compensation and employee benefits	$	877	$	1,591
Accrued taxes		810		1,534
Unearned revenue		345		61
Other accrued liabilities		1,115		892
	$	3,147	$	4,078

(3) Restatements

As of the end of the fourth quarter of fiscal 2004, the Company began reporting all results in accordance with U.S. GAAP. Historically, the Company has reported its results in accordance with Canadian GAAP with its annual results reconciled to U.S. GAAP in its Annual Report on Form 20-F filed with the SEC. In connection with its transition to U.S. GAAP as its primary basis of presentation, the Company determined the need to restate prior period financial statements for several errors in fiscal 2002 and 2003.

The following presents the details by category, aggregating the net increase in net loss from the restatement adjustments for the years ended March 31, 2002 and 2003 (in thousands):

Net increase in net loss

	2002			2003
Stock-based compensation	$	3,956		$	384
Revenue adjustments		—			272
Other expenses		(97	)		310
Net increase in net loss	$	3,859		$	966

Descriptions of the categories of the restatement adjustments to BakBone’s net loss for the years ended March 31, 2002 and 2003 are set forth below:

Stock-based compensation

Adjustments related to stock-based compensation were $4.0 million and $384,000 for the years ended March 31, 2002 and 2003, respectively. The year ended March 31, 2002 did not reflect properly the reversal of

F-16

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

deferred stock-based compensation balances related to the Company’s August 2001 voluntary employee stock option cancellation and re-grant program. For the year ended March 31, 2002, $3.9 million in deferred compensation balances were identified as having been reversed erroneously against share capital and not recognized as additional compensation expense. Furthermore, the Company identified instances where certain equity instruments granted to non-employees during the years ended March 31, 2002 and 2003 were valued using a Black-Scholes model assumption that was incorrect. The Company re-calculated these amounts and recorded an additional $50,000 and $384,000 in stock-based compensation during the years ended March 31, 2002 and 2003, respectively.

Revenue adjustments

In connection with the Company’s 53% step acquisition of BakBone KK in March 2002, the Company recorded 100 percent of BakBone KK’s deferred revenue balances that existed on the date of the step acquisition. An adjustment was made to record these deferred revenue balances at fair value on the date of the acquisition, which led to corresponding adjustments that decreased service revenues by $178,000 in the year ended March 31, 2003. These adjustments were made to conform to accounting rules and interpretations regarding acquisition transactions that require recognition of deferred revenue only to the extent it represents a legal obligation assumed by the acquiring entity.

Furthermore, the Company determined that revenues totaling $94,000 recognized initially during the year ended March 31, 2003 should have been deferred as of March 31, 2003 and recognized during the year ended March 31, 2004.

Other expenses

The Company determined that aggregate expense adjustments of ($97,000) and $310,000 for the years ended March 31, 2002 and 2003, respectively, should have been recorded. The restatement adjustment included in the year ended March 31, 2002 represents the net effect of the reversal of a $222,000 lease liability and the addition of $125,000 in consulting expenses paid to a member of the Company’s Board of Directors for services provided in connection with an equity offering. The lease liability was recorded originally in connection with an unused facility; however, the criteria for liability and expense recognition were not met as of March 31, 2002. The consulting fees were offset originally against the proceeds of an equity offering. The $310,000 restatement adjustment included in the year ended March 31, 2003, represents $55,000 related to the amortization of a separately identified intangible asset and the recognition of $255,000 in additional general and administrative expenses. The original purchase price allocation of the Company’s 53% step acquisition of BakBone KK allocated no value to separately identified intangible assets. The Company has since determined that $221,000 in amortizable intangible assets should have been recorded, with the intangible asset being amortized over the assets’ useful life of three years. The additional general and administrative expenses relate to the recognition of $222,000 in rent expense associated with the aforementioned lease liability and to $33,000 in previously unaccrued legal expenses.

Weighted-average common shares outstanding

The Company determined that the number of weighted-average shares outstanding, which is used to calculate basic and diluted earnings per share, required adjusting for the years ended March 31, 2002 and 2003. Historically, the Company considered certain shares to be contingently issuable for purposes of calculating the number of weighted-average shares outstanding. In accordance with SFAS No. 128, contingently issuable shares

F-17

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

are included in the calculation of the number of weighted-average shares outstanding only after the contingent event has been satisfied. Upon further review, the Company determined that these shares were improperly classified as contingently issuable, thus, the number of weighted-average common shares outstanding was adjusted accordingly. As a result, the number of weighted-average common shares was increased by 4,827,585 and 2,276,985 for the years ended March 31, 2002 and 2003, respectively.

Impacts of the restatements on the accompanying consolidated financial statements

The following provides a summary of the impact of the restatements for the periods presented in the accompanying consolidated financial statements:

Consolidated statement of operations for the year ended March 31, 2002 as restated

Net loss for the year ended March 31, 2002 was increased by $3.9 million from $37.4 million to $41.3 million. The major components of the increase included:

• $3.9 million increase in stock-based compensation due to the change in treatment of stock options cancelled in connection with the Company’s August 2001 voluntary employee stock option cancellation and re-grant program;

• $50,000 increase in stock-based compensation due to an adjustment to an assumption used in a stock option valuation model;

• $222,000 decrease in general and administrative expenses associated with the reversal of a lease accrual related to an unused facility; and

• $125,000 increase in general and administrative expense associated with the expensing of consulting payments that were originally capitalized and offset against equity proceeds.

Consolidated statement of operations for the year ended March 31, 2003 as restated

Net loss for the year ended March 31, 2003 was increased by $966,000 from $19.6 million to $20.6 million. The major components of the increase included:

• $384,000 increase in stock-based compensation due to adjustments related to an assumption used in a stock option valuation model and to an equity instruments vesting provisions;

• $178,000 decrease in revenue associated with the reduction of deferred revenue balances obtained through acquisition in the prior fiscal year;

• $94,000 decrease in revenue associated with the deferral of certain arrangements;

• $222,000 increase in general and administrative expenses associated with the recognition of rent expense surrounding the reversal of the lease liability during the year ended March 31, 2002;

• $55,000 increase in amortization expense due to the reclassification of certain goodwill balances to intangible assets. The $55,000 amortization charge represents a new expense as the amounts previously recognized as goodwill were not amortized; and

• $33,000 increase in general and administrative expenses associated with an increase in accrued liabilities.

F-18

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Consolidated balance sheet as of March 31, 2003 as restated

As of March 31, 2003

• $166,000 net increase in intangible assets due to the reclassification of certain goodwill balances to intangible assets;

• $400,000 decrease in goodwill represents the combination of a $178,000 reduction related to the deferred revenue purchase accounting adjustment and a $222,000 reduction due to the reclassification of certain goodwill balances to intangible assets;

• $33,000 increase in accrued liabilities associated with an increase in general and administrative expenses;

• $94,000 increase in deferred revenue associated with the deferral of certain arrangements;

• $4.4 million increase in share capital represents the aggregation of stock-based compensation adjustments made in fiscal 2002 and 2003, combined with the offering costs adjustment made in fiscal 2002;

• $76,000 decrease in deferred compensation due to the increase in stock-based compensation expense during the period; and

• $4.8 million increase in accumulated deficit represents the aggregation of all adjustments made in fiscal 2002 and 2003 that served to increase or decrease net loss.

• $2.7 million reduction to the current portion of deferred revenue, and corresponding increase to deferred revenue, excluding the current portion. This reclassification was driven by the change in revenue recognition pertaining to one of the Company’s OEM arrangements.

F-19

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended March 31, 2002

(in thousands, except per share data)

	As Previously Reported			Adjustments			As Restated
Revenues	$	6,609		$	—		$	6,609
Cost of revenues		1,158			—			1,158
Gross profit		5,451			—			5,451
Operating expenses:
Sales and marketing		8,281			—			8,281
Research and development		4,239			—			4,239
General and administrative		5,103			(97	)		5,006
Stock-based compensation *		17,263			3,956			21,219
Amortization of goodwill		3,939			—			3,939
Amortization of investment in affiliate		854			—			854
Impairment of goodwill		2,789			—			2,789
Total operating expenses		42,468			3,859			46,327
Operating loss		(37,017	)		(3,859	)		(40,876	)
Interest expense, net		(69	)		—			(69	)
Foreign exchange gain, net		110			—			110
Other expense, net		(422	)		—			(422	)
Equity loss of affiliate		(7	)		—			(7	)
Net loss	$	(37,405	)	$	(3,859	)	$	(41,264	)
Loss per share—basic and diluted	$	(0.92	)	$	0.02		$	(0.90	)
* Stock-based compensation includes the following:
Sales and marketing	$	2,041		$	736		$	2,777
Research and development		9,021			2,990			12,011
General and administrative		6,201			230			6,431
	$	17,263		$	3,956		$	21,219

F-20

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended March 31, 2003

(in thousands, except per share data)

	As Previously Reported			Adjustments			As Restated
Revenues	$	18,190		$	(272	)	$	17,918
Cost of revenues		1,650			—			1,650
Gross profit		16,540			(272	)		16,268
Operating expenses:
Sales and marketing		12,125			—			12,125
Research and development		4,963			—			4,963
General and administrative		5,710			255			5,965
Stock-based compensation *		11,257			384			11,641
Special charges		415			—			415
Amortization of intangible assets		—			55			55
Impairment of goodwill		888			—			888
Total operating expenses		35,358			694			36,052
Operating loss		(18,818	)		(966	)		(19,784	)
Interest expense, net		(182	)		—			(182	)
Foreign exchange loss, net		(59	)		—			(59	)
Other expense, net		(19	)		—			(19	)
Loss before income taxes		(19,078	)		(966	)		(20,044	)
Provision for income taxes		510			—			510
Net loss	$	(19,588	)	$	(966	)	$	(20,554	)
Loss per share—basic and diluted	$	(0.37	)	$	—		$	(0.37	)
* Stock-based compensation includes the following:
Sales and marketing	$	1,371		$	—		$	1,371
Research and development		8,289			—			8,289
General and administrative		1,597			384			1,981
	$	11,257		$	384		$	11,641

F-21

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED BALANCE SHEETS

March 31, 2003

(in thousands)

ASSETS	As Previously Reported			Adjustments			As Restated
Current assets:
Cash and cash equivalents	$	5,045		$	—		$	5,045
Accounts receivable, net of allowance for doubtful accounts of $135		4,822			—			4,822
Other assets		850			—			850
Total current assets		10,717			—			10,717
Property and equipment, net		2,239			—			2,239
Intangible assets, net		—			166			166
Goodwill		4,669			(400	)		4,269
Other assets		644			—			644
Total assets	$	18,269		$	(234	)	$	18,035
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	865		$	—		$	865
Accrued liabilities		3,114			33			3,147
Current portion of deferred revenue		5,152			(2,743	)		2,409
Note payable		1,652			—			1,652
Total current liabilities		10,783			(2,710	)		8,073
Deferred revenue, excluding current portion		—			2,837			2,837
Other liabilities		69			—			69
Total liabilities		10,852			127			10,979
Shareholders’ equity:
Share capital		139,155			4,388			143,543
Share capital held by subsidiary		(66	)		—			(66	)
Employee benefit trust		(1	)		—			(1	)
Deferred compensation		(435	)		76			(359	)
Accumulated deficit		(130,480	)		(4,825	)		(135,305	)
Accumulated other comprehensive loss		(756	)		—			(756	)
Total shareholders’ equity		7,417			(361	)		7,056
Total liabilities and shareholders’ equity	$	18,269		$	(234	)	$	18,035

F-22

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(4) Investments in Affiliates

During fiscal 2001 and 2002, the Company’s investments in affiliates consisted of a 47% interest in BakBone KK, a distributor of NetVault software in Japan, and a 50% interest in Tracer KK, a distributor of MagnaVault software in Japan. As of March 31, 2002, the Company had completed its acquisition of a 100% ownership interest in each of the entities. As the Company did not control greater than 50% of the voting interests in BakBone KK until March 2002 and in Tracer KK until January 2002, the Company used the equity method of accounting up to the respective acquisition dates. Accordingly, up to the respective acquisition dates, the results of operations of BakBone KK and Tracer KK are not included in the consolidated financial statements of the Company.

During the year ended March 31, 2002, the Company recorded its 47% share of BakBone KK’s net earnings of $82,000. In addition, as the carrying value of the Company’s investment in BakBone KK exceeded the underlying equity in net assets of BakBone KK, the Company recorded amortization expense of $854,000 during the year ended March 31, 2002, respectively.

During the nine months ended December 31, 2001, the Company recorded equity in loss of Tracer KK of $89,000. Upon the 25% acquisition of minority interest shares in January 2002, the Company began consolidating Tracer KK, as the Company’s direct ownership percentage in Tracer KK equaled 75%. During the period from January 1, 2002 through the final 25% minority acquisition on March 31, 2002, minority interest in Tracer KK is reflected in the consolidated statement of operations.

Summarized financial information for BakBone KK and Tracer KK for the applicable periods is as follows (in thousands):

	BakBone KK & Tracer KK Combined Year ended March 31, 2002
Total revenues	$	3,254
Gross profit	$	3,168
Operating loss	$	(51	)
Net loss	$	(26	)

(5) Goodwill and Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but instead is tested for impairment at least annually. The standard also specifies criteria that intangible assets must meet in order to be recognized and reported apart from goodwill. The Company adopted this new standard as of April 1, 2002 and accordingly, discontinued the amortization of goodwill. Furthermore, the Company had separately identifiable intangible assets of $221,000 as of April 1, 2002.

F-23

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

As of April 1, 2002, the Company had unamortized goodwill of $5.1 million. Net loss would have been as follows if SFAS No. 142 had been adopted prior to April 1, 2001 (in thousands, except per share data):

	Year ended March 31,
	2002			2003			2004
	(restated)			(restated)
Net loss attributable to common shareholders, as reported	$	(41,264	)	$	(20,554	)	$	(10,170	)
Add: amortization of goodwill		3,939			—			—
Net loss attributable to common shareholders, as adjusted	$	(37,325	)	$	(20,554	)	$	(10,170	)
Net loss per share:
Basic and diluted—as reported	$	(0.90	)	$	(0.37	)	$	(0.17	)
Basic and diluted—as adjusted	$	(0.82	)	$	(0.37	)	$	(0.17	)

In connection with the transitional goodwill impairment evaluation as of April 1, 2002, specified by SFAS No. 142, the Company completed the first step of the transitional impairment test of goodwill by the end of the second quarter of fiscal 2003. The first step of the transitional goodwill impairment test required the Company to determine and compare the fair value of its defined reporting units to their carrying values as of April 1, 2002. For segment reporting, the Company has historically reported its results of operations based on its primary product offerings: NetVault and MagnaVault. Subsequent to November 2002, when the Company decided to “end of life” the MagnaVault product, the Company operates in a single business segment. SFAS No. 142 defines a reporting unit as an operating segment, or one unit below. For purposes of its transitional and annual goodwill impairment analyses, the Company has divided its operating segment into reporting units, which are based on the Company’s geographic reporting entities: North America, EMEA, and the Pacific Rim. The fair value of each reporting unit was determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit was determined by specifically identifying and allocating the assets and liabilities of BakBone to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. The Company believes that the assumptions made for these analyses are reasonable and have been applied consistently. The estimated fair values exceeded the carrying values for each reporting unit, resulting in no indication of impairment. Consequently, the second step of the impairment test was not required.

In connection with the acquisition of Tracer, the Company acquired exclusive intellectual property rights to MagnaVault, the Company’s comprehensive nearline archival software and UNIX and Linux host environments. MagnaVault revenues were flat during the first three quarters of the year ended March 31, 2002, with a notable decrease during the fourth quarter of the year ended March 31, 2002. Based on MagnaVault’s results of operations during the fourth quarter of the year ended March 31, 2002, the Company performed an impairment analysis of the Tracer intangibles. As of March 31, 2002, the Company determined that the carrying value of the Tracer intangibles exceeded fair value as determined by the estimated discounted cash flows expected to be generated by the underlying assets. Therefore, the Company recorded an impairment charge of $2.8 million in the accompanying consolidated statement of operations for the year ended March 31, 2002, reflecting the difference between the carrying value and discounted projected future cash flows.

During the first two quarters of fiscal 2003, total revenues generated by MagnaVault experienced a continued significant decline. This trend continued into the third quarter of fiscal 2003, and in November 2002, the Company decided to “end of life” the MagnaVault product, whereby all activities, with the exception of customer support, related to MagnaVault would cease permanently, effective December 31, 2002. In connection with this decision, the Company terminated several employees and closed its Maryland office facility. Based on

F-24

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

this triggering event, in accordance with SFAS No. 142, the Company was required to perform an impairment analysis on the MagnaVault-related goodwill as of December 31, 2002. The first step in the impairment analysis involved comparing the carrying values of the MagnaVault reporting units to their fair values. It was determined that the carrying values of the reporting units exceeded the estimated fair values, and consequently, step two of the impairment test was required. As a result of step two, the related goodwill was deemed impaired and the Company recognized an impairment charge of $442,000 in the third quarter of fiscal 2003. The charge represented the amount by which the goodwill’s carrying value exceeded its estimated fair value, a component of which related to the estimated terminal value of the MagnaVault intellectual property (“MagnaVault IP”). During the third quarter of fiscal 2003, the Company began negotiations with a third party to sell the MagnaVault IP. As of December 31, 2002, it appeared likely that the sale of the MagnaVault IP would be consummated. The negotiations continued into the fourth quarter of fiscal 2003; however, as of March 31, 2003, management believed the probability of a successful sale of the MagnaVault IP to the aforementioned third party to be unlikely. Based on this triggering event, the Company performed an additional impairment analysis, following the steps outlined above, on the MagnaVault-related goodwill. As a result of the additional analysis, the related goodwill was deemed impaired and the Company recognized a charge of $446,000 in the fourth quarter of fiscal 2003. This charge represented the remaining carrying value of the MagnaVault-related goodwill. The goodwill balance of $4.3 million as of March 31, 2004, relates entirely to the Company’s NetVault operations.

(6) Related Party Transactions

A director of the Company is a partner of a Canadian law firm that provides legal services to the Company. During the years ended March 31, 2002, 2003 and 2004, the Company paid the associated law firm $120,000, $118,000 and $151,000, respectively, relating to the services rendered. As of March 31, 2004, no amounts were owed to this related party.

A director of the Company has provided certain consulting and legal advice to the Company. During the years ended March 31, 2002 and 2003, the Company paid the director $155,000 and $57,000, respectively, relating to the services rendered. No payments were made to this director during the year ended March 31, 2004. As of March 31, 2004, no amounts were owed to this related party.

A former director of the Company is the president of a firm that provided certain consulting services to the Company. During the years ended March 31, 2003 and 2004, the Company paid the firm $72,000, and $5,000, respectively, relating to the services rendered. The Company made no payments to this related party during the year ended March 31, 2002. As of March 31, 2004, no amounts were owed to this related party.

A former director of the Company provided certain consulting and investor relations services to the Company. During the year ended March 31, 2002, the Company paid the former director $41,000, relating to the services rendered. The Company made no payments to this related party during the years ended March 31, 2003 and 2004. As of March 31, 2004, no amounts were owed to this related party.

Prior to the acquisition of BakBone KK, two former directors and officers of the Company provided interest-free loans to BakBone KK. As of March 31, 2002, the balance owed to these individuals totaled $63,000. During the year ended March 31, 2003, these loans were paid in full. As of March 31, 2004, there were no amounts owed to these related parties.

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BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(7) Note Payable

As of March 31, 2003, the Company had an unsecured term loan with a bank with a balance of $1.7 million. The loan bore interest at 7.5% and had an original maturity date of December 31, 2003. During the year ended March 31, 2004 and prior to the original maturity date, the Company re-paid the loan in full. As of March 31, 2004, the Company has no further obligation under this term loan.

(8) Shareholders’ Equity

Share Capital

In May 2001, the Company completed a private offering of 3,000,000 Special Warrants at a price of $3.24 per Special Warrant for proceeds of $9.7 million, excluding issuance costs of $28,000. Each Special Warrant was exercisable, for no additional consideration, into one common share and one-half common share purchase warrant upon receipt of the final prospectus filed in the provinces of Alberta and British Columbia. Each full share purchase warrant entitled the holder to purchase one common share at $4.84. All of the purchase warrants which resulted from this private placement expired unexercised in November 2001.

In December 2001, the Company completed a public offering in Canada of 7,170,400 units at a price of $0.80 per unit for gross proceeds of $5.7 million, excluding issuance costs of $344,000. Each unit was comprised of one common share and one-quarter common share purchase warrant. Each full share purchase warrant entitled the holder to purchase one common share at $1.04 and expired 120 days from the closing of this offering. As of March 31, 2003, 1,789,100 of the purchase warrants had been exercised, resulting in gross proceeds of $1.9 million. The remaining 3,500 purchase warrants expired unexercised in April 2002. In connection with the offering, the Company issued 250,000 agent options to a third party who assisted in the offering. The agent options entitled the holder thereof to purchase, at a price of $0.99, one common share and expired in December 2002. As of March 31, 2003, 210,000 of the agent options had been exercised for gross proceeds of $209,000. The remaining 40,000 agent options expired unexercised in December 2002.

In February 2002, the Company completed a private offering of 440,834 units at a price of $0.75 per unit for gross proceeds of $332,000, excluding issuance costs of $10,000. Each unit was comprised of one common share and one common share purchase warrant. Each common share purchase warrant entitled the holder to purchase one common share at $0.75 and expired one year from the closing of the offering. The parties to the offering consisted of various members of Company management and employees. During the year ended March 31, 2003, 19,167 purchase warrants were exercised for gross proceeds of $14,000. The remaining 421,667 purchase warrants expired unexercised in February 2003.

In January 2003, the Company completed a private offering of 1,917,788 units at a price of $0.56 per unit for net proceeds of $1.0 million, net of $75,000 in offering costs. Each unit was comprised of one common share and one-half common share purchase warrant. Each full share purchase warrant entitled the holder to purchase one common share at $0.64 and expired one year from the closing of the offering. The parties to the offering consisted of various members of Company management and employees. During the year ended March 31, 2004, 954,432 of these purchase warrants were exercised for gross proceeds of $601,293. The remaining 4,460 purchase warrants expired unexercised in December 2003.

During the year ended March 31, 2003, the Company granted 610,000 warrants in total to service providers and an employee, with per share prices ranging from $0.60 to $0.83. The Company calculated the fair value of the warrants granted to service providers using the Black-Scholes option-pricing model and as a result, recorded

F-26

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

stock-based compensation of $535,000 during the year ended March 31, 2003. The fair value of these warrants was estimated assuming no dividends and the following weighted-average assumptions: contractual life of 3.4 years; expected volatility of 89%; and risk-free interest rate of 4.15%. As of March 31, 2003, these warrants were fully vested and related to past services provided. During the year ended March 31, 2004, 510,000 of the warrants granted to service providers and 20,000 warrants granted to the employee were exercised. No warrants were granted to service providers or employees during the year ended March 31, 2004.

Warrant activity is summarized as follows:

	Number of special warrants		Number of other warrants		Total warrants outstanding		Weighted- average exercise price
Outstanding at March 31, 2001	—		1,841,995		1,841,995		$	9.88
Issued	3,000,000		3,983,434		6,983,434			1.39
Exercised for no consideration	(3,000,000	)	—		(3,000,000	)		—
Exercised for cash	—		(749,525	)	(749,525	)		1.03
Expired	—		(3,341,995	)	(3,341,995	)		7.62
Outstanding at March 31, 2002	—		1,733,909		1,733,909			0.97
Issued	—		1,568,897		1,568,897			0.68
Exercised for cash	—		(1,268,747	)	(1,268,747	)		1.04
Expired	—		(465,167	)	(465,167	)		0.77
Outstanding at March 31, 2003	—		1,568,892		1,568,892			0.68
Exercised for cash	—		(1,484,432	)	(1,484,432	)		0.82
Expired	—		(4,460	)	(4,460	)		0.63
Balance at March 31, 2004	—		80,000		80,000		$	0.73

All warrants outstanding as of March 31, 2004 were exercisable.

Potential reverse stock-split

In March 2004, the Company filed a notice of special meeting of shareholders, at which the Company will seek shareholder approval for a reverse stock split. If approved, the Company’s Board of Directors will have the discretion, for a period of one year after receipt of shareholder approval, to effect a reverse stock split provided that the ratio for the reverse split does not exceed one new share of Company stock for each five outstanding shares of Company stock. See Note 16, “Subsequent Events” for additional information.

Preferred Stock

In July 2003, the Company completed a private offering and raised proceeds of $13.6 million, net of $2.1 million in offering costs, through the sale of 22,000,000 shares of its Series A Convertible Preferred Stock at $0.71 per share to a single investor. Each preferred share is convertible at any time, at the option of the shareholder, and in certain circumstances at the option of the Company, into one share of the Company’s common stock. Each preferred share entitles the holder thereof to voting rights on an as-converted basis with the shareholders of common shares. In connection with this conversion right, the Company recorded a non-recurring, non-cash charge for a beneficial conversion feature on preferred stock of $7.2 million representing the non-recurring intrinsic value of the beneficial conversion feature attached to the Series A Convertible Preferred Stock.

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BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

The recognition of the beneficial conversion feature increased the Company’s share capital and accumulated deficit balances by $7.2 million, and increased net loss per share attributable to common shareholders by $0.12 per share, from $0.05 per share to $0.17 per share.

In November 2003, the Company’s preferred shareholder converted 4,000,000 convertible preferred shares on a one-to-one basis into common shares. Following the conversion, the Company had 18,000,000 preferred shares that remained outstanding. The conversion transaction had no cash flow impact to the Company. At this time the Company and its preferred shareholder entered into a lock-up agreement by which the shareholder would refrain from selling or distributing the remaining 18,000,000 preferred shares for a specified period of time. The lock-up agreement stipulates that the preferred shares are to be released from the lock-up agreement in three equal installments in February, May and August of 2004. In February 2004, pursuant to the lock-up agreement, 6,000,000 preferred shares were released. See Note 16, “Subsequent Events”, for additional information.

Common Stock in Escrow

In March 2000, in connection with acquisition activities, 10,425,000 common shares were deposited in escrow, of which one-third were scheduled to be released on September 16, 2000, March 16, 2001 and September 16, 2001. In July 2000, in order to obtain receipt of the final prospectus from the Province of Ontario, the Company entered into an additional escrow agreement covering 5,285,686 common shares, of which 4,956,686 related to the March 2000 escrowed shares and were re-deposited under the additional escrow agreement. In accordance with this agreement, the common shares were released in three equal installments on July 13, 2001, July 13, 2002 and July 13, 2003.

The escrowed shares were considered issued and outstanding, and were also included in the weighted-average common shares outstanding calculations upon initial issuance in March 2000. The periodic release of shares from escrow has no impact on the Company’s financial statements. The total common shares released during the years ended March 31, 2002, 2003 and 2004, were 3,584,667, 1,761,894, and 1,761,897, respectively. As of March 31, 2004, no common shares remained in escrow.

(9) Stock-based Compensation

Stock Options

The Company has a stock option plan (the “Plan”) pursuant to which the Board of Directors of the Company may grant nontransferable stock options to purchase common shares of the Company to directors, officers, employees, advisors and consultants. As of March 31, 2004, 10,283,000 common shares have been reserved for issuance under this plan. The maximum number of common shares which may be reserved for issuance to any one person under the Plan is 5% of the common shares outstanding at the time of grant (calculated on a non-diluted basis). The options vest generally over four years and are exercisable for a maximum term of ten years.

The Company’s options are denominated in Canadian dollars as the underlying stock is listed on the TSE. For convenience, per share amounts stated below have been translated to U.S. dollars at the rate of exchange in effect at the balance sheet date.

On August 17, 2001, the Company announced a voluntary employee stock option cancellation and re-grant program (the Program). Under the Program, the Company’s employees were given the opportunity, if they so

F-28

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

chose, to cancel outstanding stock options previously granted to them in return for an equal number of replacement options six months and one day post option stock cancellation. Upon cancellation of outstanding stock options, the Company incurred a stock-based compensation charge of $3.9 million, which represented the outstanding balance of deferred compensation related to the cancelled stock options immediately prior to the cancellation. The replacement options were granted on March 1, 2002 at the then fair market value. As the replacement stock options were not granted within six months of the cancellation date, variable plan accounting is not required for the replacement options.

A summary of the status of the Company’s stock option plan is as follows:

	Number of options		Weighted- average exercise price
Outstanding at March 31, 2001	3,335,038		$	8.40
Granted	2,716,464			2.26
Exercised	(13,000	)		0.69
Cancelled	(3,282,689	)		6.68
Outstanding at March 31, 2002	2,755,813			2.62
Granted	2,101,455			1.30
Exercised	(217,000	)		0.71
Cancelled	(1,335,013	)		3.07
Outstanding at March 31, 2003	3,305,255			1.78
Granted	3,543,960			1.52
Exercised	(416,960	)		1.24
Cancelled	(707,278	)		3.09
Outstanding at March 31, 2004	5,724,977			1.62
Exercisable at March 31, 2004	2,365,218		$	1.74

The following table summarizes information regarding stock options outstanding and exercisable at March 31, 2004:

	Options outstanding				Options exercisable
Range of Exercise prices	Number outstanding	Average remaining contractual life (years)	Weighted- average exercise price		Number exercisable	Weighted- average exercise price
$0.53 to $0.90	107,000	6.70	$	0.77	63,070	$	0.73
$0.96 to $1.22	2,570,271	8.82		1.06	865,063		1.11
$1.29 to $1.74	1,952,540	8.16		1.47	1,103,548		1.46
$2.59 to $3.01	887,250	9.82		2.80	150,000		2.91
$3.75 to $4.32	112,416	6.99		4.03	88,337		4.05
$4.59 to $9.45	95,500	3.59	$	7.31	95,200	$	7.30
Total	5,724,977	8.59	$	1.62	2,365,218	$	1.74

F-29

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Since its inception in March 2000, the Company has engaged in various equity transactions with employees and non-employees that have required the recognition of stock-based compensation expense. A discussion of these transactions follows below:

Stock Options Issued with Exercise Prices Less Than Fair Market Value

Through March 31, 2002, certain stock options were granted to employees at prices less than the market value of the Company’s stock on the date of grant. In accordance with APB No. 25, the excess of the fair market value of the Company’s common stock over the grant price, or the intrinsic value, was recorded as share capital and the related deferred compensation is being amortized on a straight-line basis over the vesting period of the related stock options, generally four years.

EBT

In conjunction with the Company’s acquisition of NetVault Holdings Ltd. in March of 2000, the Company placed 2,100,000 common shares in the EBT as an incentive to former NetVault Holdings Ltd. employees to remain with the Company subsequent to the March 2000 acquisition. EBT shares were allocated to these employees, who earned the shares over the vesting period, generally three years. The EBT shares are accounted for in accordance with APB No. 25, which requires compensation expense to be recorded based on the intrinsic value of the shares on the date the shares are allocated to each employee. The resulting value of the shares was recorded as share capital and the related deferred compensation is being amortized over the related vesting period for shares subject to vesting provisions. For those shares that vested immediately, the associated value was recorded directly to compensation expense on the date of grant. EBT shares are included in the weighted-average common shares outstanding total, and thus the calculation of net loss per share, as they vest.

The Company also incurs an NIC liability in the United Kingdom, which is a tax on earned income, whenever an employee removes shares from the EBT. See Note 13(c) for a discussion of this contingent liability.

As of March 31, 2003 and 2004, there were 2,000 unallocated shares in the EBT, respectively. The Company recorded the aggregate value of the unallocated shares of $1,000 and $5,000 as of March 31, 2003 and 2004, respectively, in share capital and in employee benefit trust, a contra equity account. The Company used the closing price per share on the TSE on March 31, 2003 and 2004 in order to calculate the aggregate value of unallocated shares.

Incentive Shares

Through March 31, 2001, the Company issued unvested incentive common shares to employees. These issuances were accounted for in accordance with APB 25, which requires compensation expense to be recorded based on the intrinsic value of the shares issued. As such, the value of the underlying restricted incentive shares was determined using the closing price per the TSE on the date the incentive shares were allocated to each employee. The resulting value of the incentive shares was recorded as share capital and the related deferred compensation is being amortized over the related vesting period, generally four years.

Advisors’ Warrants

During the year ended March 31, 2003, the Company issued warrants to non-employees for services they rendered to the Company. The fair value of these warrants was calculated using the Black-Scholes option-pricing model and was recorded as stock-based compensation expense during the year ended March 31, 2003.

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BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

Summary of Stock-based Compensation

	Years ended March 31,
	2002		2003		2004
	(restated)		(restated)
Stock options issued with exercise prices less than fair market value	$	4,820	$	373	$	—
Employee Benefit Trust		9,780		9,116		85
Incentive shares		6,548		1,519		262
Advisors’ stock options and warrants		71		535		—
Modification of employee options		—		98		—
Total stock-based compensation	$	21,219	$	11,641	$	347

(10) Income Taxes

Loss before provision for income taxes for the years ended March 31, 2002, 2003 and 2004 is comprised of the following (in thousands):

	2002			2003			2004
Domestic	$	(25,399	)	$	(10,455	)	$	(544	)
Foreign		(15,865	)		(9,589	)		(1,454	)
	$	(41,264	)	$	(20,044	)	$	(1,998	)

The provision for income taxes for the years ended March 31, 2002, 2003 and 2004 is comprised of the following (in thousands):

	2002		2003		2004
Current:
Federal	$	—	$	289	$	594
State		—		1		215
Foreign		—		220		142
	$	—	$	510	$	951
Deferred:
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		—		—		—
		—		—		—
	$	—	$	510	$	951

F-31

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

The income tax effects of the temporary differences that give rise to significant portions of the Company’s deferred tax assets as of March 31, 2003 and 2004 are presented below (in thousands):

March 31, 2003:
Deferred tax assets:
Accruals	$	9,159
Net operating losses		14,552
		23,711
Less valuation allowance		(23,584	)
Deferred tax assets		127
Deferred tax liabilities—property and equipment		(97	)
Deferred tax liabilities—other		(30	)
Net deferred tax assets	$	—
March 31, 2004:
Deferred tax assets:
Accruals	$	11,215
Net operating losses		15,316
		26,531
Less valuation allowance		(26,417	)
Deferred tax assets		114
Deferred tax liabilities—property and equipment		(93	)
Deferred tax liabilities—other		(21	)
Net deferred tax assets	$	—

A reconciliation of the expected income tax benefit to the actual income tax expense reported in the consolidated statements operations is as follows (in thousands):

	2002			2003			2004
Computed expected income tax benefit at Canadian statutory income tax rate of 41.1%, 41.1% and 36.1% for 2002, 2003 and 2004, respectively	$	(16,960	)	$	(8,238	)	$	(722	)
Royalty withholding		—			220			419
State tax provision		—			—			137
Other tax accruals		—			467			124
Foreign taxes, including change in valuation allowance		8,576			4,675			667
Debt discharge		—			615			—
Nondeductible goodwill amortization		1,162			—			—
Nondeductible goodwill impairment charges		1,145			365			—
Change in federal valuation allowance		6,077			2,406			326
Actual income tax expense	$	—		$	510		$	951

The Company has Canadian non-capital losses of approximately CDN$4.8 million at March 31, 2004, that are available to apply against future Canadian taxable income. These losses begin to expire in 2007.

F-32

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

BakBone Software, Inc. has net federal operating loss carryforwards of approximately $28.5 million at March 31, 2004, that are available as reductions to its taxable income in future years. These carryforwards will begin to expire in 2020. Future utilization of these loss carryforwards in the future could be subject to certain limitations of the Internal Revenue Code, including limitations subject to section 382, which relate to 50 percent change in control over a three-year period. The amount of any such limitations, if any, has not yet been determined.

BakBone Software Ltd., a subsidiary of the Company, with headquarters in the United Kingdom, has trade loss carryforwards of approximately £3.0 million at March 31, 2004, that are available as reductions to its taxable income in future years. These carryforwards generally have an indefinite carry forward period.

BakBone Software KK, a subsidiary of the Company, with headquarters in Japan, has net operating loss carryforwards of approximately ¥85.3 million at March 31, 2004, that are available as reductions to its taxable income in future years. These carryforwards began to expire in 2009. Future utilization of these loss carryforwards could be subject to certain limitations under provision of Japanese tax law relating to the use of loss carryforwards obtained through merger or acquisition activity. The amount of any such limitations, if any, has not yet been determined.

The net change in the valuation allowance for the year ended March 31, 2004 was an increase of $2.8 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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 deferred taxable income, and tax planning strategies in making this assessment. Based on the level of historical operating results and projections of deferred taxable income, management has determined that it is more likely than not that the portion of deferred tax assets not utilized through the reversal of deferred tax liabilities will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

BakBone does not record deferred income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings. BakBone may be subject to U.S. income taxes and foreign withholding taxes if earnings of the foreign subsidiaries were distributed.

F-33

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(11) Special Charges

In November 2002, the Company undertook a plan to cease all activities, with the exception of customer support, related to its MagnaVault product offering, effective December 31, 2002. The Company reviewed the accounting standards prescribed by SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, in order to determine if this transaction qualified as a discontinued operation. Based on the facts and circumstances, the Company determined that the “end of life” of the Magna Vault product did not qualify as a discontinued operation. In the third quarter of fiscal 2003 and in connection with the MagnaVault exit activities, the Company recorded special charges of $415,000, related primarily to a specific workforce reduction, idle facility costs and the impairment of fixed assets. A summary of these charges is as follows (in thousands):

	Total Charge		Payments		Liability at March 31, 2004
Employee severance	$	87	$	87	$	—
Idle facility		192		168		24
Other exit costs		32		32		—
Total	$	311	$	287	$	24

The Company also recorded non-cash asset impairment charges of $104,000 in connection with the MagnaVault exit activities.

(12) Employee Benefits

The Company maintains a voluntary defined contribution plan for employees in the United States (the U.S. Plan) in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The U.S. Plan allows participants to contribute up to 15% of their annual salary, subject to certain limitations, as provided by federal law. Each year, the Company’s Board of Directors determines the amount, if any, of the Company’s matching contributions. There were no matching contributions to the U.S. Plan during the years ended March 31, 2002, 2003 and 2004.

The Company maintains voluntary defined contribution plans for employees of the United Kingdom entity (the U.K. Plan). The U.K. Plan allows participants to defer a percentage of their annual salary. In addition, the U.K. Plan calls for the Company to annually match a percentage of each participant’s salary; these matching contributions vest immediately. During the years ended March 31, 2002, 2003 and 2004, the Company contributed $149,000, $195,000, and $226,000, respectively, to the U.K. Plan.

The Company currently maintains no retirement plans for employees working outside of the United States or the United Kingdom.

(13) Commitments and Contingencies

(a) Litigation

The Company is involved in litigation and claims, which arise from time to time in the normal course of business. In the opinion of management, any liability that may arise from such contingencies would not have a significant adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

F-34

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(b) Leases

The Company leases certain facilities and equipment under non-cancelable operating and capital leases. Future minimum lease payments for years ending March 31 are as follows (in thousands):

	Capital leases			Operating leases
2005	$	62		$	1,263
2006		40			542
2007		3			211
Thereafter		—			—
Total minimum lease payments		105		$	2,016
Less amount representing interest		(8	)
Present value of net minimum lease payments, including current portion of $55	$	97

Rent expense for the years ended March 31, 2002, 2003 and 2004, approximated $1.6 million, $1.7 million, and $1.7 million, respectively.

The net book values of assets under capital leases at March 31, 2003 and 2004, were approximately $142,000 and $118,000, respectively, which are net of accumulated amortization of $378,000 and $41,000, respectively.

The Company has an operating lease for a facility in Maryland which became idle during the year ended March 31, 2003, and, accordingly, the Company recorded a liability in the amount of $192,000 representing the present value of the future lease payments through May 2004. As of March 31, 2004, $24,000 of this liability remained, all of which is presented in “Accrued liabilities” on the accompanying consolidated balance sheet.

(c) Employee Benefit Trust

The Company incurs a National Insurance Contribution (NIC) liability in the United Kingdom, which is a tax on earned income, whenever an employee removes shares from the EBT. The NIC liability incurred equates to a percentage of the fair value of common shares removed on the date of removal. In accordance with EITF Issue No. 00-16, “Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation”, the NIC liability for EBT-related employee payroll taxes is recognized on the date of the event triggering the measurement and payment of the tax to the taxing authority. The amount of this contingent liability is subject to change based on fluctuations in the fair value of the Company’s common shares, the number of allocated EBT shares, and the NIC liability rate. As of March 31, 2004, 930,834 allocated and unexercised shares remained in the EBT, the NIC liability rate was 12.8%, and the fair value of the Company’s common shares was $2.71.

(14) Guarantees

In the ordinary course of business, the Company is not subject to potential obligations under guarantees that fall within the scope of FIN No. 45 except for standard indemnification and warranty provisions that are contained within many of the Company’s customer license and service agreements and certain supplier

F-35

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

agreements, as well as standard indemnification agreements that the Company has executed with certain of its officers and directors, and give rise only to the disclosure requirements prescribed by FIN No. 45. In addition, under U.S. GAAP the Company continues to monitor the conditions that are subject to the guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable.

Indemnification and warranty provisions contained within the Company’s customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in the Company’s industry. The Company has not incurred significant obligations under customer indemnification or warranty provisions historically and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations. The indemnification agreements that the Company has executed with certain of its officers and directors would require the Company to indemnify such officers and directors in certain instances. The Company has not incurred obligations under these indemnification agreements historically and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential officer or director indemnification obligations. The maximum potential amount of future payments that the Company could be required to make under the indemnification provisions in its customer license and service agreements, and officer and director agreements is unlimited.

F-36

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(15) Segment Information

The Company has determined that it operates in two segments, which are the Company’s two product lines, NetVault and MagnaVault. Revenues are generated from the licensing of software and sale of support services. Total assets, capital expenditures, depreciation and amortization, interest income and operating expenses are not disclosed by operating segment as they are not specifically related to a particular product line. In November 2002, the Company decided to “end of life” the MagnaVault product line. MagnaVault revenues for the years ended March 31, 2002, 2003 and 2004 have been included below for comparative purposes. Subsequent to November 2002, the Company operates in one business segment, as the Company’s operations consist almost exclusively of the NetVault product line, but has voluntarily included MagnaVault revenues in the table below for comparative purposes. Revenues are generated from the selling of software licenses, related support services and development software solutions. Development software solutions consist solely of revenue recognition under OEM arrangements, whereby the Company commits to provide the customer with unspecified additional software products. The following table represents a summary of revenues by product line for the periods presented (in thousands):

	Year ended March 31,
	2002		2003		2004
	(restated)		(restated)
Revenues
Licensing:
NetVault	$	4,182	$	14,399	$	20,670
MagnaVault		1,011		905		566
Total		5,193		15,304		21,236
Service:
NetVault		883		2,152		5,078
MagnaVault		533		462		204
Total		1,416		2,614		5,282
Development Software Solutions:
NetVault		—		—		589
MagnaVault		—		—		—
Total		—		—		589
Total revenues	$	6,609	$	17,918	$	27,107

F-37

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

The following table represents a summary of revenues by major geographic region for the periods presented (in thousands):

	Year ended March 31,
	2002		2003		2004
	(restated)		(restated)
Revenues
Licensing:
EMEA	$	1,355	$	3,053	$	5,179
Pacific Rim		812		6,334		8,734
North America		3,026		5,917		7,323
Total		5,193		15,304		21,236
Service:
EMEA		379		550		1,306
Pacific Rim		7		532		1,297
North America		1,030		1,532		2,679
Total		1,416		2,614		5,282
Development Software Solutions:
EMEA		—		—		—
Pacific Rim		—		—		23
North America		—		—		566
Total		—		—		589
Total revenues	$	6,609	$	17,918	$	27,107

Revenues are presented by major geographic region based on the region from which the revenues were sourced. During the years ended March 31, 2002, 2003 and 2004, the Company’s OEM revenues have been primarily administered from North America, with subsequent revenue allocations made to the applicable region. The Company procured aggregate license and maintenance sales in its country of domicile, Canada, of $370,000, $364,000 and $359,000 during the years ended March 31, 2002, 2003 and 2004, respectively.

The following table represents a summary of capital assets and goodwill by major geographic region as of March 31, 2003 and 2004 (in thousands):

	EMEA		Pacific Rim		North America		Total
Identifiable assets at March 31, 2003:
Property and equipment, net	$	374	$	272	$	1,593	$	2,239
Goodwill, net	$	907	$	—	$	3,362	$	4,269
Identifiable assets at March 31, 2004:
Property and equipment, net	$	476	$	254	$	1,212	$	1,942
Goodwill, net	$	907	$	—	$	3,362	$	4,269

F-38

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(16) Subsequent Events

Shareholder approval of reverse stock-split

On May 17, 2004, the Company held a special meeting of shareholders, at which the Company sought shareholder approval to allow the Board of Directors (the Board) to effect, at the Board’s discretion and for a period of up to one year, a reverse stock split at a ratio not to exceed one common share for each five common shares outstanding. The proposal was approved on the meeting date; however, no reverse stock split has been effected.

Preferred shares released from lock-up

In November 2003, the Company and the holders of its Series A Convertible Preferred shares entered into a lock-up agreement by which the shareholders would refrain from selling or distributing 18,000,000 preferred shares. The lock-up agreement stipulates that the preferred shares are to be released from lock-up in three equal installments in February, May and August of 2004. In May 2004 and pursuant to the lock-up agreement, 6,000,000 shares were released from lock-up.

(17) Differences Between Accounting Principles Generally Accepted in the United States and in Canada

These consolidated financial statements have been prepared in accordance with U.S. GAAP, which differs in certain respects from Canadian GAAP. The material differences between United States and Canadian GAAP affecting the Company’s consolidated financial statements are summarized as follows:

(a) Accounting for Stock-Based Compensation

Through March 31, 2002, the Company granted various equity instruments, which under U.S. GAAP, required the Company to measure and record deferred compensation and share capital. The deferred compensation balances were then amortized to stock-based compensation based on the vesting terms of the underlying equity instruments.

For Canadian GAAP purposes, the Company currently accounts for stock-based compensation in accordance with the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3870 (Section 3870), “Stock-based Compensation and Other Stock-based Payments”. The Company adopted CICA Section 3870, effective April 1, 2002. The accounting standards set forth in CICA Section 3870 are similar to those employed by the Company under U.S. GAAP. However, prior to April 1, 2002, the Company utilized settlement date accounting to account for these equity transactions. Settlement date accounting did not require the recognition of deferred compensation and stock-based compensation expense for equity instruments issued prior to April 1, 2002 and therefore no stock-based compensation amounts were recorded.

(b) Amortization and Impairment of Goodwill

Canadian GAAP permits the classification of amortization and impairment of goodwill as non-operating expenses, whereas under U.S. GAAP, such charges must be included as components of operating expenses.

F-39

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(c) Acquisition of BakBone KK

Under Canadian GAAP, the 47% acquisition of BakBone KK was considered to be a combination of entities under common control and was accounted for at the carrying value of BakBone KK’s net assets. Under U.S. GAAP, the Company did not control greater than 50% of the voting rights of BakBone KK until the Company’s acquisition of the minority interests of BakBone KK in March 2002. Therefore, under U.S. GAAP, the Company’s purchase of 22% of BakBone KK on March 1, 2000 was accounted for using the purchase method of accounting based on the fair value of the consideration. Accordingly, the Company recorded an investment in affiliate and share capital of $2.6 million for the fair value of the shares issued to consummate the transaction. The investment in affiliate was being amortized over three years as the value of the common shares issued exceeded the value of the Company’s underlying equity in net assets of BakBone KK. The fair value of the shares was determined on the date the Company and BakBone KK reached agreement on the purchase price and the transaction was announced. Upon acquisition of voting control in 2002, the unamortized investment of $686,000 in BakBone KK was transferred to goodwill for U.S. GAAP purposes.

(d) Consolidation of BakBone KK and Tracer KK

Under Canadian GAAP, a company must demonstrate effective control of an acquired entity in order to consolidate the entity. As of the initial acquisition dates of BakBone KK and Tracer KK in March 2000 and June 2000, respectively, the Company had effective control of both entities. Thus, in accordance with Canadian GAAP both entities were consolidated as of these dates.

Under U.S. GAAP, a Company must demonstrate effective control through a greater than 50% ownership of the voting interests of an entity, in order to consolidate an entity. As the Company did not control greater than 50% of the voting interests in BakBone KK until the March 2002 minority interest acquisition and in Tracer KK until the January 2002 minority interest acquisition, the Company was required to use the equity method of accounting up to the respective acquisition dates.

(e) Marketable Securities

Under Canadian GAAP, unrealized losses on available-for-sale securities are recorded in other expense in the statement of operations and unrealized gains are not recorded. Under U.S. GAAP, available-for-sale securities are carried at fair market value and unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive loss, a component of shareholders’ equity.

(f) Beneficial Conversion Feature on Preferred Stock

Under U.S. GAAP, beneficial conversion features embedded within preferred stock instruments are recorded based on their intrinsic value as equity, separate from preferred stock and recognized as a return to preferred stockholders as a decrease (increase) to net income (loss) applicable to common shareholders. The beneficial conversion feature is also presented below net loss and is included in the calculation of net loss per share on the consolidated statement of operations. An equivalent accounting standard does not exist under Canadian GAAP, and as such, there is not a requirement to record the value of the beneficial conversion feature for Canadian GAAP.

F-40

BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2003 and 2004

(g) Reconciliation of Net Loss

The application of Canadian GAAP as described above had the following effects on the Company’s net loss for the years ended March 31, 2002, 2003 and 2004.

	2002			2003			2004
	(restated)			(restated)
Net loss attributable to common shareholders—as reported	$	(41,264	)	$	(20,554	)	$	(10,170	)
Stock-based compensation		21,219			11,105			347
Amortization of investment in affiliate		854			—			—
Additional amortization of goodwill		212			—			—
Additional impairment of goodwill		281			—			—
Acquisition of BakBone KK		—			—			—
Change from the equity method to the consolidation method of accounting		54			—			—
Realized changes in the fair market value of marketable securities		75			—			—
Beneficial conversion feature on preferred stock		—			—			7,221
Net loss—Canadian GAAP	$	(18,569	)	$	(9,449	)	$	(2,602	)

The application of accounting principles generally accepted in Canada, as described above, has the following effects on the consolidated financial statements as of March 31, 2003 and 2004 and for the years ended March 31, 2002, 2003 and 2004.

(h) Canadian GAAP Financial Statements

F-41

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED BALANCE SHEETS

March 31, 2003 and 2004

(in thousands)

(in U.S. dollars)

	2003										2004
	U.S. GAAP (as reported)			Differences		Notes		Canadian GAAP			U.S. GAAP (as reported)			Differences		Notes		Canadian GAAP
	(restated)							(restated)
ASSETS
Current assets:
Cash and cash equivalents	$	5,045		—				$	5,045		$	19,399		—				$	19,399
Accounts receivable		4,822		—					4,822			7,383		—					7,383
Other assets		850		—					850			1,286		—					1,286
Total current assets		10,717		—					10,717			28,068		—					28,068
Property and equipment, net		2,239		—					2,239			1,942		—					1,942
Intangible assets, net		166		—					166			111		—					111
Goodwill, net		4,269		(686	)	(3	)		3,583			4,269		(686	)	(3	)		3,583
Other assets		644		(77	)	(8	)		567			787		(123	)	(8	)		664
Total assets	$	18,035		(763	)			$	17,272		$	35,177		(809	)			$	34,368
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	865		—				$	865		$	926		—				$	926
Accrued liabilities		3,147		—					3,147			4,078		—					4,078
Deferred revenue		2,409		—					2,409			6,877		—					6,877
Current portion of notes payable		1,652		—					1,652			—		—					—
Total current liabilities		8,073		—					8,073			11,881		—					11,881
Deferred revenue, excluding current portion		2,837		—					2,837			2,930		—					2,930
Other liabilities		69		—					69			42		—					42
Total liabilities		10,979		—					10,979			14,853		—					14,853
SHAREHOLDERS’ EQUITY:
Series A convertible preferred stock		—		—					—			11,160		—					11,160
Share capital		143,543		(85,809	)	(9	)		57,734			154,916		(93,034	)	(9	)		61,882
Share capital held by subsidiary		(66	)	—					(66	)		—		—					—
Employee benefit trust		(1	)	1		(1	)		—			(5	)	5		(1	)		—
Deferred compensation		(359	)	359		(1	)		—			(12	)	12		(1	)		—
Accumulated deficit		(135,305	)	84,699		(10	)		(50,606	)		(145,475	)	92,267		(10	)		(53,208	)
Accumulated other comprehensive loss		(756	)	(13	)	(8	)		(769	)		(260	)	(59	)	(8	)		(319	)
Total shareholders’ equity		7,056		(763	)				6,293			20,324		(809	)				19,515
Total liabilities and shareholders’ equity	$	18,035		(763	)			$	17,272		$	35,177		(809	)			$	34,368

(1) See Note 17(a)

(2) See Note 17(b)

(3) See Note 17(c)

(4) See Note 17(d)

(5) See Note 17(f)

(6) See Notes 17(a) and 17(b)

(7) See Notes 17(b) and 17(c)

(8) See Note 17(e)

(9) See Notes 17(a) and 17(c)

(10) See Notes 17(a), 17(c), 17(e) and 17(f)

F-42

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended March 31, 2002, 2003 and 2004

(in thousands, except per share and share data)

(in U.S. dollars)

	2002											2003											2004
	U.S. GAAP (as reported)			Differ- ences			Notes		Canadian GAAP			U.S. GAAP (as reported)			Differ- ences			Notes		Canadian GAAP			U.S. GAAP (as reported)			Differ- ences			Notes		Canadian GAAP
	(restated)								(restated)			(restated)								(restated)
Revenues	$	6,609			3,254		(4	)	$	9,863		$	17,918			—				$	17,918		$	27,107			—				$	27,107
Cost of revenues		1,158			86		(4	)		1,244			1,650			—					1,650			2,994			—					2,994
Gross profit		5,451			3,168					8,619			16,268			—					16,268			24,113			—					24,113
Operating expenses:
Sales and marketing		8,281			2,469		(4	)		10,750			12,125			—					12,125			15,330			—					15,330
Research and development		4,239			282		(4	)		4,521			4,963			—					4,963			4,812			—					4,812
General and administrative		5,006			431		(4	)		5,437			5,965			—					5,965			5,407			—					5,407
Stock-based compensation		21,219			(21,219	)	(1	)		—			11,641			(11,105	)	(1	)		536			347			(347	)	(1	)		—
Special charges		—			—					—			415			—					415			—			—					—
Amortization goodwill		3,939			(3,939	)	(6	)		—			—			—					—			—			—					—
Amortization of intangible assets		—			—					—			55			(55	)	(2	)		—			55			(55	)	(2	)		—
Amortization of investment in Affiliate		854			(854	)	(3	)		—			—			—					—			—			—					—
Impairment of goodwill		2,789			(2,789	)	(6	)		—			888			(888	)	(2	)		—			—			—					—
Total operating expenses		46,327			(25,619	)				20,708			36,052			(12,048	)				24,004			25,951			(402	)				25,549
Operating loss		(40,876	)		28,787					(12,089	)		(19,784	)		12,048					(7,736	)		(1,838	)		402					(1,436	)
Interest expense, net		(69	)		(39	)	(4	)		(108	)		(182	)		—					(182	)		(1	)		—					(1	)
Amortization of goodwill		—			(3,727	)	(2	)		(3,727	)		—			—					—			—			—					—
Amortization of intangible assets		—			—					—			—			(55	)	(2	)		(55	)		—			(55	)	(2	)		(55	)
Impairment of goodwill		—			(2,508	)	(2	)		(2,508	)		—			(888	)	(2	)		(888	)		—			—					—
Foreign exchange gain (loss), net		110			—					110			(59	)		—					(59	)		(78	)		—					(78	)
Other expense, net		(422	)		175		(4	)		(247	)		(19	)		—					(19	)		(81	)		—					(81	)
Equity in loss of affiliates, net		(7	)		7		(4	)		—			—			—					—			—			—					—
Loss before income taxes		(41,264	)		22,695					(18,569	)		(20,044	)		11,105					(8,939	)		(1,998	)		347					(1,651	)
Provision for income taxes		—			—					—			510			—					510			951			—					951
Net loss		(41,264	)		22,695					(18,569	)		(20,554	)		11,105					(9,449	)		(2,949	)		347					(2,602	)
Beneficial conversion feature on preferred stock		—			—					—			—			—					—			7,221			(7,221	)	(5	)		—
Net loss attributable to common shareholders	$	(41,264	)	$	22,695					(18,569	)	$	(20,554	)	$	11,105				$	(9,449	)	$	(10,170	)	$	7,568				$	(2,602	)
Net loss per share	$	(0.90	)		0.51				$	(0.41	)	$	(0.37	)		0.20				$	(0.17	)	$	(0.17	)		0.13				$	(0.04	)
Weighted-average common shares		45,697,111			—					45,697,111			55,536,923			—					55,536,923			60,882,811			—					60,882,811

(1) See Note 17(a)

(2) See Note 17(b)

(3) See Note 17(c)

(4) See Note 17(d)

(5) See Note 17(f)

(6) See Notes 17(a) and 17(b)

(7) See Notes 17(b) and 17(c)

(8) See Note 17(e)

(9) See Notes 17(a) and 17(c)

(10) See Notes 17(a), 17(c), 17(e) and 17(f)

F-43

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended March 31, 2002, 2003 and 2004

(in thousands)

(in U.S. dollars)

	2002								2003								2004
	U.S. GAAP (as reported)			Differences		Canadian GAAP			U.S. GAAP (as reported)			Differences		Canadian GAAP			U.S. GAAP (as reported)			Differences		Canadian GAAP
	(restated)					(restated)			(restated)					(restated)
Cash flows from operating activities:
Net loss	$	(41,264	)	22,695		$	(18,569	)	$	(20,554	)	11,105		$	(9,449	)	$	(2,949	)	347		$	(2,602	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		5,703		(1,066	)		4,637			954		—			954			964		—			964
Stock-based compensation		21,219		(21,219	)		—			11,641		(11,105	)		536			347		(347	)		—
Special charges		—		—			—			104		—			104			—		—			—
Impairment of goodwill		2,789		(281	)		2,508			888		—			888			—		—			—
Loss on disposal of capital assets		443		—			443			—		—			—			—		—			—
Other non-cash charges		(124	)	(31	)		(155	)		—		—			—			—		—			—
Changes in assets and liabilities, net of effects of acquisitions:							—								—								—
Accounts receivable, net		(1,885	)	—			(1,885	)		(1,533	)	—			(1,533	)		(2,561	)	—			(2,561	)
Other assets		(10	)	—			(10	)		(262	)	—			(262	)		(531	)	—			(531	)
Accounts payable		(723	)	—			(723	)		220		—			220			61		—			61
Accrued liabilities		425		—			425			1,358		—			1,358			949		—			949
Deferred revenue		626		—			626			4,127		—			4,127			4,561		—			4,561
Net cash (used in) provided by operating activities		(12,801	)	98			(12,703	)		(3,057	)	—			(3,057	)		841		—			841
Cash flows from investing activities:
Capital expenditures		(433	)	—			(433	)		(415	)	—			(415	)		(534	)	—			(534	)
Acquisitions of businesses, net of cash acquired		(117	)	—			(117	)		—		—			—			—		—			—
Cash acquired through acquisitions		700		(700	)		—			—		—			—			—		—			—
Proceeds from sale of capital assets		41		—			41			2		—			2			—		—			—
Net cash provided by (used in) investing activities		191		(700	)		(509	)		(413	)	—			(413	)		(534	)	—			(534	)
Cash flows from financing activities:
Restricted cash balances		66		—			66			804		—			804			—		—			—
Payments on capital lease obligations		(177	)	—			(177	)		(202	)	—			(202	)		(115	)	—			(115	)
Proceeds from note payable		—		—			—			—		—			—			(1,652	)	—			(1,652	)
Payments on note payable		(812	)	—			(812	)		(298	)	—			(298	)		—		—			—
Proceeds from issuance of Series A convertible preferred stock, net of offering costs		—		—			—			—		—			—			13,640		—			13,640
Proceeds from issuance of special warrants		9,734		—			9,734			—		—			—			—		—			—
Proceeds from public offering		5,681		—			5,681			—		—			—			—		—			—
Proceeds from private placement		332		—			332			1,075		—			1,075			—		—			—
Offering costs related to common stock equity financings		(382	)	(125	)		(507	)		(75	)	—			(75	)		—		—			—
Proceeds from exercise of stock options		9		—			9			144		—			144			500		—			500
Proceeds from exercise of warrants		769		—			769			1,316		—			1,316			1,217		—			1,217
Payments on related party loans		(12	)	—			(12	)		(63	)	—			(63	)		—		—			—
Proceeds from sale of share capital held by subsidiary		—		—			—			—		—			—			17		—			17
Net cash provided by financing activities		15,208		(125	)		15,083			2,701		—			2,701			13,607		—			13,607
Effect of exchange rate changes on cash and cash equivalents		(211	)	27			(184	)		312		—			312			440		—			440
Net increase (decrease) in cash and cash equivalents		2,387		(700	)		1,687			(457	)	—			(457	)		14,354		—			14,354
Cash and cash equivalents, beginning of period		3,115		700			3,815			5,502		—			5,502			5,045		—			5,045
Cash and cash equivalents, end of period	$	5,502		—		$	5,502		$	5,045		—		$	5,045		$	19,399		—		$	19,399

F-44

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: June 29, 2004

BAKBONE SOFTWARE INCORPORATED
By:	/s/    KEITH G. RICKARD
	Keith G. Rickard Chief Executive Officer President

POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Keith G. Rickard and John Fitzgerald, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons in the capacities indicated have signed this Annual Report on the date(s) indicated below:

Signature	Title	Date
/s/    KEITH G. RICKARD         Keith G. Rickard	Chief Executive Officer, President and Director (principal executive officer)	June 29, 2004
/s/    JOHN FITZGERALD         John Fitzgerald	Chief Financial Officer (principal financial officer and accounting officer)	June 29, 2004
/s/    J. STEPHAN DOLEZALEK         J. Stephan Dolezalek	Director	June 29, 2004
/s/    J.G. (JEFF) LAWSON         J.G. (Jeff) Lawson	Director	June 29, 2004
/s/    NEIL MACKENZIE         Neil MacKenzie	Director	June 29, 2004
/s/    M. BRUCE NAKAO         M. Bruce Nakao	Director	June 29, 2004
/s/    ARCHIBALD NESBITT         Archibald Nesbitt	Director	June 29, 2004
/s/    ANDREW T. SHEEHAN         Archibald Nesbitt	Director	June 29, 2004

INDEX TO EXHIBITS

Exh. No.	Description of Documents
3.1	Restated Articles of Continuance of the registrant
3.2	Bylaws, as amended, of the registrant
4.1	Shareholder Protection Rights Plan Agreement made as of June 17, 2002 by and between the registrant and CIBC Mellon Trust Company
10.1	Form of Indemnity Agreement for directors and executive officers
10.2	2000 Stock Option Plan
10.3(1)	2002 Stock Option Plan
10.4	Form of stock option agreement for the 2000 Stock Option Plan and the 2002 Stock Option Plan
10.5(2)	2003 Stock Option Plan
10.6	Forms of stock option agreement for the 2003 Stock Option Plan
10.7(1)	Employment Letter Agreement, dated June 21, 2001, by and between the registrant and Keith G. Rickard
10.8	Offer Letter, dated January 24, 2002, by and between the registrant and John Fitzgerald
10.9	Offer Letter, dated December 18, 2003, by and between the registrant and Fabrice Helliker
10.10	Offer Letter, dated January 26, 2004, by and between the registrant and Adrian Jones
10.11	Offer Letter, dated January 7, 2004, by and between BakBone Software Limited and Pat Clarke, as modified by Exhibit 10.12
10.12	Modification Letter, dated January 8, 2004, by and between BakBone Software Limited and Pat Clarke
10.13	Form of Subscription For Common Shares of the registrant (for United States accredited investors), as used in registrant’s December 2002 private financing
10.14	Form of Subscription For Common Shares of the registrant (for United States non-accredited investors), as used in registrant’s December 2002 private financing
10.15	Form of Subscription For Units of the registrant (for Canadian investors), as used in registrant’s December 2002 private financing
10.16	Series A Preferred Share Purchase Agreement made as of June 18, 2003, by and among the registrant and VantagePoint Venture Partners IV (Q), L.P., and certain affiliated entities
10.17	Investors’ Rights Agreement, dated June 18, 2003, by and among the registrant and VantagePoint Venture Partners IV (Q), L.P., and certain affiliated entities
10.18	Letter Agreement, dated November 18, 2003, by and among the registrant and VantagePoint Venture Partners IV (Q), L.P., and certain affiliated entities
10.19	Standard Modified Gross Office Lease, dated February 22, 2000, between Pacific Sorrento Mesa Holdings, L.P. and Pacific Stonecrest Holdings, L.P. and Net Resources, Inc.
10.20	Standard Form Modified Gross Office Lease, dated August 14, 2000, between Pacific Sorrento Mesa Holdings, L.P. and Pacific Stonecrest Holdings, L.P. and the registrant
21.1(1)	Subsidiaries of the registrant
23.1	Consent of Independent Registered Public Accounting Firm

Exh. No.	Description of Documents
24.1	Power of Attorney (see page 40)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Keith G. Rickard
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for John Fitzgerald
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Keith G. Rickard
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for John Fitzgerald

(1) Previously filed with the SEC as an exhibit to and incorporated herein by reference from our Annual Report on Form 20-F (No. 000-12230) dated June 26, 2003

(2) Previously filed with the SEC as an exhibit to and incorporated herein by reference from our Registration Statement on Form S-8 (No. 333-109390) dated October 2, 2003

EX-3.1

Exhibit 3.1

Industry Canada Canada Business Corporations Act Industrie Canada Loi canadienne sur les sociétés par actions FORM 11 ARTICLES OF CONTINUANCE (SECTION 187) FORMULE 11 CLAUSES DE PROROGATION (ARTICLE 187)

1.	Name of the Corporation	Dénomination sociale de la société
	BakBone Software Incorporated

2.	The province or territory in Canada where the registered office is situated	La province ou le territoire au Canada où est situé le siège social
	Alberta

3.	The classes and any maximum number of shares that the corporation is authorized to issue	Catégories et le nombre maximal d’actions que la société est autorisée à émettre
	See Schedule “A” attached hereto.

4.	Restrictions, if any, on share transfers	Restrictions sur le transfert des actions, s’il y a lieu
	None

5.	Number (or minimum and maximum number) of directors	Nombre (ou nombre minimal et maximal) d’administrateurs
	Minimum of three (3); maximum of twelve (12)

6.	Restrictions, if any, on the business the corporation may carry on	Limites imposées à l’activité commerciale de la société, s’il y a lieu
	None

7.	(1) If change of name effected, previous name	(1)    S’il y a changement de denomination sociale, indiquer la denomination sociale antérieure
	N/A
	(2) Details of incorporation	(2)    Détails de la constitution
	The Corporation was formed pursuant to Articles of Amalgamation filed under the Business Corporations Act (Alberta) effective April 1, 2002.

8. Other provisions, if any Autres dispositions, s’il y a lieu

  See Schedule “B” attached hereto.

DATE August 11, 2003	SIGNATURE	9. Capacity of – En Qualité de Director
For Departmental use Only - À ll’usage du ministère Corporation No. No de la société	Printed Name –Nome en letters moulées J.G. (Jeff) Lawson

IC 3247 (2001/11)

Schedule “A”

SHARE PROVISIONS

OF

BAKBONE SOFTWARE INCORPORATED

BakBone Software Incorporated (“Corporation”) is authorized to issue:

an unlimited number of common shares (“Common Shares”);

22,000,000 Series A Preferred Shares (“Series A Preferred Shares”),

all subject to the following rights, privileges, restrictions and conditions.

ARTICLE I

SERIES A PREFERRED SHARES

(A) Rights, Preferences and Restrictions of Series A Preferred Shares. The Series A Preferred Shares of this Corporation (the “Series A Preferred Shares”) shall consist of 22,000,000 shares, and shall be subject to the rights, preferences, privileges and restrictions as set forth below in this Article I.

1. Dividend Provisions. The holders of Series A Preferred Shares shall be entitled to receive dividends, out of any assets legally available therefor, when, as and if declared by the Board of Directors. Such dividends shall be distributed among the holders of Series A Preferred Shares and Common Shares pro rata based on the number of Common Shares then held by each holder (assuming conversion of all such Series A Preferred Shares into Common Shares).

2. Liquidation.

(a) Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Shares shall be entitled to receive, (i) prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Shares by reason of their ownership thereof, an amount per share equal to CDN $1.50 per share (as adjusted for stock splits, stock dividends, reclassification and the like) for each share of Series A Preferred Shares then held by them, plus (ii) ratably with holders of the Common Shares, any declared but unpaid dividends. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the preferential amount each such holder is otherwise entitled to receive. The preferences set forth in this Section 2(a) shall not apply in a Liquidation Transaction (as defined below) if the holders of a majority of the outstanding shares of Series A Preferred Shares (i) have previously agreed in writing to vote in favor of or tender their shares to the proposed Liquidation Transaction or (ii) vote in favor of, or tender their shares to, the proposed, Liquidation Transaction.

(b) Remaining Assets. Upon the completion of the distribution required by Section 2(a) above, if assets remain in the Corporation, the holders of the Common Shares of the Corporation shall receive all of the remaining assets of the Corporation.

(c) Certain Acquisitions.

(i) Deemed Liquidation. For purposes of this Section 2, a liquidation, dissolution, or winding up of the Corporation shall be deemed to occur if the Corporation shall sell, convey, or otherwise dispose of all or substantially all of its property or business or merge with or into or consolidate with any other corporation, limited liability company or other entity (other than a wholly-owned subsidiary of the Corporation) (any such transaction, a “Liquidation Transaction”), provided that none of the following shall be considered a Liquidation Transaction: (i) a merger effected exclusively for the purpose of changing the domicile of the Corporation, (ii) an equity financing in which the Corporation is the surviving corporation, or (iii) a transaction in which the shareholders of the Corporation immediately prior to the transaction own 50% or more of the voting power of the resulting issuer following the transaction.

(ii) Valuation of Consideration. In the event of a deemed liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability:

(1) If traded on a securities exchange or The Nasdaq Stock Market (“Nasdaq”), the value shall be based on a formula approved by the Board of Directors and derived from the closing prices of the securities on such exchange or Nasdaq over a specified time period;

(2) If actively traded over-the-counter, the value shall be based on a formula approved by the Board of Directors and derived from the closing bid or sales prices (whichever is applicable) of such securities over a specified time period; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as a control person or an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as specified above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.

(iii) Notice of Liquidation Transaction. The Corporation shall give each holder of record (at such holder’s address of record as maintained on the books of

the Corporation) of Series A Preferred Shares written notice of any impending Liquidation Transaction not later than 10 days prior to the shareholders’ meeting called to approve such Liquidation Transaction, or 10 days prior to the closing of such Liquidation Transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such Liquidation Transaction. The first of such notices shall describe the material terms and conditions of the impending Liquidation Transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The Liquidation Transaction shall in no event take place sooner than 10 days after the Corporation has given the first notice provided for herein or sooner than 10 days after the Corporation has given notice of any material changes provided for herein. Notwithstanding the other provisions of these Share Provisions, all notice periods or requirements in these Share Provisions may be shortened or waived, either before or after the action for which notice is required, upon the written consent of the holders of a majority of the voting power of the outstanding shares of Series A Preferred Shares that are entitled to such notice rights.

(iv) Effect of Noncompliance. In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the Liquidation Transaction to be postponed until the requirements of this Section 2 have been complied with, or cancel such Liquidation Transaction, in which event the rights, preferences, privileges and restrictions of the holders of Series A Preferred Shares shall revert to and be the same as such rights, preferences, privileges and restrictions existing immediately prior to the date of the first notice referred to in Section 2(c)(iii).

3. Redemption. The Series A Preferred Shares are not redeemable.

4. Conversion. The holders of the Series A Preferred Shares shall have conversion rights as follows (the “Conversion Rights”):

(a) Right to Convert. Subject to Section 4(c), each share of Series A Preferred Shares shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and non-assessable shares of Common Shares as is determined by dividing CDN $1.00 by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share of Series A Preferred Shares shall be CDN $1.00. Such initial Conversion Price shall be subject to adjustment as set forth in Section 4(d).

(b) Automatic Conversion. Each share of Series A Preferred Shares shall automatically be converted into shares of Common Shares at the Conversion Price at the time in effect for such share, immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation’s sale of its Common Shares in a firm commitment underwritten a United States public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), the public offering price of which is not less than U.S. $2.04 per share (appropriately adjusted for stock splits, stock dividends, reclassification and the like) for gross cash proceeds to the Corporation of not less than U.S. $25,000,000 and where the Company has successfully listed on the NASDAQ National Market, the American Stock Exchange or the New York Stock Exchange (or such other nationally recognized stock exchange as approved by a majority of the holders of the Series A Preferred Shares) (any such exchange hereinafter referred to as a “Recognized Exchange”) and, subject to the initial four month “hold

periods” which will attach to the Series A Preferred Shares and the Common Shares issuable on conversion thereof under applicable Canadian securities laws, the shares of Common Shares obtainable through conversion of the Series A Preferred Shares will be freely tradable without restriction (other than restrictions arising solely because of the holder’s aggregate shareholdings in the Corporation or as a result of a holder constituting a “control person” under applicable securities legislation), or (ii) after the Company has successfully listed its stock on such Recognized Exchange, and, subject to the initial four month “hold periods” which will attach to the Series A Preferred Shares and Common Shares issuable on conversion thereof under applicable Canadian securities laws, the shares of Common Shares obtainable through conversion of the Series A Preferred Shares will be freely tradable without restriction (other than restrictions arising solely because of the holder’s aggregate shareholdings in the Corporation or as a result of a holder constituting a “control person” under applicable securities legislation) and the holders of Series A Preferred Shares have received written notice from the Corporation that the Corporation’s Common Share price has closed for 45 consecutive trading days at a price in excess of U.S. $3.40 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization), or (iii) at the time that the holders of Series A Preferred Shares have received written notice from the Corporation that the Common Shares of the Corporation have had a closing price, for 45 consecutive trading days, on the Toronto Stock Exchange, of at least CDN $5 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization), or (iv) the date specified by written consent of the holders of a majority of the Series A Preferred Shares outstanding, or (v) at the election of the Corporation, by notice in writing to the holders of the Series A Preferred Shares, if at such time the voting rights attaching to such Series A Preferred Shares represent less than 10% of the voting rights attached to all outstanding Common Shares and Series A Preferred Shares of the Corporation.

(c) Mechanics and Effect of Conversion. Subject to the provisions below relating to automatic or deemed conversion, before any holder of Series A Preferred Shares shall be entitled to convert such Series A Preferred Shares into Common Shares, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such Series A Preferred Shares, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for Common Shares are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Shares, or to the nominee or nominees of such holder, a certificate or certificates for the number of Common Shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Series A Preferred Shares to be converted, and the person or persons entitled to receive the Common Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of public Common Shares as of such date. If the conversion is in connection with an underwritten public offering of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering such Series A Preferred Shares for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any persons entitled to receive Common Shares upon conversion of such Series A Preferred Shares shall not be deemed to have converted such Series A Preferred Shares until immediately prior to the closing of such sale of securities. Upon the automatic conversion of the Series A Preferred Shares to Common Shares in accordance with the provisions hereof, the Common Shares issuable upon conversion of the Series A Preferred Shares shall be deemed to have been issued and the person or persons to whom such Common Shares are to be issued shall

be deemed to have become the holder or holders of record of such Common Shares on the conversion date, unless the transfer registers of the Corporation shall be closed on such date, in which case the Common Shares shall be deemed to have been issued and such person or persons deemed to have become the holder or holders of record of such Common Shares on the date on which such transfer registers are next reopened. In the case of an automatic conversion in accordance with the provisions of section 4(b) above, the rights of the holders of the Series A Preferred Shares to acquire Common Shares shall be deemed to be exercised without any further action on the part of such holders and the Common Shares issuable thereby shall be deemed to be issued to the holders of the Series A Preferred Shares, at such time as the Corporation has given to holders of Series A Preferred Shares written notice of the automatic conversion event that has occurred. After such automatic conversion, certificates for Series A Preferred Shares will represent only the right of the registered holder thereof to receive the Common Shares to be issued upon conversion, which Common Shares shall be delivered to the holder against surrender of the certificate or certificates evidencing the Series A Preferred Shares in exchange therefor.

(d) Conversion Price Adjustments of Series A Preferred Shares for Certain Splits and Combinations. The Conversion Price of the Series A Preferred Shares shall be subject to adjustment from time to time as follows:

(i) Stock Splits and Dividends. In the event the Corporation should at any time after the date upon which any shares of Series A Preferred Shares were first issued (the “Purchase Date” with respect to such series), fix a record date for the effectuation of a split or subdivision of the outstanding Common Shares or the determination of holders of Common Shares entitled to receive a dividend or other distribution payable in additional Common Shares or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional Common Shares (hereinafter referred to as “Common Shares Equivalents”) without payment of any consideration by such holder for the additional Common Shares or the Common Shares Equivalents (including the additional Common Shares issuable upon conversion or exercise thereof), then, provided that the holders of Series A Preferred Shares do not also receive such dividend or other distribution or the benefit of such split or subdivision, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Shares shall be appropriately decreased so that the number of shares of Common Shares issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Shares outstanding and those issuable with respect to such Common Shares Equivalents with the number of shares issuable with respect to Common Shares Equivalents determined from time to time as provided in Section 4(d)(iii) below.

(ii) Reverse Stock Splits. If the number of shares of Common Shares outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Shares, then, following the record date of such combination, the Conversion Price for the Series A Preferred Shares shall be appropriately increased so that the number of shares of Common Shares issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares.

(iii) Additional Adjustments Respecting Common Share Equivalents. The following provisions shall apply for purposes of this Section 4(d):

(A) The aggregate maximum number of shares of Common Shares deliverable upon conversion, exchange or exercise of Common Shares Equivalents (assuming the satisfaction of any conditions to convertibility, exchangeability or exercisability, including, without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) shall be deemed to have been issued at the time such Common Shares Equivalents were issued.

(B) In the event of any change in the number of shares of Common Shares deliverable or in the consideration payable to the Corporation upon conversion or exercise of such Common Shares Equivalents including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price of the Series A Preferred Shares, to the extent in any way affected by or computed using such Common Shares Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Shares or any payment of such consideration upon the conversion, exchange or exercise of such Common Shares Equivalents.

(C) Upon the termination or expiration of the convertibility, exchangeability or exercisability of any such Common Shares Equivalents, the Conversion Price of the Series A Preferred Shares, to the extent in any way affected by or computed using such Common Shares Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Shares (and Common Shares Equivalents which remain convertible, exchangeable or exercisable) actually issued upon the conversion, exchange or exercise of such Common Shares Equivalents.

(D) Notwithstanding anything to the contrary contained herein, the foregoing provisions shall not apply to rights which are issued, but not exercised, under any shareholder rights protection plan of the Corporation, provided that holders of Series A Preferred Shares are entitled to participate ratably in such plan with holders of Common Shares.

(e) Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(i), then, in each such case for the purpose of this Section 4(e), the holders of Series A Preferred Shares shall be entitled to a proportionate share of any such distribution (subject to the prior consent of the Toronto Stock Exchange, if required, which the Corporation covenants and agrees to use its reasonable and best efforts to obtain) as though they were the holders of the number of shares of Common Shares of the Corporation into which their shares of Series A Preferred Shares are convertible as of the record date fixed for the determination of the holders of Common Shares of the Corporation entitled to receive such distribution.

(f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Shares (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2) provision shall be made so that the holders of the Series A Preferred Shares shall thereafter be entitled to receive upon conversion of such Series A Preferred Shares the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Shares deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with

respect to the rights of the holders of such Series A Preferred Shares after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such Series A Preferred Shares) shall be applicable after that event and be as nearly equivalent as practicable.

(g) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation (except in accordance with Section 6 hereof and applicable law) or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series A Preferred Shares against impairment.

(h) No Fractional Shares and Certificate as to Adjustments.

(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Shares, and the number of shares of Common Shares to be issued shall be rounded down to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Shares the holder is at the time converting into Common Shares and the number of shares of Common Shares issuable upon such aggregate conversion.

(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Shares pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series A Preferred Shares a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Shares, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series A Preferred Shares at the time in effect, and (C) the number of shares of Common Shares and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Series A Preferred Shares.

(i) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Shares, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Shares, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Shares, such number of its shares of Common Shares as shall from time to

time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Shares; and if at any time the number of authorized but unissued shares of Common Shares shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Shares, in addition to such other remedies as shall be available to the holder of such Series A Preferred Shares, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Shares to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in reasonable best efforts to obtain the requisite stockholder approval of any necessary amendment to this Restated Articles.

(k) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Shares shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

(l) Meetings and Extraordinary Resolutions. Any holder of Series A Preferred Shares may, at any time convene a meeting of the Series A Preferred shareholders, if the holder executes a request for a meeting, signed in one or more counterparts, by Series A Preferred shareholders holding in the aggregate not less than 5% of the aggregate number of Series A Preferred Shares then outstanding. The Corporation, at its election, may also convene a meeting of the Series A Preferred shareholders. At least ten (10) days prior notice of any meeting of Series A Preferred shareholders shall be given to the Series A Preferred shareholders in the manner provided for herein for providing notices to shareholders and to the Corporation. Such notice shall state the time when and the place where the meeting is to be held, shall state briefly the general nature of the business to be transacted thereat and shall contain such information as is reasonably necessary to enable the Series A Preferred shareholders to make a reasoned decision on the matter but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed. Every such meeting shall be held in the City of San Francisco, California or San Diego, California. A representative director of the holders of the Series A Preferred Shares or, if no such person is available, a senior officer of the Corporation designated in writing by the Corporation, shall be Chairman of the meeting and, if no individual is so designated or if the individual so designated is not present within fifteen (15) minutes from the time fixed for the holding of the meeting, the Series A Preferred shareholders present in person or by proxy shall choose an individual present to be Chairman. At any meeting of the Series A Preferred shareholders, a quorum shall consist of Series A Preferred shareholders present in person or by proxy and representing at least 51% of the then outstanding Series A Preferred Shares, provided that at least two persons entitled to vote thereat are present in person or by proxy. No business shall be transacted at any meeting unless a quorum is present at the commencement of business. The Chairman of any meeting at which a quorum of the Series A Preferred shareholders is present may, with the consent of the meeting, adjourn any such meeting and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe. Representatives of the Corporation may attend any meeting of the Series A Preferred shareholders but shall have no vote as such unless in their capacity as a Series A Preferred Shareholder or a proxy for a Series A Preferred Shareholder. Other than as specifically set forth in these share provisions, questions other than those required to be determined by extraordinary resolution shall be decided by a majority of the votes cast on the resolution. In addition, the Series A Preferred shareholders at a meeting shall have the power, exercisable from time to time by extraordinary resolution:

(i) to amend, alter or repeal any extraordinary resolution previously passed or sanctioned by the Series A Preferred shareholders;

(ii) to waive any default on the part of the Corporation in complying with any provision of these Series A Preferred Share provisions, either unconditionally or on any condition specified in such extraordinary resolution; or

(iii) to restrain any Series A Preferred Shareholder from taking or instituting any suit, action or proceeding against the Corporation for the enforcement of any of the covenants on the part of the Corporation in these Series A Preferred Share terms or to enforce any of the rights of the Series A Preferred shareholders.

An extraordinary resolution is passed by the affirmative vote of Series A Preferred shareholders holding not less than 66 ²/3% of the aggregate number of the then outstanding Series A Preferred Shares represented at the meeting and voted on such resolution or, alternatively, by written resolution signed in one or more counterparts by Series A Preferred shareholders holding at least 66 ²/3% of the then outstanding Series A Preferred Shares. An ordinary resolution is passed by the affirmative vote of Series A Preferred shareholders holding not less than 50% of the aggregate number of the then outstanding Series A Preferred Shares represented at the meeting and voted on such resolution or, alternatively, by written resolution signed in one or more counterparts by Series A Preferred shareholders holding at least 50% of the then outstanding Series A Preferred Shares. Every resolution and every extraordinary resolution passed in accordance with the provisions herein at a meeting of the Series A Preferred shareholders shall be binding on all the Series A Preferred shareholders, whether present at or absent from such meeting.

5. Voting Rights.

(a) Voting for Directors. The holders of Series A Preferred Shares shall, voting together as a class, have the right to elect two (2) directors of the Corporation. The holders of the Common Shares, together with the holders of Series A Preferred Shares voting together on an as converted basis, shall have the right to elect the remaining directors of the Corporation. In the case of any vacancy on the Board of Directors occurring among the directors elected by a specified group of shareholders and not caused by removal, the remaining director or directors so elected by such specified group may elect a successor to hold the office for the unexpired term of such director. Any director who shall have been elected by a specified group of shareholders may be removed during the aforesaid term of office, either for or without cause, by, and only by, (a) in the case of the two (2) directors elected by the holders of the Series A Preferred Shares, the affirmative vote of the holders of a majority of the shares of such specified group, and (b) in the case of the balance of the directors, the affirmative vote of the holders of a majority of the shares voted at a duly called meeting held to consider such action, in each case given at a special meeting of such shareholders duly called or by an action by written consent for that purpose, and any such vacancy thereby created may be filled only by (i) in the case of the two (2) directors elected by the holders of the Series A Preferred Shares, the vote of the holders of a majority of the shares of such specified group represented at such meeting or in such consent, and (ii) in the case of the balance of the directors, the affirmative vote of the holders of a majority of the shares voted at a duly called meeting held to consider such action. In addition, notwithstanding anything to the contrary contained herein, (i) at such time as the voting rights attaching to all Series A Preferred Shares outstanding represent less than 15% of the voting

rights attached to all outstanding Common Shares and Series A Preferred Shares, the holders of the Series A Preferred Shares shall only have the right to elect one (1) director of the Corporation, and (ii) at such time as the voting rights attaching to all outstanding Series A Preferred Shares represent less than 10% of the voting rights attached to all outstanding Common Shares and Series A Preferred Shares, the holders of the Series A Preferred Shares shall not be entitled to any preferential rights in electing the directors of the Corporation.

(b) Vote Other Than For Directors. Except as provided by Section 5(a) and 6 or otherwise in these share provisions or as provided by law, the holders of Series A Preferred Shares shall have the same voting rights as the holders of Common Shares and shall be entitled to notice of any shareholders’ meeting in accordance with the Bylaws of the Corporation, and the holders of Common Shares and the Series A Preferred Shares shall vote together as a single class on all matters. Each holder of Common Shares shall be entitled to one vote for each share of Common Shares held, and each holder of Series A Preferred Shares shall be entitled to the number of votes equal to the number of shares of Common Shares into which such shares of Series A Preferred Shares could be converted. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Shares held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

6. Protective Provisions. The Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Shares:

(a) alter or change the rights, preferences or privileges of the shares of Series A Preferred Shares so as to affect adversely the shares of such series, whether by merger, consolidation or otherwise;

(b) increase or decrease (other than by conversion) the total number of authorized shares of Series A Preferred Shares;

(c) authorize or issue, or obligate itself to issue, any other equity security, including any security (other than Series A Preferred Shares) convertible into or exercisable for any equity security, having a preference over, or being on a parity with, the Series A Preferred Shares with respect to voting, dividends, conversion or upon liquidation;

(d) redeem, purchase, pay a dividend on, or make any distribution on account of any share or Common Shares;

(e) repay any shareholder notes or obligations to parties related to a shareholder incurred other than in the ordinary course of business;

(f) make any material change in the Corporation’s principal line of business;

(g) amend or enact any stock option plan, restricted stock plan, or employee stock purchase plan to increase the authorized number of shares available for issuance to employees and consultants, the result of which would result in the aggregate number of Common Shares reserved for issuance under such plans exceeding, in aggregate, a number equal to 10,803,958 Common Shares (appropriately adjusted for any stock dividends, stock splits, recapitalizations, and the like);

(h) liquidate or dissolve the Corporation;

(i) increase of the authorized number of members of the Board of Directors of the Corporation from seven (7); and

(j) take any other action which requires the approval of the Series A Preferred Shares under applicable law.

7. Status of Converted Stock. In the event any Series A Preferred Shares shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and may not be re-issued by the Corporation.

(B) Common Shares.

1. Dividend Rights. Subject to the rights of holders of Series A Preferred Shares, the holders of the Common Shares shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, or the occurrence of a Liquidation Transaction, the assets of the Corporation shall be distributed as provided in Section 2 of Article I(A).

3. Redemption. The Common Shares are not redeemable.

4. Voting Rights. Each holder of Common Shares shall have the right to one vote per share of Common Shares, and shall be entitled to notice of any shareholders’ meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.

Schedule “B”

a. The directors may, between annual general meetings, appoint one or more additional directors of the Corporation to serve until the next annual general meeting, but the number of additional directors shall not at any time exceed 1/3 of the number of directors who held office at the expiration of the last annual general meeting of the Corporation.

b. Meetings of the shareholders may be held at any place within Alberta or California, or at any city within Canada or the United States.

EX-3.2

Exhibit 3.2

GENERAL BY-LAW

BY-LAW NO. 1

A BY-LAW RELATING GENERALLY TO THE CONDUCT OF THE AFFAIRS OF

BAKBONE SOFTWARE INCORPORATED

(hereinafter called the “Corporation”)

IT IS HEREBY ENACTED as a by-law of the Corporation as follows:

DIVISION ONE

INTERPRETATION

1.01 In the by-laws of the Corporation, unless the context otherwise specifies or requires:

a. “Act” means the Canada Business Corporations Act, as from time to time amended and every statute that may be substituted therefore and, in the case of such substitution, any references in the by-laws of the Corporation to provisions of the Act shall be read as references to the substituted provisions therefore in the new statute or statutes;

b. “appoint” includes “elect” and vice versa;

c. “board” means the board of directors of the Corporation;

d. “by-laws” means this by-law and all other by-laws of the Corporation from time to time in force and effect;

e. “meeting of shareholders” includes an annual or other general meeting of shareholders and a special meeting of shareholders;

f. “Regulations” means the regulations under the Act as published or from time to time amended and every regulation that may be substituted therefore and, in the case of such substitution, any references in the by-laws of the Corporation to provisions of the Regulations shall be read as references to the substituted provisions therefore in the new regulations;

g. “signing officer” means, in relation to any instrument, any person authorized to sign the same on behalf of the Corporation by virtue of section 3.01 of this by-law or by a resolution passed pursuant thereto; and

h. “special meeting of shareholders” means a meeting of any particular class or classes of shareholders and a meeting of all shareholders entitled to vote at any annual meeting of shareholders at which special business is to be transacted.

Save as aforesaid, all terms which are contained in the by-laws of the Corporation and which are defined in the Act or the Regulations shall, unless the context otherwise specifies or requires, have the meanings given to such terms in the Act or the Regulations. Words importing the singular number include the plural and vice versa; the masculine shall include the feminine; and the word “person” shall include an individual, partnership, association, body corporate, body politic, trustee, executor, administrator and legal representative.

TITLE	SECTION	PAGE
BANKING AND SECURITIES
Banking Arrangements	2.01	2
Voting Rights in Other Bodies Corporate	2.02	2
DIRECTORS
Number	4.01	3
Election and Term	4.02	3
Removal of Directors	4.03	3
Consent	4.04	3
Vacation of Office	4.05	4
Committee of Directors	4.06	4
Transaction of Business of Committee	4.07	4
Procedure	4.08	4
Remuneration and Expenses	4.09	4
Vacancies	4.10	4
Action by the Board	4.11	5
DIVIDENDS AND RIGHTS
Dividends	11.01	18
Dividend Cheques	11.02	18
Non-Receipt of Cheques	11.03	18
Unclaimed Dividends	11.04	18
Record Date for Dividends and Rights	11.05	18
EXECUTION OF INSTRUMENTS
Authorized Signing Officers	3.01	2
Cheques, Drafts and Notes	3.02	2
INFORMATION AVAILABLE TO SHAREHOLDERS
Confidential Information	12.01	19
Conditions of Access to Information	12.02	19
Registered Office and Separate Records Office	12.03	19
INTERPRETATION	1.01	1
MEETING OF DIRECTORS
Place of Meeting	5.01	5
Notice of Meeting	5.02	5
Adjourned Meeting	5.03	6
Calling of the Meeting	5.04	6
Regular Meetings	5.05	6
Chairman	5.06	6
Quorum	5.07	6
Half Canadian Representation at Meetings	5.08	6
Voting	5.09	7
Meeting by Telephone	5.10	7
Resolution in Lieu of Meeting	5.11	7
Amendments to the Act	5.12	7

MISCELLANEOUS
Directors to Require Surrender of Share Certificates	14.01	20
Financial Assistance to Shareholders, Employees and	14.02	21
Others
Severability	14.03	22
NOTICES
Method of Giving Notices	13.01	19
Notice to Joint Shareholders	13.02	19
Persons Entitled by Death or Operation of Law	13.03	20
Non-Receipt of Notices	13.04	20
Omissions and Errors	13.05	20
Signature on Notices	13.06	20
Waiver of Notice	13.07	20
OFFICERS
Election or Appointment	7.01	9
Chairman of the Board	7.02	9
Managing Director	7.03	9
President	7.04	9
Vice-President	7.05	10
Secretary	7.06	10
Treasurer	7.07	10
General Manager or Manager	7.08	10
Powers and Duties of Other Officers	7.09	10
Variation of Powers and Duties	7.10	11
Vacancies	7.11	11
Remuneration and Removal	7.12	11
Agents and Attorneys	7.13	11
Conflict of Interest	7.14	11
Fidelity Bonds	7.15	11
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
Conflict of Interest	6.01	7
Limitation of Liability	6.02	8
Indemnity	6.03	8
Insurance	6.04	9
SHARES
Non-Recognition of Trusts	9.01	16
Certificates	9.02	16
Replacement of Share Certificates	9.03	16
Joint Holders	9.04	16
SHAREHOLDERS’ MEETINGS
Annual Meetings	8.01	11
Special Meetings	8.02	12
Place of Meetings	8.03	12
Record Date for Notice	8.04	12
Notice of Meeting	8.05	12
Right to Vote	8.06	12

List of Shareholders Entitled to Notice	8.07	13
Meetings Without Notice	8.08	13
Waiver of Notice	8.09	13
Chairman, Secretary and Scrutineers	8.10	13
Persons Entitled to be Present	8.11	14
Quorum	8.12	14
Participation in Meeting by Telephone	8.13	14
Proxyholders and Representatives	8.14	14
Time for Deposit of Proxies	8.15	14
Joint Shareholders	8.16	15
Votes to Govern	8.17	15
Show of Hands	8.18	15
Ballots	8.19	15
Adjournment	8.20	15
Resolution in Lieu of a Meeting	8.21	16
Only One Shareholder	8.22	16
TRANSFER OF SECURITIES
Registration of Transfer	10.01	17
Transfer Agents and Registrar	10.02	17
Securities’ Registers	10.03	17
Deceased Shareholders	10.04	17

Headings used in the by-laws are inserted for reference purposes only and are not to be considered or taken into account in construing the terms or provisions thereof or to be deemed in any way to clarify, modify or explain the effect of any such terms or provisions.

DIVISION TWO

BANKING AND SECURITIES

2.01 Banking Arrangements

The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefore, shall be transacted with such banks, trust companies or other bodies corporate or organizations or any other persons as may from time to time be designated by or under the authority of the board. Such banking business or any part thereof shall be transacted under such agreements, instructions and delegations of power as the board may from time to time prescribe or authorize.

2.02 Voting Rights in Other Bodies Corporate

The signing officers of the Corporation may execute and deliver instruments of proxy and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments, certificates or other evidence shall be in favour of such person or persons as may be determined by the person signing or arranging for them. In addition, the board may direct the manner in which and the person or persons by whom any particular voting rights or class of voting rights may or shall be exercised.

DIVISION THREE

EXECUTION OF INSTRUMENTS

3.01 Authorized Signing Officers

Unless otherwise authorized by the directors, deeds, transfers, assignments, contracts, obligations, certificates and other instruments may be signed on behalf of the Corporation by any two of the president, chairman of the board, managing director, any vice-president, any director, secretary, treasurer, any assistant secretary or any assistant treasurer or any other office created by by-law or by the board. In addition, the board may from time to time direct the manner in which the person or persons by whom any particular instrument or class of instruments may or shall be signed. Any signing officer may affix the corporate seal to any instrument requiring the same, but no instrument is invalid merely because the corporate seal is not affixed thereto.

3.02 Cheques, Drafts and Notes

All cheques, drafts or orders for the payment of money and all notes and acceptances and bills of exchange shall be signed by such officer or person or persons, whether or not officers of the Corporation, and in such manner as the board may from time to time designate by resolution.

DIVISION FOUR

DIRECTORS

4.01 Number and Residency of Directors

The board shall consist of such number of directors as is fixed by the articles, or where the articles specify a variable number, shall consist of such number of directors as is not less than the minimum nor more

than the maximum number of directors provided in the articles and as shall be fixed from time to time by resolution of the shareholders. No less than twenty-five percent (25%) of the directors of the Corporation must be resident Canadians.

4.02 Election and Term

Subject to the articles or a unanimous shareholder agreement, the election of directors shall take place at each annual meeting of shareholders and all of the directors then in office, unless elected for a longer period of time (not to exceed the close of the third (3rd) annual meeting of shareholders following election), shall retire but, if qualified, shall be eligible for re-election. The number of directors to be elected at any such meeting shall, subject to the articles or a unanimous shareholder agreement, be the number of directors then in office, or the number of directors whose terms of office expire at the meeting, as the case may be, except that, if cumulative voting is not required by the articles and the articles otherwise permit, the shareholders may resolve to elect some other number of directors. Where the shareholders adopt an amendment to the articles to increase the number or minimum number of directors, the shareholders may, at the meeting at which they adopt the amendment, elect the additional number of directors authorized by the amendment. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected. If the articles provide for cumulative voting, each director elected by shareholders (but not directors elected or appointed by creditors or employees) ceases to hold office at the annual meeting and each shareholder entitled to vote at an election of directors has the right to cast a number of votes equal to the number of votes attached to the shares held by him multiplied by the number of directors he is entitled to vote for, and he may cast all such votes in favour of one candidate or distribute them among the candidates in any manner. If he has voted for more than one candidate without specifying the distribution among such candidate, he shall be deemed to have divided his votes equally among the candidates for whom he voted.

4.03 Removal of Directors

Subject to the Act and the articles, the shareholders may by ordinary resolution passed at a special meeting remove any director from office, except a director elected by employees or creditors pursuant to the articles or a unanimous shareholder agreement, and the vacancy created by such removal may be filled at the same meeting, failing which it may be filled by the board. However, if the articles provide for cumulative voting, no director shall be removed pursuant to this section where the votes cast against the resolution for his removal would, if cumulatively voted at an election of the full board, be sufficient to elect one or more directors.

4.04 Consent

A person who is elected or appointed a director is not a director unless:

a. he was present at the meeting when he was elected or appointed and did not refuse to act as a director, or

b. if he was not present at the meeting when he was elected or appointed:

i. he consented in writing to act as a director before his election or appointment or within ten (10) days after it, or

ii. he has acted as a director pursuant to the election or appointment.

4.05 Vacation of Office

A director of the Corporation ceases to hold office when:

a. he dies or resigns;

b. he is removed in accordance with section 109 of the Act; or

c. he becomes disqualified under subsection 105(1) of the Act.

4.06 Committee of Directors

The directors may appoint from among their number a managing director, who must be a resident Canadian, or a committee of directors, however designated, and subject to section 115 of the Act may delegate to the managing director or such committee any of the powers of the directors. A committee may be comprised of one director.

4.07 Transaction of Business of Committee

Subject to the provisions of this by-law with respect to participation by telephone, the powers of a committee of directors may be exercised by a meeting at which a quorum is present or by resolution in writing signed by all of the members of such committee who would have been entitled to vote on that resolution at a meeting of the committee. Meetings of such committee may be held at any place in or outside Canada and may be called by any one member of the committee giving notice in accordance with the by-laws governing the calling of directors’ meetings.

4.08 Procedure

Unless otherwise determined herein or by the board, each committee shall have the power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedure.

4.09 Remuneration and Expenses

Subject to any unanimous shareholder agreement, the directors shall be paid such remuneration for their services as the board may from time to time determine. The directors shall also be entitled to be reimbursed for travelling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor.

4.10 Vacancies

Subject to the Act, a quorum of the board may fill a vacancy among the directors, except a vacancy resulting from an increase in the number or minimum number of directors or from a failure to elect the number or minimum number of directors required by the articles. If there is not a quorum of directors, or if there has been a failure to elect the number or minimum number of directors required by the articles, the directors then in office shall forthwith call a special meeting of shareholders to fill the vacancy and, if they fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder.

4.11 Action by the Board

Subject to any unanimous shareholder agreement, the board shall manage or supervise the management of the business and affairs of the Corporation. Notwithstanding a vacancy among the directors, a quorum of directors may exercise all the powers of the directors. If the Corporation has only one director, that director may constitute a meeting.

DIVISION FIVE

MEETING OF DIRECTORS

5.01 Place of Meeting

Meetings of the board may be held at any place within or outside Canada.

5.02 Notice of Meeting

Unless the directors have made regulations otherwise, meetings of the board may be summoned on twenty-four (24) hours’ notice, verbally or in writing, and whether by means of telephone or telegraph, or any other means of communication. A notice of a meeting of directors need not specify the purpose of or the business to be transacted at the meeting except any proposal to:

a. submit to the shareholders any question or matter requiring approval of the shareholders;

b. fill a vacancy among the directors or in the office of auditor;

c. issue securities, except in the manner and on the terms authorized by the directors;

d. declare dividends;

e. purchase, redeem or otherwise acquire shares issued by the Corporation, except in the manner and on the terms authorized by the directors;

f. pay a commission for the sale of shares;

g. approve a management proxy circular;

h. approve a take-over bid circular or directors’ circulars;

i. approve any financial statements to be placed before the shareholders at an annual meeting; or

j. adopt, amend or repeal by-laws.

Provided, however, that a director may in any manner waive notice of a meeting and attendance of a director at a meeting of directors shall constitute a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

For the first meeting of the board of directors to be held immediately following an election of directors or for a meeting of the board at which a director is to be appointed to fill a vacancy in the board, no notice of such meeting shall be necessary to the newly elected or appointed director or directors in order to legally constitute the meeting, provided that a quorum of the directors is present.

5.03 Adjourned Meeting

Notice of an adjourned meeting of the board is not required if the time and place of the adjourned meeting is announced at the original meeting.

5.04 Calling of the Meetings

Meetings of the board shall be held from time to time at such time and at such place as the board, the chairman of the board, the managing director, the president or any two directors may determine. Should more than one of the above-named call a meeting at or for substantially the same time, there shall be held only one meeting and such meeting shall occur at the time and place determined by, in order of priority, the board, the chairman, or the president.

5.05 Regular Meetings

The board may appoint a day or days in any month or months for regular meetings of the board at a place and hour to be named. A copy of any resolution of the board fixing the place and time of such regular meetings shall be sent to each director forthwith after being passed, and forthwith to each director subsequently elected or appointed, but no other notice shall be required for any such regular meeting except where the Act or this by-law requires the purpose thereof or the business to be transacted thereat to be specified.

5.06 Chairman

The chairman of any meeting of the board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting: chairman of the board, managing director or president. If no such officer is present, the directors present shall choose one of their number to be chairman.

5.07 Quorum

Subject to section 5.08, the quorum for the transaction of business at any meeting of the board shall consist of a majority of the directors holding office or such greater number of directors as the board may from time to time determine.

5.08 Canadian Representation at Meetings

Directors shall not transact business at a meeting of directors unless no less than twenty-five percent (25%) of the directors present are resident Canadians. Notwithstanding the foregoing, directors may transact business at a meeting of directors when less than twenty-five percent (25%) of the directors present are resident Canadians if:

a. a resident Canadian director who is unable to be present approves in writing, or by telephonic, electronic or other communication facility, the business transacted at the meeting; and

b. the required number of resident Canadian directors would have been present at the meeting had that director who gives his approval under paragraph (a) been present at the meeting.

5.09 Voting

Questions arising at any meeting of the board shall be decided by a majority of votes, the chairman of the meeting shall be entitled to vote and the chairman shall not have a second or casting vote in the event of an equality of votes.

5.10 Meeting by Telephone

A director, if all the directors of the Corporation consent, may participate in a meeting of the board or a committee of the board by means of such telephone or other communication facilities which permits all persons participating in the meeting to hear each other and a director participating in such meeting by such means is deemed to be present at the meeting. Any such consent shall be effective whether given before or after the meeting to which it relates and may be given with respect to all meetings of the board and of committees of directors held while a director holds office.

5.11 Resolution in Lieu of Meeting

Notwithstanding any of the foregoing provisions of this by-law, a resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the directors or a committee of directors is as valid as if it had been passed at a meeting of the directors or committee of directors. A copy of every such resolution shall be kept with the minutes of the proceedings of the directors or committee of directors. Any such resolution in writing is effective for all purposes at such time as the resolution states regardless of when the resolution is signed.

5.12 Amendments to the Act

It is hereby affirmed that the intention of sections 4.01, 4.06, 5.08 and 7.03 as they relate to Canadian representation is to comply with the minimum requirements of the Act and in the event that such minimum requirements shall be amended, deleted or replaced such that no, or lesser, requirements with respect to Canadian representation are then in force, such sections shall be correspondingly amended, deleted or replaced.

DIVISION SIX

PROTECTION OF DIRECTORS, OFFICERS AND OTHERS

6.01 Conflict of Interest

A director or officer shall not be disqualified by his office, or be required to vacate his office, by reason only that he

a. is a party to;

b. is a director or officer, or an individual acting in a similar capacity, of a party to; or

c. has a material interest in a party to

a material contract or material transaction, whether made or proposed, with the Corporation. Such a director or officer shall, however, disclose to the Corporation the nature and extent of his interest in the contract or transaction at the time and in the manner provided by the Act. Subject to the provisions of the Act, a director shall not by reason only of his office be accountable to the Corporation or to its shareholders for any profit or gain realized from such a contract or transaction, and such contract or transaction shall not be void or voidable by reason only of the director’s interest therein, provided that the

required declaration and disclosure of interest is properly made, the contract or transaction is approved by the directors or shareholders, if necessary, and the contract or transaction was fair and reasonable to the Corporation at the time it was approved and, if required by the Act, the director refrains from voting as a director on the contract or transaction.

6.02 Limitation of Liability

Every director and officer of the Corporation in exercising his powers and discharging his duties shall act honestly and in good faith with a view to the best interests of the Corporation and shall exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Subject to the foregoing, the Act and the Regulations, no director or officer for the time being of the Corporation shall be liable for the acts, neglects or defaults of any other director or officer or employee or for joining in any act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by the Corporation or for or on behalf of the Corporation or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Corporation shall be placed out or invested or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Corporation or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of the moneys, securities or effects of the Corporation shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto; provided that nothing herein shall relieve any director or officer from the duty to act in accordance with the Act and the Regulations thereunder or from liability for any breach thereof. The directors for the time being of the Corporation shall not be under any duty or responsibility in respect of any contract, act or transaction whether or not made, done or entered into in the name or on behalf of the Corporation, except such as shall have been submitted to and authorized or approved by the board of directors.

No act or proceeding of any director or officer or the board shall be deemed invalid or ineffective by reason of the subsequent ascertainment of any irregularity in regard to such act or proceeding or the election, appointment or qualification of such director or officer or board.

6.03 Indemnity

Subject to section 124 of the Act, the Corporation may indemnify a director or officer of the Corporation, a former director or officer of the Corporation or another individual who acts or acted at the Corporation’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal, administrative, investigative or other proceeding to which he is made a party by reason of that association with the Corporation or other entity, if:

a. he acted honestly and in good faith with a view to the best interests of the Corporation, or, as the case may be, to the best interests of the other entity for which he acted as director or officer or in a similar capacity at the Corporation’s request; and

b. in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

The Corporation may also indemnify such persons in such other circumstances as the Act permits or requires. Nothing herein contained shall limit the right of any person entitled to indemnity to claim indemnity apart from the provisions of this section 6.03.

6.04 Insurance

The Corporation may purchase and maintain insurance for the benefit of any person referred to in section 6.03 against any liability incurred by him:

a. in his capacity as a director or officer of the Corporation, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the Corporation; or

b. in his capacity as a director or officer of the another body corporate where he acts or acted in that capacity at the Corporation’s request, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the body corporate.

DIVISION SEVEN

OFFICERS

7.01 Election or Appointment

Subject to any unanimous shareholder agreement, the board may, from time to time, appoint a chairman of the board, a president, one or more vice-presidents, a secretary, a treasurer and such other officers as the board may determine, including one or more assistants to any of the officers so appointed. The board may specify the duties of and, in accordance with this by-law and subject to the provisions of the Act, delegate to such officers powers to manage the business and affairs of the Corporation. Except for a managing director and a chairman of the board who must be directors, an officer may, but need not be, a director and one person may hold more than one office.

7.02 Chairman of the Board

The chairman of the board shall, when present, preside at all meetings of the board, committees of directors and at all meetings of shareholders.

If no managing director is appointed, the board may assign to the chairman of the board any of the powers and duties that, by any provision of this by-law, are assigned to the managing director; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. During the absence or disability of the chairman of the board, his duties shall be performed and his powers exercised by the managing director, if any, or by the president.

7.03 Managing Director

The managing director, if any, shall be a resident Canadian and shall have, subject to the authority of the board, general supervision of the business and affairs of the Corporation; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify.

7.04 President

The president shall, subject to the authority of the board and the managing director, if any, have such powers and duties as the board may specify. During the absence or disability of the managing director, or if no managing director has been appointed, the president shall also have the powers and duties of that office; provided, however, that unless he is a director he shall not preside as chairman at any meeting of the board or of a committee of directors.

7.05 Vice-President

During the absence or disability of the president, his duties shall be performed and his powers exercised by the vice-president or, if there is more than one, by the vice-president designated from time to time by the board or the president; provided, however, that a vice-president who is not a director shall not preside as chairman at any meeting of the board or of a committee of directors. A vice-president shall have such other powers and duties as the board or the president may prescribe.

7.06 Secretary

The secretary shall attend and be the secretary of all meetings of the board, shareholders and committees of the board and shall enter or cause to be entered in records kept for that purpose minutes of all proceedings thereat; he shall give or cause to be given, as and when instructed, all notices to shareholders, directors, officers, auditors and members of committees of the board; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and of all books, papers, records, documents and instruments belonging to the Corporation, except when some other officer or agent has been appointed for that purpose; and he shall have such other powers and duties as the board or the chief executive officer may specify.

7.07 Treasurer

The treasurer shall keep proper accounting records in compliance with the Act and shall be responsible for the deposit of money, the safekeeping of securities and the disbursement of the funds of the Corporation; he shall render to the board whenever required an account of all his transactions and he shall have such other powers and duties as the board or chief executive officer, if any, or the president may specify.

7.08 General Manager or Manager

If elected or appointed, the general manager shall have, subject to the authority of the board, the managing director, if any, the chief executive officer, if any, and the president, full power to manage and direct the business and affairs of the Corporation (except such matters and duties as by law must be transacted or performed by the board and/or by the shareholders) and to employ and discharge agents and employees of the Corporation and may delegate to him or them any lesser authority. A general manager or manager shall conform to all lawful orders given to him by the board and shall at all reasonable times give to the directors or any of them all information they may require regarding the affairs of the Corporation. Any agent or employee appointed by a general manager or manager shall be subject to discharge by the board.

7.09 Powers and Duties of Other Officers

The powers and duties of all other officers shall be such as the terms of their engagement call for or as the board, the managing director, if any, or the chief executive officer, if any, or the president may specify. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board or the chief executive officer, if any, or the president otherwise directs.

7.10 Variation of Powers and Duties

The board may from time to time and subject to the provisions of the Act, vary, add to or limit the powers and duties of any officer.

7.11 Vacancies

If the office of any officer of the Corporation shall be or become vacant by reason of death, resignation, disqualification or otherwise, the directors by resolution shall, in the case of the president or the secretary, and may, in the case of any other office, appoint a person to fill such vacancy.

7.12 Remuneration and Removal

The remuneration of all officers appointed by the board of directors shall be determined from time to time by resolution of the board of directors. The fact that any officer or employee is a director or shareholder of the Corporation shall not disqualify him from receiving such remuneration as may be determined. All officers, in the absence of agreement to the contrary, shall be subject to removal by resolution of the board of directors at any time, with or without cause.

7.13 Agents and Attorneys

The Corporation, by or under the authority of the board, shall have power from time to time to appoint agents or attorneys for the Corporation in or outside Canada with such powers (including the power to sub-delegate) of management, administration or otherwise as may be thought fit.

7.14 Conflict of Interest

An officer shall disclose his interest in any material contract or proposed material contract with the Corporation in accordance with section 6.01.

7.15 Fidelity Bonds

The board may require such officers, employees and agents of the Corporation as the board deems advisable to furnish bonds for the faithful discharge of their powers and duties, in such forms and with such surety as the board may from time to time determine.

DIVISION EIGHT

SHAREHOLDERS’ MEETINGS

8.01 Annual Meetings

Subject to the Act, the annual meeting of shareholders shall be held at such time and on such day in each year and, subject to section 8.03, at such place or places as the board, the chairman of the board, the managing director or the president may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing auditors if required by the Act or the articles, and for the transaction of such other business as may properly be brought before the meeting.

8.02 Special Meetings

The board shall have the power to call a special meeting of shareholders at any time.

8.03 Place of Meetings

Meetings of shareholders shall be held at any place within Canada or the United States as the directors so determine or, if all the shareholders entitled to vote at the meeting so agree or if the articles so provide, outside Canada or the United States.

8.04 Participation in Meeting by Electronic Means

Any person entitled to attend a meeting of shareholders may participate in the meeting, in accordance with the Regulation to the Act, if any, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the Corporation makes available such a communication facility. A person participating in a meeting by such means is deemed to be present at the meeting.

8.05 Meeting Held by Electronic Means

If the directors or shareholders call a meeting of shareholders pursuant to the Act, those directors or shareholders, as the case may be, may determine that the meeting shall be held, in accordance with the Regulations to the Act, if any, entirely by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting.

8.06 Record Date for Notice

The board may fix in advance a date, preceding the date of any meeting of shareholders by not more than sixty (60) days and not less than twenty-one (21) days, as a record date for the determination of shareholders entitled to notice of the meeting. If no record date is fixed, the record date for the determination of the shareholders entitled to receive notice of the meeting shall be the close of business on the date immediately preceding the day on which the notice is given or, if no notice is given, the day on which the meeting is held.

8.07 Notice of Meeting

Notice of the time and place of each meeting of shareholders shall be sent not less than twenty-one (21) days and not more than sixty (60) days before the meeting to each shareholder entitled to vote at the meeting, each director and the auditor of the Corporation. A notice of meeting need not be sent to shareholders who are not registered on the records of the Corporation or its transfer agent on the record date as determined according to section 8.06 hereof. Notice of a meeting of shareholders at which special business is to be transacted shall state the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and shall state the text of any special resolution to be submitted to the meeting.

8.08 Right to Vote

Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in section 8.09 hereof, every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name except to the extent that such person has transferred any of his shares after the record date set pursuant to section 8.06 hereof, or, if no record date is fixed, after the date on which the list referred to in section 8.09 is prepared, and the transferee, upon producing properly endorsed certificates evidencing such shares or otherwise establishing that he owns such shares, demands not later than ten (10) days before the meeting that his name be included to vote the transferred shares at the meeting. In the absence of a list prepared as aforesaid in respect of a meeting of shareholders, every

person shall be entitled to vote at the meeting who at the close of business on the record date, or if no record date is set, at the close of business on the date preceding the date notice is sent, is entered in the securities register as the holder of one or more shares carrying the right to vote at such meeting.

8.09 List of Shareholders Entitled to Notice

For every meeting of shareholders the Corporation shall prepare an alphabetical list of its shareholders entitled to receive notice of the meeting, showing the number of shares held by each shareholder. If a record date for the meeting is fixed pursuant to section 8.06 hereof, the shareholders listed shall be those registered at the close of business on the record date. If no record date is fixed, the shareholders listed shall be those listed at the close of business on the day immediately preceding the day on which notice of a meeting is given, or where no such notice is given, the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where its central securities register is maintained and at the meeting of shareholders for which the list was prepared.

8.10 Meetings Without Notice

A meeting of shareholders may be held without notice at any time and place permitted by the Act:

a. if all the shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held; and

b. if the auditors and the directors are present or waive notice of or otherwise consent to such meeting being held.

At such meetings any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or represented by proxy, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to a meeting being held at such place.

8.11 Waiver of Notice

A shareholder and any other person entitled to attend a meeting of shareholders may in any manner waive notice of a meeting of shareholders and attendance of any such person at a meeting of shareholders shall constitute a waiver of notice of the meeting except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

8.12 Chairman, Secretary and Scrutineers

The chairman of the board or, in his absence, the president, if such an officer has been elected or appointed and is present, or otherwise a vice-president who is a shareholder of the Corporation shall be chairman of any meeting of shareholders. If no such officer is present within fifteen (15) minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their number to be chairman. If the secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting.

8.13 Persons Entitled to be Present

The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditors of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting.

8.14 Quorum

A quorum at any meeting of shareholders (unless a greater number of persons are required to be present or a greater number of shares are required to be represented by the Act or by the articles or by any other by-law) shall be persons present not being less than two (2) in number and holding or representing not less than five (5%) per cent of the shares entitled to be voted at the meeting. If a quorum is present at the opening of any meeting of shareholders, the shareholders present or represented may proceed with the business of the meeting notwithstanding that a quorum is not present throughout the meeting. If a quorum is not present at the opening of the meeting of shareholders, the shareholders present or represented may adjourn the meeting to a fixed time and place but may not transact any other business.

8.15 Proxyholders and Representatives

Votes at meetings of the shareholders may be given either personally or by proxy; or, in the case of a shareholder who is a body corporate or association, by an individual authorized by a resolution of the board or governing body of the body corporate or association to represent it at a meeting of shareholders of the Corporation, upon producing a certified copy of such resolution or otherwise establishing his authority to vote to the satisfaction of the secretary or the chairman.

A proxy shall be executed by the shareholder or his attorney authorized in writing and is valid only at the meeting in respect of which it is given or any adjournment thereof. A person appointed by proxy need not be a shareholder.

8.16 Time for Deposit of Proxies

The board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than forty-eight (48) hours exclusive of Saturdays and holidays, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time having been specified in such notice, it has been received by the secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting.

8.17 Joint Shareholders

If two or more persons hold shares jointly, any one of them present in person or duly represented at a meeting of shareholder may, in the absence of the other or others, vote the shares; but if two or more of those persons are present in person or represented and vote, they shall vote as one the shares jointly held by them.

8.18 Votes to Govern

Except as otherwise required by the Act, all questions proposed for the consideration of shareholders at a meeting of shareholders shall be determined by a majority of the votes cast and in the event of an equality of votes at any meeting of shareholders, either upon a show of hands or upon a ballot, the chairman shall not have a second or casting vote.

8.19 Show of Hands

Subject to the Act, any question at a meeting of shareholders shall be decided by a show of hands, unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of shareholders upon the said question.

8.20 Ballots

On any question proposed for consideration at a meeting of shareholders, a shareholder, proxyholder or other person entitled to vote may demand and the chairman may require that a ballot be taken either before or upon the declaration of the result of any vote by show of hands. If a ballot is demanded on the election of a chairman or on the question of an adjournment it shall be taken forthwith without an adjournment. A ballot demanded or required on any other question shall be taken in such manner as the chairman shall direct. A demand or requirement for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares that he is entitled to vote at the meeting upon the question, to the number of votes as provided for by the articles or, in the absence of such provision in the articles, to one vote for each share he is entitled to vote. The result of the ballot so taken shall be the decision of the shareholders upon the question.

8.21 Adjournment

The chairman at a meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn the meeting from time to time and from place to place. If a meeting of shareholders is adjourned for less than thirty (30) days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the time of the adjournment. Subject to the Act, if a meeting of shareholders is adjourned by one or more adjournments for an aggregate of thirty (30) days or more, notice of the adjourned meeting shall be given in the same manner as notice for an original meeting but, unless the meeting is adjourned by one or more adjournments for an aggregate of more than ninety (90) day, subsection 149(1) of the Act does not apply.

8.22 Resolution in Lieu of a Meeting

Except where not permitted in the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders; and a resolution in writing dealing with all matters required to be dealt with at a meeting of shareholders and signed by all the shareholders entitled to vote at such meeting, satisfies all the requirements of the Act relating to meetings of shareholders. A copy of every such resolution in writing shall be kept with minutes of the meetings of shareholders. Any such resolution in writing is effective for all purposes at such time as the resolution states regardless of when the resolution is signed.

8.23 Only One Shareholder

Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or duly represented constitutes a meeting.

DIVISION NINE

SHARES

9.01 Non-Recognition of Trusts

Subject to the Act, the Corporation may treat the registered holder of any share as the person exclusively entitled to vote, to receive notices, to receive any dividend or other payment in respect of the share, and otherwise to exercise all the rights and powers of an owner of the share.

9.02 Certificates

The shareholder is entitled at his option to a share certificate that complies with the Act or a non-transferable written acknowledgement of his right to obtain a share certificate from the Corporation in respect of the securities of the Corporation held by him. Share certificates and acknowledgements of a shareholder’s right to a share certificate, respectively, shall be in such form as described by the Act and as the Board shall from time to time approve. A share certificate shall be signed manually by at least one director or officer of the Corporation or by or on behalf of a registrar, transfer agent or branch transfer agent of the Corporation, or by a trustee who certifies it in accordance with a trust indenture, and any additional signatures required on the share certificate may be printed or otherwise mechanically reproduced on it.

9.03 Replacement of Share Certificates

The board or any officer or agent designated by the board may in its or his discretion direct the issuance of a new share certificate or other such certificate in lieu of and upon cancellation of a certificate that has been mutilated or in substitution for a certificate claimed to have been lost, destroyed or wrongfully taken on payment of such reasonable fee and on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the board may from time to time prescribe, whether generally or in any particular case.

9.04 Joint Holders

The Corporation is not required to issue more than one share certificate in respect of shares held jointly by several persons, and delivery of a certificate to one of several joint holders is sufficient delivery to all. Any one of such holders may give effectual receipts for the certificate issued in respect thereof or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such certificate.

DIVISION TEN

TRANSFER OF SECURITIES

10.01 Registration of Transfer

If a share in registered form is presented for registration of transfer, the Corporation shall register the transfer if:

a. the share is endorsed by an appropriate person, as defined in section 65 of the Act;

b. reasonable assurance is given that the endorsement is genuine and effective;

c. the Corporation has no duty to enquire into adverse claims or has discharged any such duty;

d. any applicable law relating to the collection of taxes has been complied with;

e. the transfer is rightful or is to a bona fide purchaser; and

f. the transfer fee, if any, has been paid.

10.02 Transfer Agents and Registrar

The board may from time to time by resolution appoint or remove one or more agents to maintain a central securities’ register or registers and a branch securities’ register or registers. Agents so appointed may be designated as transfer agent or registrar according to their functions, and a person may be appointed and designated with functions as both registrar and transfer or branch transfer agent. Registration of the issuance or transfer of a security in the central securities’ register or in a branch securities’ register is complete and valid registration for all purposes.

10.03 Securities’ Registers

A central securities’ register of the Corporation shall be kept at its registered office or at any other place in Canada designated by the directors to record the shares and other securities issued by the Corporation in registered form, showing with respect to each class or series of shares and other securities:

a. the names, alphabetically arranged, and the latest known address of each person who is or has been a holder;

b. the number of shares or other securities held by each holder; and

c. the date and particulars of the issuance and transfer of each share or other security.

A branch securities’ register or registers may be kept either in or outside Alberta at such place or places as the board may determine. A branch securities’ register shall only contain particulars of securities issued or transferred at that branch. Particulars of each issue or transfer of a security registered in a branch securities’ register shall also be kept in the corresponding central securities’ register.

10.04 Deceased Shareholders

In the event of the death of a holder, or of one of the joint holders, of any share, the Corporation shall not be required to make any entry in the securities’ register in respect thereof or to make any dividend or other payments in respect thereof except upon production of all such documents as may be required by law and upon compliance with the reasonable requirements of the Corporation and its transfer agents.

DIVISION ELEVEN

DIVIDENDS AND RIGHTS

11.01 Dividends

Subject to the Act, the board may from time to time declare dividends payable to the shareholders according to their respective rights and interest in the Corporation. Dividends may be paid in money or property or by issuing fully-paid shares of the Corporation.

11.02 Dividend Cheques

A dividend payable in money shall be paid by cheque to the order of each registered holder of shares of the class or series in respect of which it has been declared and shall be mailed by prepaid ordinary mail to such registered holder at his address recorded in the Corporation’s securities’ register or registers unless such holder otherwise directs. In the case of joint holders the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all such joint holders and mailed to them at their recorded address. The mailing of such cheque as aforesaid, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold.

11.03 Non-Receipt of Cheques

In the event of non-receipt of any dividend cheque by the person to whom it is sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in any particular case.

11.04 Unclaimed Dividends

Any dividend unclaimed after a period of six (6) years from the date on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation.

11.05 Record Date for Dividends and Rights

The board may fix in advance a date, preceding by not more than fifty (50) days the date for the payment of any dividend, as a record date for the determination of the persons entitled to receive payment of such dividend, provided that, unless waived as provided for in the Act, notice of any such record date is given, not less than seven (7) days before such record date, by newspaper advertisement in the manner provided in the Act and by written notice to each stock exchange in Canada, if any, on which the Corporation’s shares are listed for trading. Where no record date is fixed in advance as aforesaid, the record date for the determination of the persons entitled to receive payment of any dividend shall be at the close of business on the day on which the resolution relating to such dividend is passed by the board.

DIVISION TWELVE

INFORMATION AVAILABLE TO SHAREHOLDERS

12.01 Confidential Information

Except as provided by the Act, no shareholders shall be entitled to obtain information respecting any details or conduct of the Corporation’s business which in the opinion of the directors would not be expedient to the interests of the Corporation to communicate to the public.

12.02 Conditions of Access to Information

The directors may from time to time, subject to rights conferred by the Act, determine whether and to what extent and at what time and place and under what conditions or regulations the documents, books and registers and accounting records of the Corporation or any of them shall be open to the inspection of shareholders and no shareholders shall have any right to inspect any document or book or register or account record of the Corporation except as conferred by statute or authorized by the board of directors or by a resolution of the shareholders.

12.03 Registered Office and Records Office

The registered office of the Corporation shall be located within the province in Canada specified in the Corporation’s articles. The records office shall be located within Canada.

DIVISION THIRTEEN

NOTICES

13.01 Method of Giving Notices

A requirement under the Act, the Regulations, the articles or the by-laws of the Corporation that a notice, document or other information be created or provided, including a notice, document or other information required to be created or provided in writing, is satisfied by the creation or provision of an electronic document if the Act and Regulations, if any, have been complied with. A notice or document required by the Act, the Regulations, the articles or the by-laws to be sent to a shareholder or director of the Corporation may be sent by prepaid mail addressed to, or may be delivered personally to:

a. the shareholder at his latest address as shown in the records of the Corporation or its transfer agent; and

b. the director at his latest address as shown in the records of the Corporation or in the last notice filed under section 106 or 113.

A notice or document sent by prepaid mail in accordance with the foregoing to a shareholder or director of the Corporation is deemed to be received at the time it would be delivered in the ordinary course of mail unless there are reasonable grounds for believing that the shareholder or director did not receive the notice or document at the time or at all.

13.02 Notice to Joint Shareholders

If two or more persons are registered as joint holders of any share, any notice may be addressed to all of such joint holders but notice addressed to one of such persons shall be sufficient notice to all of them.

13.03 Persons Entitled by Death or Operation of Law

Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholders from whom he derives his title to such share prior to his name and address being entered on the securities’ register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act.

13.04 Non-Receipt of Notices

If a notice or document is sent to a shareholder in accordance with section 13.01 and the notice or document is returned on three (3) consecutive occasions because the shareholder cannot be found, the Corporation is not required to send any further notice or documents to the shareholder until he informs the Corporation in writing of his new address; provided always, that in the event of the return of a notice of a shareholders’ meeting mailed to a shareholder in accordance with section 13.01 of this by-law the notice shall be deemed to be received by the shareholder on the date deposited in the mail notwithstanding its return.

13.05 Omissions and Errors

Subject to the Act, the accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon.

13.06 Signature on Notices

Unless otherwise specifically provided, the signature of any director or officer of the Corporation to any notice or document to be given by the Corporation may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed.

A requirement under the Act or Regulations for a signature or for a document to be executed by a director or officer of the Corporation is satisfied if, in relation to an electronic document, the requirements of the Act or Regulations are met and if the signature results from the application by the director or officer of a technology or a process that permits the following to be proven:

a. the signature resulting from the use by the director or officer of the technology or process is unique to the director or officer;

b. the technology or process is used by the director or officer to incorporate, attach or associate the director’s or officer’s signature to the electronic document; and

c. the technology or process can be used to identify the director or officer using the technology or process.

13.07 Waiver of Notice

If a notice or document is required by the Act or the Regulations, the articles, the by-laws or otherwise to be sent, the sending of the notice or document may be waived or the time for the notice or document may be waived or abridged at any time with the consent in writing of the person entitled to receive it.

DIVISION FOURTEEN

MISCELLANEOUS

14.01 Directors to Require Surrender of Share Certificates

The directors in office when a Certificate of Continuance is issued under the Act are hereby authorized to require the shareholders of the Corporation to surrender their share certificate, or such of their share certificates as the directors may determine, for the purpose of cancelling the share certificates and replacing them with new share certificates that comply with section 49 of the Act, in particular, replacing existing share certificate with share certificates that are not negotiable securities under the Act. The directors in office shall act by resolution under this section 14.01 and shall in their discretion decide the manner in which they shall require the surrender of existing share certificates and the time within which the shareholders must comply with the requirement and the form or forms of the share certificates to be issued in place of the existing share certificates. The directors may take such proceedings as they deem necessary to compel any shareholder to comply with a requirement to surrender his share certificate or certificates pursuant to this section. Notwithstanding any other provision of this by-law, but subject to the Act, the director may refuse to register the transfer of shares represented by a share certificate that has not been surrendered pursuant to a requirement under this section.

14.02 Severability

The invalidity or unenforceability of any provision of this by-law shall not affect the validity or enforceability of the remaining provisions of this by-law.

ADOPTED by the board effective the 11^th day of August, 2003.

/s/    JEFF LAWSON

Director

RATIFIED by the Shareholders in accordance with the Canada Business Corporations Act, effective the 17^th day of May, 2004.

/s/    KEITH RICKARD

President

/s/    JOHN FITZGERALD

Chief Financial Officer

EX-4.1

Exhibit 4.1

SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT

MADE AS OF

June 17, 2002

BETWEEN

BAKBONE SOFTWARE INCORPORATED

AND

CIBC MELLON TRUST COMPANY

TABLE OF CONTENTS

ARTICLE 1 INTERPRETATION		1
1.1	Certain Definitions	1
1.2	Currency	12
1.3	Headings	12
1.4	References to Agreement	12
1.5	Grandfathered Person	12
1.6	Calculation of Number and Percentage of Beneficial Ownership of Outstanding Voting Shares	13
1.7	Acting Jointly or in Concert	13
1.8	Generally Accepted Accounting Principles	13
ARTICLE 2 THE RIGHTS		14
2.1	Legend on Common Share Certificates	14
2.2	Initial Exercise Price; Exercise of Rights; Detachment of Rights	14
2.3	Adjustments to Exercise Price; Number of Rights	17
2.4	Date on Which Exercise is Effective	21
2.5	Execution, Authentication, Delivery and Dating of Rights Certificates	21
2.6	Registration, Registration of Transfer and Exchange	21
2.7	Mutilated, Destroyed, Lost and Stolen Rights Certificates	22
2.8	Persons Deemed Owners	23
2.9	Delivery and Cancellation of Certificates	23
2.10	Agreement of Rights Holders	23
2.11	Rights Certificate Holder not Deemed a Shareholder	24
ARTICLE 3 ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS		24
3.1	Flip-in Event	24
3.2	Fiduciary Duties of the Board of Directors of the Corporation	25
ARTICLE 4 THE RIGHTS AGENT		26
4.1	General	26
4.2	Merger or Amalgamation or Change of Name of Rights Agent	26
4.3	Duties of Rights Agent	27
4.4	Change of Rights Agent	28
ARTICLE 5 MISCELLANEOUS		29
5.1	Redemption and Waiver	29
5.2	Expiration	30
5.3	Issuance of New Rights Certificates	30
5.4	Supplements and Amendments	30
5.5	Fractional Rights and Fractional Shares	32
5.6	Rights of Action	32
5.7	Regulatory Approvals	33
5.8	Unlawful Distributions	33
5.9	Notices	33
5.10	Costs of Enforcement	34
5.11	Successors	34
5.12	Benefits of this Agreement	34
5.13	Governing Law	35
5.14	Severability	35
5.15	Effective Date	35
5.16	Determinations and Actions by the Board of Directors	35

5.17	Time of the Essence	35
5.18	Execution in Counterparts	35
5.19	Language	36

EXHIBIT A

Form of Rights Certificate

ii

THIS SHAREHOLDER PROTECTION RIGHTS AGREEMENT made as of June 17, 2002.

BETWEEN:

BAKBONE SOFTWARE INCORPORATED, a corporation incorporated under the Business Corporations Act (Alberta) (hereinafter referred to as the “Corporation”)

OF THE FIRST PART

AND

CIBC MELLON TRUST COMPANY, a trust company existing under the laws of Canada (hereinafter referred to as the “Rights Agent”)

OF THE SECOND PART

WHEREAS the Board of Directors has determined that it is in the best interests of the Corporation and all of its shareholders to adopt a shareholder protection rights plan;

AND WHEREAS in order to implement the adoption of a shareholder protection rights plan the Board of Directors has:

(a) authorized the issuance and distribution of one Right in respect of each Common Share outstanding at the Record Time; and

(b) authorized the issuance of one Right in respect of each Common Share issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time;

AND WHEREAS each Right entitles the holder thereof, after the Separation Time, to purchase securities or other assets of the Corporation pursuant to the terms and subject to the conditions set forth herein;

AND WHEREAS the Corporation desires to appoint the Rights Agent to act on behalf of the Corporation and the holders of Rights, and the Rights Agent is willing to so act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the exercise of Rights and other matters referred to herein;

NOW THEREFORE, in consideration of the premises and the respective covenants and agreements set forth herein, the parties hereby agree as follows:

ARTICLE 1

INTERPRETATION

1.1 Certain Definitions

In this agreement, as amended or supplemented from time to time (the “Agreement”):

(a) “Acquiring Person” means, subject to Section 1.5, any Person who is the Beneficial Owner of 20% or more of the outstanding Voting Shares; provided, however, that the term “Acquiring Person” shall not include:

(i) the Corporation or any Subsidiary of the Corporation;

(ii) any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of any one or any combination of: (A) Voting Share Reductions; (B) Permitted Bid Acquisitions; (C) Exempt Acquisitions; or (D) Pro Rata Acquisitions; provided that if a Person shall become the Beneficial Owner of 20% or more of the outstanding Voting Shares by reason of any one or any combination of Voting Share Reductions, Permitted Bid Acquisitions, Exempt Acquisitions or Pro Rata Acquisitions provided, if thereafter, such Person, while such Person is the Beneficial Owner of 20% or more of the outstanding Voting Shares, becomes the Beneficial Owner of additional Voting Shares which result in an increase of such Person’s Beneficial Ownership of Voting Shares by more than 1% of the number of such Voting Shares outstanding as at the time of acquisition (other than pursuant to one or any combination of Voting Share Reduction, Permitted Bid Acquisitions, Exempt Acquisitions or Pro Rata Acquisitions), then, as of the date such Person becomes the Beneficial Owner of such additional outstanding Voting Shares, such Person shall be an “Acquiring Person”; or

(iii) an underwriter or members of a banking or selling group that becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares in connection with a distribution of securities pursuant to a prospectus or by way of private placement;

(b) “Affiliate”, when used to indicate a relationship with a specified Person, means a Person that, directly or indirectly (including through one or more intermediaries), controls, is controlled by or is under common control with, such specified Person;

(c) “Associate”, when used to indicate a relationship with a specified Person, means:

(i) a spouse of such specified Person or any Person of the same or opposite sex with whom such specified Person is living in a conjugal relationship outside marriage or a child of such specified Person; and

(ii) any relative of such specified Person or of a spouse or other Person mentioned in paragraph 1.1(c)(i), if that relative has the same residence as such specified Person;

(d) A Person shall be deemed the “Beneficial Owner” of, and to have “Beneficial Ownership” of, and to “Beneficially Own”:

(i) any securities as to which such Person, or any of such Person’s Affiliates or Associates is the direct or indirect owner at law or in equity;

(ii) any securities as to which such Person or any of such Person’s Affiliates or Associates has the right to become the owner at law or equity (within 60 days of the date of determination of Beneficial Ownership and whether or not on condition or the occurrence of any contingency) pursuant to any agreement, arrangement, pledge or understanding (whether or not in writing) (other than customary agreements with and between underwriters and banking group or selling group members with respect to a distribution of securities pursuant to a prospectus or by way of private placement and other than pledges of securities in the ordinary course of business); and

(iii) any securities which are Beneficially Owned within the meaning of paragraphs (i) or (ii) of this definition by any other Person with which such Person is acting jointly or in concert;

2

provided, however, that a Person shall not be deemed the “Beneficial Owner” or to have “Beneficial Ownership” of, or to “Beneficially Own”, any security:

(iv) because either (A) the holder of such security has agreed pursuant to a Permitted Lock-up Agreement to deposit or tender such security to a Take-over Bid made by such Person, any of such Person’s Affiliates or Associates or any other Person referred to in paragraph (iii) of this definition or (B) such security has been deposited or tendered pursuant to any Take-over Bid made by such Person or by any of such Person’s Affiliates or Associates or any other Person referred to in paragraph (iii) of this definition, in either case until such deposited or tendered security has been unconditionally accepted for payment or exchange or taken up and paid for, whichever shall first occur;

(v) because such Person, any of such Person’s Affiliates or Associates or any other Person referred to in paragraph (iii) of this definition holds such security provided that:

(A) the ordinary business of such Person (the “Investment Manager”) includes the management of investment funds for others (which others, for greater certainty, may include and be limited to one or more employee benefit plans or pension plans) and such security is held in the ordinary course of such business in the performance of the duties of the Investment Manager for the account of any other Person (the “Client”);

(B) such Person (the “Trust Company”) is licensed to carry on the business of a trust company under applicable law and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each an “Estate Account”) or in relation to other accounts (each an “Other Account”) and holds such security in the ordinary course of such duties for the estate of any such deceased or incompetent Person or for such other accounts;

(C) such Person is a Crown agent or agency (in this definition, the “Crown Agency”);

(D) the Person is established by statute for purposes that include, and the ordinary business or activity of such Person (in this definition, a “Statutory Body”) includes, the management of investment funds for employee benefit plans, pension plans, insurance plans of various public bodies and the Statutory Body holds such security for the purposes of its activities as such; or

(E) the person (in this definition, an “Administrator”) is the administrator or trustee of one or more pension funds or plans (each, in this definition, a “Plan”) registered under the laws of Canada or any province thereof or the corresponding laws of the jurisdiction by which such Plan is governed or is such a Plan and the Administrator or Plan holds such security for the purposes of its activities as such;

but only if the Investment Manager, the Trust Company, the Crown Agent, the Statutory Body, the Administrator of the Plan, as the case may be, is not then making and has not announced a current intention to make a Take-over Bid, other than an Offer to Acquire Common Shares or other securities pursuant to a distribution by the Corporation or by means of ordinary market transactions (including prearranged trades entered into in the

3

ordinary course of business of such Person) executed through the facilities of a stock exchange or an organized over-the-counter market, alone or by acting jointly or in concert with any other Person;

(vi) because such Person:

(A) is a Client of the same Investment Manager as another Person whose account the Investment Manager holds such security;

(B) has an Estate Account or an Other Account with the same Trust Company as another Person on whose account the Trust Company holds such security; or

(C) is a Plan with the same Administrator as another Plan on whose account the Administrator holds such security,

(vii) because such Person:

(A) is a Client of an Investment Manager and such security is owned at law or in equity by the Investment Manager;

(B) has an Estate Account or an Other Account with a Trust Company and such security is owned at law or in equity by the Trust Company; or

(C) is a Plan and such security is owned at law or in equity by the Administrator of the Plan,

(viii) because such Person is the registered holder of securities as a result of carrying on the business of, or acting as nominee for, a securities depositary.

(e) “Board of Directors” means the board of directors of the Corporation or any duly constituted and empowered committee thereof;

(f) “Business Corporations Act (Alberta)” means the Business Corporations Act (Alberta), as amended from time to time, and the regulations made thereunder, as in effect on the date of this Agreement or as the same may be amended, re-enacted or replaced by any comparable or successor laws or regulations thereto;

(g) “Business Day” means any day other than a Saturday, Sunday or a day on which banking institutions in Calgary are authorized or obligated by law to close;

(h) “Canadian Dollar Equivalent” of any amount which is expressed in United States dollars means, on any date, the Canadian dollar equivalent of such amount determined by multiplying such amount by the U.S.- Canadian Exchange Rate on such date;

(i) “close of business” on any given date means the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the Calgary office of the principal transfer agent for the Common Shares (or, after the Separation Time, the Calgary office of the Rights Agent) is closed to the public;

(j) “Common Shares” means the common shares without par value in the capital of the Corporation and any other shares in the capital of the Corporation into which such shares may be subdivided,

4

consolidated, reclassified or changed; provided, however, that “common shares”, when used with reference to any Person other than the Corporation, shall mean the class or classes of shares (or similar equity interest) with the greatest per share voting power entitled to vote generally in the election of all directors of such other Person;

(k) “Competing Permitted Bid” means a Take-over Bid made while another Permitted Bid is in existence and that satisfies all of the provisions of a Permitted Bid except that the condition set forth in subparagraph 1.1(ff)(ii)(A)(I) may provide that the Voting Shares may be taken up or paid for on a date which is not earlier than the later of 35 days after the date of the Take-over Bid or the earliest date on which Voting Shares may be taken up or paid for under any other Permitted Bid that is then in existence for the Voting Shares;

(l) “controlled”: a corporation is “controlled” by another Person if:

(i) securities entitled to vote in the election of directors carrying more than 50 percent of the votes for the election of directors are held, directly or indirectly, by or on behalf of the other Person; and

(ii) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such corporation,

and “control”, “controls” and “controlling” shall be interpreted accordingly;

(m) “Co-Rights Agent” has the meaning ascribed thereto in subsection 4.1(a);

(n) “Dividend Reinvestment Acquisition” means an acquisition of Voting Shares pursuant to a Dividend Reinvestment Plan;

(o) “Dividend Reinvestment Plan” means a regular dividend reinvestment or other plan of the Corporation made available by the Corporation to holders of its securities where such plan permits the holder to direct that some or all of:

(i) dividends paid in respect of shares of any class of the Corporation;

(ii) proceeds of redemption of shares of the Corporation;

(iii) interest paid on evidences of indebtedness of the Corporation; or

(iv) optional cash payments;

be applied to the purchase from the Corporation of Voting Shares;

(p) “Election to Exercise” has the meaning ascribed thereto in subsection 2.2(d);

(q) “Exempt Acquisition” means a share acquisition (i) in respect of which the Board of Directors has waived the application of Section 3.1 pursuant to the provisions of subsection 5.1(d) or 5.1(e), (ii) which was made on or prior to the date of this Agreement, or (iii) pursuant to an amalgamation, merger, plan of arrangement or other statutory procedure having similar effect which has been approved by the holders of Voting Shares by the requisite majority or majorities of the holders of Voting Shares at a meeting of such holders duly called and held for such purpose

5

in accordance with the provisions of the Business Corporations Act (Alberta), the by-laws of the Corporation and any other applicable legal requirements;

(r) “Exercise Price” means the price at which a holder may purchase the securities issuable upon exercise of one whole Right and, until adjustment thereof in accordance with the terms hereof, the Exercise Price shall be equal to One Hundred ($100.00) dollars;

(s) “Expansion Factor” has the meaning ascribed thereto in subsection 2.3(a);

(t) “Expiration Time” means the earlier of:

(i) the Termination Time; or

(ii) the close of business on the first Business Day following the annual general meeting of the shareholders of the Corporation held in 2007, unless at such meeting shareholders have reconfirmed this Agreement for an additional period of time in which case “Expiration Time” shall mean the end of such additional period of time, and so on from time to time;

(u) “Flip-in Event” means a transaction in or pursuant to which any Person becomes an Acquiring Person;

(v) “holder” has the meaning ascribed thereto in Section 2.8;

(w) “Independent Shareholders” means holders of Voting Shares other than:

(i) any Acquiring Person;

(ii) any Offeror;

(iii) any Associate or Affiliate of any Acquiring Person or Offeror;

(iv) any Person acting jointly or in concert with any Acquiring Person or any Offeror; and

(v) any employee benefit plan, deferred profit sharing plan, stock participation plan or trust for the benefit of employees of the Corporation or any Subsidiary of the Corporation but excluding in any event a plan or trust in respect of which the employee directs the manner in which the Voting Shares are to be voted and directs whether the Voting Shares be tendered to a Take-over Bid;

(x) “Market Price” per share of any securities on any date of determination shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 shall have caused the closing price in respect of any Trading Day used to determine the Market Price not to be fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day, each such closing price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 in order to make it fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day,

6

on the immediately preceding Trading Day. The closing price per share of any securities on any date shall be:

(i) the closing board lot sale price or, if no such sale takes place on such date, the average of the closing bid and asked prices, as reported by the principal Canadian stock exchange on which such securities are listed or admitted to trading; or

(ii) if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange, the closing board lot sale price or, if no such sale takes place on such date, the average of the closing bid and asked prices, as reported by the principal national United States securities exchange on which such securities are listed or admitted to trading; or

(iii) if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange or a national United States securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices for each share of such securities in the over-the-counter market, as reported by any reporting system then in use; or

(iv) if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange or a national United States securities exchange or quoted by any such reporting system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities;

provided, however, that if for any reason none of such prices is available on any such date, the closing price per share of such securities on such date shall mean the fair value per share of such securities on such date as determined by a nationally or internationally recognized Canadian investment dealer or investment banker with respect to the fair value per share of such securities. The Market Price shall be expressed in Canadian dollars and, if initially determined in respect of any day forming part of the 20 consecutive Trading Day period in United States dollars, such amount shall be translated into Canadian dollars at the Canadian Dollar Equivalent thereof on the relevant Trading Day;

(y) “1933 Securities Act” means the Securities Act of 1933 of the United States, as amended, and the rules and regulations thereunder, as in effect on the date of this Agreement or as the same may be amended, re-enacted or replaced by any comparable or successor laws or regulations thereto;

(z) “1934 Exchange Act” means the Securities Exchange Act of 1934 of the United States, as amended, and the rules and regulations thereunder, as in effect on the date of this Agreement or as the same may be amended, re-enacted or replaced by any comparable or successor laws or regulations thereto;

(aa) “Nominee” has the meaning ascribed thereto in subsection 2.2(c);

(bb) “Offer to Acquire” shall include:

(i) an offer to purchase, or a solicitation of an offer to sell, Voting Shares, and

(ii) an acceptance of an offer to sell Voting Shares, whether or not such offer to sell has been solicited,

7

or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell;

(cc) “Offeror” means a Person who has announced an intention to make or who has made a Take-over Bid (including a Permitted Bid or Competing Permitted Bid, but excluding an Offer to Acquire made by a Investment Manager, Trust Company, Crown Agency, Statutory Body, Administrator or Plan referred to clause 1.1(d)(v) of the definition of Beneficial Owner pursuant to a distribution by the Corporation or by means of ordinary market transactions (including pre-arranged trades entered into in the ordinary course of business of such Person) in the circumstances contemplated in clause 1.1(d)(v)), but only so long as the Take-over Bid so announced or made has not been withdrawn or terminated or has not expired;

(dd) “Offeror’s Securities” means the Voting Shares Beneficially Owned by an Offeror on the date of an Offer to Acquire;

(ee) “ordinary course dividends” means cash dividends paid in any fiscal year of the Corporation to the extent that such cash dividends, in the aggregate, do not exceed the greatest of:

(i) 200% of the aggregate amount of cash dividends declared payable by the Corporation on its Common Shares in its immediately preceding fiscal year;

(ii) 300% of the arithmetic mean of the aggregate amounts of cash dividends declared payable by the Corporation on its Common Shares in its three immediately preceding fiscal years; and

(iii) 100% of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year;

(ff) “Permitted Bid” means a Take-over Bid made by an Offeror by way of a Take-over bid circular which also complies with the following additional provisions:

(i) the Take-over Bid is made for all Voting Shares to all holders of record of Voting Shares wherever resident as registered on the books of the Corporation, other than the Offeror;

(ii) the Take-over Bid contains, and the take up and payment for securities tendered or deposited thereunder shall be subject to, an irrevocable and unqualified provision that:

(A) no Voting Shares will be taken up or paid for pursuant to the Take-over Bid:

(B) prior to the close of business on the 60th day following the date of the Take-over Bid; and

(C) if less than 50% of the Voting Shares held by Independent Shareholders have been deposited pursuant to the Take-over Bid and not withdrawn;

(D) Voting Shares may be deposited pursuant to such Take-over Bid at any time during the period described in subparagraph (ii)(A)(I) of this definition and that any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for; and

8

(E) if the condition set forth in subparagraph (ii)(A)(II) is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Voting Shares for not less than ten Business Days from the date of such public announcement;

provided that if a Take-over Bid constitutes a Competing Permitted Bid, the term “Permitted Bid” shall also mean the Competing Permitted Bid;

(gg) “Permitted Bid Acquisition” means an acquisition made pursuant to a Permitted Bid or a Competing Permitted Bid;

(hh) “Permitted Lock-up Agreement” means an agreement between an Offeror and another Person (the “Locked-up Person”) whereby the Locked-up Person agrees to deposit or tender the Voting Shares held by the Locked-up Person to the Offeror’s Take-over Bid that is a Permitted Bid (the “Lock-up Bid”) whereby the agreement:

(i) permits the Locked-up Person to withdraw the Voting Shares from the agreement in order to tender or deposit the Voting Shares to another Take-over Bid, or to support another transaction, that provides for a consideration for each Voting Share that is higher than the consideration contained in or proposed to be contained in the Lock-up Bid and is made for at least the same number of Voting Shares as the Lock-up Bid; or

(ii) (A) permits the Locked-up Person to withdraw the Voting Shares from the agreement in order to tender or deposit the Voting Shares to another Take-over Bid, or to support another transaction, that provides for a consideration for each Voting Share that exceeds by as much as or more than a specified amount (the “Specified Amount”) the consideration for each Voting Share contained in or proposed to be contained in the Lock-up Bid and is made for at least the same number of Voting Shares as the Lock-up Bid and (B) does not by its terms provide for a Specified Amount that is greater than 7% of the consideration for each Voting Share contained in or proposed to be contained in the Lock-up Bid;

and, for greater certainty, the Lock-up Agreement may (1) contain a right of first refusal in favour of the Offeror or (2) require a period of delay to give the Offeror an opportunity to match or exceed the consideration offered in another Take-over Bid or transaction or (3) contain other similar limitations on a Locked-up Person’s right to withdraw Voting Shares from the Lock-up Agreement and not tender such Voting Shares to the Lock-up Bid, so long as the limitation does not preclude the exercise by the Locked-up Person of the right to withdraw Voting Shares in sufficient time to tender to the other Take-over Bid or participate in the other transaction; and

(iii) does not provide for the payment by the Locked-up Person, in the event that the Locked-up Person fails to deposit or tender Voting Shares to the Lock-up Bid or withdraws the Voting Shares in order to tender to another Take-over Bid or participate in another transaction, of any “break-up” fees, “top-up” fees, penalties, expense reimbursement or other amounts that exceed in the aggregate the greater of:

(A) the cash equivalent of 2.5% of the consideration that the Locked-up Person would have received under the Lock-up Bid; and

9

(B) 50% of the amount by which the consideration payable to the Locked-up Person under another Take-over Bid or transaction exceeds the consideration such Locked-up Person would have received under the Lock-up Bid; and

(iv) is disclosed to the public, including the Corporation, by making copies thereof available not later than the date on which the Lock-up Bid has been publicly announced (or, if the Lock-up Bid has been publicly announced prior to the date on which the Lock-up Agreement is entered into, not later than such date);

(ii) “Person” shall include any individual, firm, partnership, association, trust, trustee, executor, administrator, legal personal representative, body corporate, corporation, unincorporated organization, syndicate or other entity;

(jj) “Pro Rata Acquisition” means an acquisition by a Person of Beneficial Ownership of Voting Shares as a result of: a Dividend Reinvestment Acquisition; a stock dividend, a stock split or other event pursuant to which a Person becomes Beneficial Owner of Voting Shares on the same pro rata basis as all other holders of Voting Shares; the acquisition or exercise by such Person of rights to purchase Voting Shares distributed to such Person in the course of a distribution to all holders of Voting Shares pursuant to a rights offering or pursuant to a prospectus; or a distribution of Voting Shares or securities convertible into or exchangeable for Voting Shares (and the conversion or exchange of such convertible or exchangeable securities), made pursuant to a prospectus or a distribution by way of a private placement; provided that the Person does not thereby acquire a greater percentage of such Voting Shares, or securities convertible into or exchangeable for Voting Shares, so offered than the Person’s percentage of Voting Shares Beneficially Owned immediately prior to such acquisition;

(kk) “Record Time” means 5:00 p.m. (Calgary time) on June 25, 2002;

(ll) “Redemption Price” has the meaning ascribed thereto in subsection 5.1(a);

(mm) “Right” means a right to purchase a Common Share, upon the terms and subject to the conditions set forth in this Agreement;

(nn) “Rights Certificate” has the meaning ascribed thereto in subsection 2.2(c) and shall be in substantially the form of Exhibit A to this Agreement;

(oo) “Rights Register” has the meaning ascribed thereto in subsection 2.6(a);

(pp) “Securities Act (Alberta)” shall mean the Securities Act, S.A. 1981, c. S-6.1, as amended, and the regulations thereunder, as in effect on the date of this Agreement or as the same may be amended, re-enacted or replaced by any comparable or successor laws or regulations thereto;

(qq) “Securities Act (Ontario)” shall mean the Securities Act, R.S.O. 1990, c. S.5, as amended, and the regulations thereunder, as in effect on the date of this Agreement or as the same may be amended, re-enacted or replaced by any comparable or successor laws or regulations thereto;

(rr) “Separation Time” means the close of business on the tenth Trading Day after the earlier of:

(i) the Stock Acquisition Date; and

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(ii) the date of the commencement of or first public announcement of the intent of any Person (other than the Corporation or any Subsidiary of the Corporation) to commence a Take-over Bid (other than a Permitted Bid or Competing Permitted Bid);

or such later time as may be determined by the Board of Directors, provided that:

(A) if any Take-over Bid referred to in paragraph (ii) of this definition expires, or is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-over Bid shall be deemed, for the purposes of this definition, never to have been made; and

(B) if the Board of Directors determines pursuant to subsection 5.1(d) or (e) to waive the application of Section 3.1 to a Flip-in Event, the Separation Time in respect of such Flip-in Event shall be deemed never to have occurred;

(ss) “Stock Acquisition Date” means the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 141 of the Securities Act (Alberta), Section 101 of the Securities Act (Ontario) or Section 13(d) of the 1934 Exchange Act) by the Corporation or an Acquiring Person indicating that a Person has become an Acquiring Person;

(tt) “Subsidiary”: a corporation shall be deemed to be a Subsidiary of another corporation if:

(i) it is controlled by:

(A) that other; or

(B) that other and one or more corporations each of which is controlled by that other; or

(C) two or more corporations each of which is controlled by that other; or

(ii) it is a Subsidiary of a corporation that is that other’s Subsidiary;

(uu) “Take-over Bid” means an Offer to Acquire Voting Shares or other securities if, assuming the Voting Shares or other securities subject to the Offer to Acquire are acquired at the date of the Offer to Acquire by the Person making the Offer to Acquire, such Voting Shares (including all Voting Shares that may be acquired upon exercise of all rights of conversion, exchange or purchase attaching to the other securities) together with the Offeror’s Securities would constitute in the aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to Acquire;

(vv) “Termination Time” means the time at which the right to exercise Rights shall terminate pursuant to Section 5.1;

(ww) “Trading Day”, when used with respect to any securities, means a day on which the principal Canadian stock exchange or U.S. securities exchange on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian stock exchange or U.S. securities exchange, a Business Day;

(xx) “U.S.—Canadian Exchange Rate” means, on any date:

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(i) if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one United States dollar into Canadian dollars, such rate, and

(ii) in any other case, the rate for such date for the conversion of one United States dollar into Canadian dollars which is calculated in the manner which shall be determined by the Board of Directors from time to time acting in good faith;

(yy) “U.S. Dollar Equivalent” of any amount which is expressed in Canadian dollars means, on any date, the United States dollar equivalent of such amount determined by multiplying such amount by the Canadian-U.S. Exchange Rate in effect on such date;

(zz) “Voting Shares” means the Common Shares and any other shares of capital stock or voting interests of the Corporation entitled to vote generally in the election of all directors; and

(aaa) “Voting Share Reduction” means an acquisition or redemption by the Corporation or a Subsidiary of the Corporation of Voting Shares which, by reducing the number of Voting Shares outstanding or which may be voted, increases the proportionate number of Voting Shares Beneficially Owned by any Person.

1.2 Currency

All sums of money which are referred to in this Agreement are expressed in lawful money of Canada, unless otherwise specified.

1.3 Headings

The division of this Agreement into Articles, Sections, subsections, paragraphs and subparagraphs and the insertion of headings, subheadings and a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

1.4 References to Agreement

References to “this Agreement”, “hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar expressions refer to this Agreement, as amended or supplemented from time to time, and not to any particular Article, Section, subsection, paragraph, subparagraph or other provision hereof and include any and every instrument supplemental or ancillary hereto. Unless the context otherwise requires, references in this Agreement to an Article, Section, subsection, paragraph, subparagraph or Exhibit by number, letter or otherwise refer to the Article, Section, subsection, paragraph, subparagraph or Exhibit, respectively, bearing that designation in this Agreement.

1.5 Grandfathered Person

For the purposes of determining whether a Person is an Acquiring Person and interpreting the definition of “Acquiring Person”, a Person shall not be and shall not be deemed to be an Acquiring Person if such Person (a “Grandfathered Person”):

(a) is the Beneficial Owner of more than 20% of the outstanding Voting Shares determined as at the Record Time; or

(b) becomes the Beneficial Owner of more than 20% of the outstanding Voting Shares after the Record Time and such Person’s Beneficial Ownership of Voting Shares does not exceed the

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number of Voting Shares Beneficially Owned by such Person immediately prior to the Record Time by more than 1% of the issued and outstanding Voting Shares as at the Record Time,

provided, however, that this exception shall not be, and shall cease to be, applicable to a Grandfathered Person in the event that such Grandfathered Person shall after the Record Time become the Beneficial Owner of additional Voting Shares constituting more than 1% of the outstanding Voting Shares otherwise than pursuant to one or more Permitted Bid Acquisitions, Exempt Acquisitions, Pro Rata Acquisitions or the issuance or exercise of stock options granted by the Corporation, if applicable to such Person, provided further, however, that such Grandfathered Person shall not become an Acquiring Person as a result of one or more Voting Share Reductions; and provided further that, if this exception shall cease to be applicable to a Grandfathered Person as aforesaid, such a Grandfathered Person shall be and shall be deemed to be an Acquiring Person as at and from the time that this exception shall not be so applicable.

1.6 Calculation of Number and Percentage of Beneficial Ownership of Outstanding Voting Shares

For purposes of this Agreement:

(a) in determining the percentage of outstanding Voting Shares Beneficially Owned by any Person, all unissued Voting Shares as to which such Person is deemed the Beneficial Owner shall be deemed to be outstanding; and

(b) the percentage of outstanding Voting Shares Beneficially Owned by any Person shall be and be deemed to be the product determined by the formula:

100 x A

B

where:

A= the number of votes for the election of all directors generally attaching to the outstanding Voting Shares Beneficially Owned by such Person; and

B= the number of votes for the election of all directors generally attaching to all outstanding Voting Shares.

1.7 Acting Jointly or in Concert

For purposes of this Agreement, a Person is acting jointly or in concert with every other Person who is a party to any agreement, commitment or understanding, whether formal or informal and whether or not in writing, with the first mentioned Person for the purpose of acquiring or offering to acquire Voting Shares (other than pursuant to an agreement contemplated by paragraph 1.1(d)(iv) hereof, or customary agreements with and between underwriters and/or banking group and/or selling group members with respect to a distribution of securities pursuant to a prospectus or by way of private placement and other than pursuant to pledges of securities in the ordinary course of business).

1.8 Generally Accepted Accounting Principles

Wherever in this Agreement reference is made to generally accepted accounting principles, such reference shall be deemed to be the recommendations at the relevant time of the Canadian Institute of Chartered Accountants, or any successor institute, applicable on a consolidated basis (unless otherwise specifically

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provided herein to be applicable on an unconsolidated basis) as at the date on which a calculation is made or required to be made in accordance with generally accepted accounting principles. Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Agreement or any document, such determination or calculation shall, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with generally accepted accounting principles applied on a consistent basis.

ARTICLE 2

THE RIGHTS

2.1 Legend on Common Share Certificates

Certificates representing Common Shares issued after the Record Time but prior to the earlier of the Separation Time and the Expiration Time shall evidence, in addition to the Common Shares, one Right for each Common Share evidenced thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Protection Rights Agreement made as of June 25, 2002 (the “Rights Agreement”), between BakBone Software Incorporated (the “Corporation”) and CIBC Mellon Trust Company, as rights agent, as amended from time to time, the terms of which are hereby incorporated herein by reference and a copy of which may be inspected during normal business hours at the principal office of the Corporation. Under certain circumstances, as set out in the Rights Agreement, the Rights may be amended, redeemed, may expire, may become null and void or may be evidenced by separate certificates and no longer evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge as soon as practicable after the receipt of a written request therefor.

Certificates representing Common Shares that are issued and outstanding at the Record Time shall also evidence one Right for each Common Share evidenced thereby, notwithstanding the absence of the foregoing legend, until the earlier of the Separation Time and the Expiration Time.

2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights

(a) Subject to adjustment as herein set forth, each Right will entitle the holder thereof, from and after the Separation Time and prior to the Expiration Time, to purchase, for the Exercise Price, one Common Share. Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be void.

(b) Until the Separation Time:

(i) the Rights shall not be exercisable and no Right may be exercised; and

(ii) each Right will be evidenced by the certificate for the associated Common Share and will be transferable only together with, and will be transferred by a transfer of, such associated Common Share.

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(c) From and after the Separation Time and prior to the Expiration Time:

(i) the Rights shall be exercisable; and (ii) the registration and transfer of the Rights shall be separate from and independent of Common Shares.

Promptly following the Separation Time, the Corporation will prepare and the Rights Agent will mail or arrange to be mailed to each holder of record of Rights as of the Separation Time (other than an Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such Rights (a “Nominee”)), at such holder’s address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent for this purpose):

(A) a rights certificate (“Rights Certificate”) representing the number of Rights held by such holder at the Separation Time and having such markers of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule, regulation or judicial or administrative order or with any rule or regulation of any self-regulatory organization, stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage; and

(B) a disclosure statement describing the Rights;

provided that a Nominee shall be sent the materials provided for in paragraphs (A) and (B) above in respect of all Common Shares held of record by it which are not Beneficially Owned by an Acquiring Person. In order for the Corporation to determine whether any Person is holding Voting Shares which are Beneficially Owned by another Person, the Corporation may require such first-mentioned Person to furnish such information and documentation as the Corporation deems necessary or appropriate to make such determination.

(d) Rights may be exercised in whole or in part on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent at its principal office in the city of Calgary or Toronto the Rights Certificate evidencing such Rights together with:

(i) an election to exercise such Rights (an “Election to Exercise”) substantially in the form attached to the Rights Certificate duly completed and executed by the holder or his executors or administrators or other personal representatives or his or their legal attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Rights Agent; and

(ii) payment by certified cheque, banker’s draft or money order payable to the order of the Rights Agent, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being exercised.

(e) Upon receipt of a Rights Certificate, which is accompanied by a completed Election to Exercise that does not indicate that such Right is null and void as provided by subsection 3.1(b) and payment as set forth in

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subsection 2.2(d), the Rights Agent (unless otherwise instructed by the Corporation if the Corporation is of the opinion that the Rights cannot be exercised in accordance with this Agreement) will thereupon promptly:

(i) requisition from the transfer agent for the Common Shares certificates representing the number of such Common Shares to be purchased (the Corporation hereby irrevocably authorizing its transfer agent to comply with all such requisitions),

(ii) after receipt of such certificate, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder,

(iii) when appropriate, requisition from the Corporation the amount of cash to be paid in lieu of issuing fractional Common Shares,

(iv) when appropriate, after receipt of such cash, deliver the same to or to the order of the registered holder of the Rights Certificate, and

(v) tender to the Corporation all payments received on exercise of the Rights.

(f) If the holder of any Rights shall exercise less than all the Rights evidenced by such holder’s Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised (subject to Section 5.5) will be issued by the Rights Agent to such holder or to such holder’s duly authorized assigns.

(g) The Corporation covenants and agrees that it will:

(i) take all such action as may be necessary and within its power to ensure that all securities delivered upon exercise of Rights shall, at the time of delivery of the certificates for such securities (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered as fully paid and non-assessable;

(ii) take all such action as may be necessary and within its power to comply with any applicable requirements of the Business Corporations Act (Alberta), the Securities Act (Alberta), the Securities Act (Ontario) and any other applicable laws in connection with the issuance and delivery of the Rights, the Rights Certificates and the issuance of any securities upon exercise of Rights;

(iii) use reasonable effects to cause all securities issued upon exercise of Rights to be listed on the stock exchanges on which the Common Shares were traded immediately prior to the Stock Acquisition Date;

(iv) cause to be reserved and kept available out of its authorized and unissued classes of securities, the number of securities that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights;

(v) pay when due and payable any and all Canadian and, if applicable, United States, federal, provincial and state transfer taxes and charges (not including any income or capital taxes of the holder or exercising holder or any liability of the Corporation to withhold tax) which may be payable in respect of the original issuance or delivery of the Rights Certificates or certificates for Common Shares, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for securities in a name other than that of the holder of the Rights being transferred or exercised; and

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(vi) after the Separation Time not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

2.3 Adjustments to Exercise Price; Number of Rights

The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3.

(a) If the Corporation shall at any time after the Record Time and prior to the Expiration Time:

(i) declare or pay a dividend on its Common Shares payable in Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares) other than pursuant to any optional stock dividend program;

(ii) subdivide or change the outstanding Common Shares into a greater number of Common Shares;

(iii) combine or change the outstanding Common Shares into a smaller number of Common Shares; or

(iv) issue any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares) in respect of, in lieu of or in exchange for existing Common Shares;

except as otherwise provided in this Section 2.3, the Exercise Price and the number of Rights outstanding, or, if the payment or effective date therefor shall occur after the Separation Time, the securities purchasable upon exercise of Rights shall be adjusted as of the payment or effective date such that:

(A) if the Exercise Price and number of Rights outstanding are to be adjusted;

(I) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of Common Shares (or other capital stock) (the “Expansion Factor”) that a holder of one Common Share immediately prior to such dividend, subdivision, change, combination or issuance would hold thereafter as a result thereof; and

(II) each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor;

and the adjusted number of Rights will be deemed to be distributed among the Common Shares with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision, change, combination or issuance, so that each such Common Share (or other capital stock) will have exactly one Right associated with it; and

(B) if the securities purchasable upon exercise of Rights are to be adjusted, the securities purchasable upon exercise of each Right after such adjustment will be

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the securities that a holder of the securities purchasable upon exercise of one Right immediately prior to such dividend, subdivision, change, combination or issuance would hold thereafter as a result thereof.

If after the Record Time and prior to the Expiration Time the Corporation shall issue any securities other than Common Shares in a transaction of a type described in paragraphs 2.3(a)(i) or (iv), such securities shall be treated herein as nearly equivalent to Common Shares as may be practicable and appropriate under the circumstances and the Corporation and the Rights Agent agree to amend this Agreement in order to effect such treatment.

(b) If the Corporation shall at any time after the Record Time and prior to the Separation Time fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for or carrying a right to purchase Common Shares) at a price per Common Share (or, if a security convertible into or exchangeable for or carrying a right to purchase or subscribe for Common Shares having a conversion, exchange or exercise price, including the price required to be paid to purchase such convertible or exchangeable security or right per share) less than the Market Price per Common Share on such record date, the Exercise Price to be in effect after such record date shall be adjusted to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction:

(i) the numerator of which shall be the number of Common Shares outstanding on such record date, plus the number of Common Shares that the aggregate offering price of the total number of Common Shares so to be offered (and/or the aggregate initial conversion, exchange or exercise price of the convertible or exchangeable securities or rights so to be offered, including the price required to be paid to purchase such convertible or exchangeable securities or rights) would purchase at such Market Price per Common Share; and

(ii) the denominator of which shall be the number of Common Shares outstanding on such record date, plus the number of additional Common Shares to be offered for subscription or purchase (or into which the convertible or exchangeable securities or rights so to be offered are initially convertible, exchangeable or exercisable).

If such subscription price may be paid by delivery of consideration, part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Exercise Price shall be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed.

For purposes of this Agreement, the granting of the right to purchase Common Shares (whether from treasury shares or otherwise) pursuant to any dividend or interest reinvestment plan and/or any Common Share purchase plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and/or the investment of periodic optional payments and/or employee benefit, stock option or similar plans (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants) shall not be deemed to constitute an issue of rights or warrants by the Corporation; provided, however, that, in the case of any Dividend Reinvestment Plan, the right to purchase Common Shares is at a price per share of not less than

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90 percent of the current market price per share (determined as provided in such plans) of the Common Shares.

(c) If the Corporation shall at any time after the Record Time and prior to the Separation Time fix a record date for a distribution to all holders of Common Shares (including any such distribution made in connection with a merger or amalgamation in which the Corporation is the continuing corporation) of evidences of indebtedness, cash (other than an ordinary course dividend or a dividend referred to in paragraph 2.3(a)(i)), assets or rights or warrants (excluding those referred to in subsection 2.3(b)), the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction:

(i) the numerator of which shall be the Market Price per Common Share on such record date, less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of Rights), on a per share basis, of the portion of the cash, assets, evidences of indebtedness, rights, options or warrants so to be distributed; and

(ii) the denominator of which shall be such Market Price per Common Share.

Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such a distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price which would have been in effect if such record date had not been fixed.

(d) Each adjustment made pursuant to this Section 2.3 shall be made as of

(i) the payment or effective date for the applicable dividend, subdivision, change, combination or issuance, in the case of an adjustment made pursuant to subsection (a) above; and

(ii) the record date for the applicable distribution, in the case of an adjustment made pursuant to subsection (b) or (c) above, subject to readjustment to reverse the same if such distribution shall not be made.

(e) Notwithstanding anything herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one percent in the Exercise Price; provided, however, that any adjustments which by reason of this subsection 2.3(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2.3 shall be made to the nearest cent or to the nearest hundredth of a share. Notwithstanding the first sentence of this subsection 2.3(e), any adjustment required by this Section 2.3 shall be made no later than the earlier of (i) three years from the date of the transaction which mandates such adjustment and (ii) the Termination Date. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.3, the Corporation shall:

(i) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment,

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(ii) promptly file with the Rights Agent and with each transfer agent for the Common Shares a copy of such certificate, mail a brief summary thereof to each holder of Rights, and issue a press release advising of the relevant adjustment.

(f) If the Corporation shall at any time after the Record Time and prior to the Separation Time issue any shares of capital stock (other than Common Shares), or rights or warrants to subscribe for or purchase any such capital stock, or securities convertible into or exchangeable for any such capital stock, in a transaction referred to in paragraph (a)(i) or (a)(iv) above, if the Board of Directors acting in good faith determines that the adjustments contemplated by subsections (a), (b) and (c) above in connection with such transaction will not appropriately protect the interests of the holders of Rights, the Board of Directors may determine what other adjustments to the Exercise Price, number of Rights and/or securities purchasable upon exercise of Rights would be appropriate and, notwithstanding subsections (a), (b) and (c) above, but subject to the prior consent of the holders of Common Shares or Rights obtained in accordance with section 5.4, such adjustments, rather than the adjustments contemplated by subsections (a), (b) and (c) above, shall be made. The Corporation and the Rights Agent shall amend this Agreement as appropriate to provide for such adjustments.

(g) Each Right originally issued by the Corporation subsequent to any adjustment made to the Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the number of Common Shares purchasable from time to time hereunder upon exercise of a Right, all subject to further adjustment as provided herein.

(h) Irrespective of any adjustment or change in the Exercise Price or the number of Common Shares issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Exercise Price per Common Share and the number of Common Shares which were expressed in the initial Rights Certificates issued hereunder.

(i) In any case in which this Section 2.3 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment.

(j) Notwithstanding anything in this Section 2.3 to the contrary, the Corporation shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that the Board of Directors shall in good faith determine to be advisable in order that any (i) consolidation or subdivision of the Common Shares, (ii) issuance wholly or in part for cash or Common Shares or securities that by their terms are convertible into or exchangeable for Common Shares, (iii) stock dividends or (iv) issuance of rights, options or warrants referred to in this Section 2.3, hereafter made by the Corporation to holders of its Common Shares shall not be taxable to such shareholders.

(k) The Corporation covenants and agrees that, after the Separation Time, it will not, except as permitted by Section 5.1 or Section 5.4, take (or permit any Subsidiary of the Corporation to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

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(l) If an event occurs which would require an adjustment under both this Section 2.3 and Section 3.1, the adjustment provided for in this Section 2.3 shall be in addition to and shall be made prior to, any adjustment required pursuant to Section 3.1.

(m) If the Corporation shall at any time after the Record Time and prior to the earlier of the Separation Time and the Expiration Time issue any Common Shares otherwise than in a transaction referred to in subsection 2.3(a) each such Common Share so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such share.

2.4 Date on Which Exercise is Effective

Each Person in whose name any certificate for Common Shares or other securities, property or assets, if applicable, is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares or other securities, property or assets, if applicable, represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered (together with a duly completed Election to Exercise) and payment of the Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Share transfer books of the Corporation are closed, such Person shall be deemed to have become the record holder of such Common Shares or other securities, property or assets on, and such certificate shall be dated, the next succeeding Business Day on which the Common Share transfer books of the Corporation are open.

2.5 Execution, Authentication, Delivery and Dating of Rights Certificates

(a) The Rights Certificates shall be executed on behalf of the Corporation by any two of its Chairman, President, Vice Presidents, Secretary or Assistant Secretary. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates.

(b) Promptly after the Corporation learns of the Separation Time, the Corporation will notify the Rights Agent in writing of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature, and disclosure statements describing the Rights, and the Rights Agent shall countersign (manually or by facsimile signature in a manner satisfactory to the Corporation) and send such Rights Certificates to the holders of the Rights pursuant to subsection 2.2(c). No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid.

(c) Each Rights Certificate shall be dated the date of countersignature thereof.

2.6 Registration, Registration of Transfer and Exchange

(a) After the Separation Time, the Corporation will cause to be kept a register (the “Rights Register”) in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed registrar for the Rights (the “Rights Registrar”) for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers of Rights as herein provided and the Rights Agent hereby accepts such appointment. If the Rights Agent shall cease to be the Rights

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Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times.

(b) After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of subsections 2.6(d) and 3.1(b), the Corporation will execute, and the Rights Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder’s instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered.

(c) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Corporation, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange.

(d) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder’s attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith.

2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates

(a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered.

(b) If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time:

(i) evidence to their reasonable satisfaction of the destruction, loss or theft of any Rights Certificate; and

(ii) such security or indemnity as may be reasonably required by each of them in their sole discretion to save each of them and any of their agents harmless,

then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and upon the Corporation’s request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen.

(c) As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith.

(d) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence the contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and

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shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued by the Corporation.

2.8 Persons Deemed Owners

The Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless the context otherwise requires, the term “holder” of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Common Shares).

2.9 Delivery and Cancellation of Certificates

All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation on request.

2.10 Agreement of Rights Holders

Every holder of Rights, by accepting the same, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights:

(a) to be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof, in respect of all Rights held;

(b) that, prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Common Share;

(c) that after the Separation Time, the Rights Certificate will be transferable only upon registration of the transfer on the Rights Register as provided herein;

(d) that, prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary;

(e) that such holder of Rights has waived his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided herein);

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(f) that, in accordance with the provisions of Section 5.4, without the approval of any holder of Rights or Voting Shares and upon the sole authority of the Board of Directors acting in good faith, this Agreement may be supplemented or amended from time to time pursuant to and as provided herein; and

(g) that notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement by reasons of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation.

2.11 Rights Certificate Holder not Deemed a Shareholder

No holder, as such, of any Rights or Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose whatsoever the holder of any Common Share or any other share or security of the Corporation which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed or deemed or confer upon the holder of any Right or Rights Certificate, as such, any of the rights, titles, benefits or privileges of a holder of Common Shares or any other shares or securities of the Corporation or any right to vote at any meeting of shareholders of the Corporation whether for the election of directors or otherwise or upon any matter submitted to holders of shares of the Corporation at any meeting thereof, or to give or withhold consent to any action of the Corporation, or to receive notice of any meeting or other action affecting any holder of Common Shares or any other shares or securities of the Corporation except as expressly provided herein, or to receive dividends, distributions or subscription rights, or otherwise, until the Right or Rights evidenced by Rights Certificates shall have been duly exercised in accordance with the terms and provisions hereof.

ARTICLE 3

ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS

3.1 Flip-in Event

(a) Subject to subsections 3.1(b), 5.1(d) and 5.1(e), if prior to the Expiration Time a Flip-in Event occurs, each Right shall constitute, effective at the close of business on the tenth Trading Day after the Stock Acquisition Date, the right to purchase from the Corporation, upon payment of the Exercise Price and otherwise exercising such Right in accordance with the terms hereof, that number of Common Shares having an aggregate Market Price on the date of consummation or occurrence of such Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such Right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 in event that after the Stock Acquisition Date an event of a type analogous to any of the events described in Section 2.3 has occurred).

(b) Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially Owned on or after the earlier of the Separation Time and the Stock Acquisition Date by:

(i) an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person); or

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(ii) a transferee of Rights, direct or indirect, of an Acquiring Person (or of any Affiliate or Associate of an Acquiring Person or of any Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person) who becomes a transferee in a transfer that the Board of Directors has determined is part of a plan, arrangement or scheme of an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person), that has the purpose or effect of avoiding paragraph 3.1(b)(i);

shall become null and void without any further action, and any holder of such Rights (including any transferee of, or other successor to, such Rights, whether directly or indirectly) shall not have any right whatsoever to exercise such Rights under any provision of this Agreement and shall not have thereafter any right whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The holder of any Rights represented by a Rights Certificate which is submitted to the Rights Agent upon exercise or for registration of transfer or exchange which does not contain the necessary certifications set forth in the Rights Certificate establishing that such Rights are not void under this subsection 3.1(b) shall be deemed to be an Acquiring Person for the purposes of this subsection 3.1(b) and such Rights shall become null and void.

(c) Any Rights Certificate that represents Rights Beneficially Owned by a Person described in either paragraph 3.1(b)(i) or (ii) or transferred to any Nominee of any such Person, and any Rights Certificate issued upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain the following legend:

The Rights represented by this Rights Certificate were Beneficially Owned by a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person (as such terms are defined in the Rights Agreement) or a Person acting jointly or in concert with any of them. This Rights Certificate and the Rights represented hereby are void in the circumstances specified in subsection 3.1(b) of the Rights Agreement.

provided that the Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall be required to impose such legend only if instructed to do so in writing by the Corporation or if a holder fails to certify upon transfer or exchange in the space provided on the Rights Certificate that such holder is not a Person described in either paragraph 3.1(b)(i) or (ii).

(d) From and after the Separation Time, the Corporation shall do all such acts and things as shall be necessary and within its power to ensure compliance with the provisions of this Section 3.1, including without limitation, all such acts and things as may be required to satisfy the requirements of the Business Corporations Act (Alberta) and the Securities Act (Alberta) and any other applicable laws in respect of the issue of Common Shares upon the exercise of Rights in accordance with this Agreement.

3.2 Fiduciary Duties of the Board of Directors of the Corporation

For clarification it is understood that nothing contained in this Article 3 shall be considered to affect the obligations of the Board of Directors to exercise its fiduciary duties. Without limiting the generality of the foregoing, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to recommend that holders of the Voting Shares reject or accept any Take-over Bid or take any other action (including, without limitation, the commencement, prosecution, defence or

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settlement of any litigation and the submission of additional or alternative Take-over Bids or other proposals to the shareholders of the Corporation with respect to any Take-over Bid or otherwise that the Board of Directors believes is necessary or appropriate in the exercise of its fiduciary duties).

ARTICLE 4

THE RIGHTS AGENT

4.1 General

(a) The Corporation hereby appoints the Rights Agent to act as agent for the Corporation in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such co-Rights Agents (“Co-Rights Agents”) as it may deem necessary or desirable, subject to the approval of the Rights Agent. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agents and the Co-Rights Agents shall be as the Corporation may determine with the approval of the Rights Agent and the Co-Rights Agent. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder, including the reasonable fees and disbursements of any expert retained by the Rights Agent. The Corporation also agrees to indemnify the Rights Agent, its officers, directors, employees and agents for, and to hold them harmless against, any loss, liability, costs, claims, actions, damages or expenses, incurred without negligence, bad faith or wilful default on the part of the Rights Agent, for anything done or suffered or omitted by the Rights Agent in connection with the acceptance, execution and administration of this Agreement and the performance of its duties hereunder, including the costs and expenses of defending against any claim of liability, which right to indemnification will survive the termination of this Agreement or the resignation or removal of the Rights Agent.

(b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its acceptance, execution and administration of this Agreement in reliance upon any certificate for Voting Shares or Common Shares, or any Rights Certificate or certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.

(c) The Corporation shall inform the Rights Agent in a reasonably timely manner of events which may materially affect the administration of this Agreement by the Rights Agent and at any time upon request, shall provide to the Rights Agent an incumbency certificate with respect to the then current directors of the Corporation, provided that failure to inform the Rights Agent of any such event, or any defect therein, shall not affect the validity of any action taken hereunder in relation to such events.

4.2 Merger or Amalgamation or Change of Name of Rights Agent

(a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation, statutory arrangement or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights

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Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4. In case at the time each successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement.

(b) If at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificate shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

4.3 Duties of Rights Agent

The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Corporation and the holders of Right Certificates, by their acceptance thereof, shall be bound:

(a) the Rights Agent may retain and consult with legal counsel (who may be legal counsel for the Corporation) and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken, suffered or omitted by it in good faith and in accordance with such opinion; the Rights Agent may also, with the approval of the Corporation (such approval not to be unreasonably withheld), consult with such other experts as the Rights Agent shall consider necessary or appropriate to properly carry out the duties and obligations imposed under this Agreement and the Rights Agent shall be entitled to act and rely in good faith on the advice of any such expert;

(b) whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a Person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice President, the Secretary or Assistant Secretary of the Corporation and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate;

(c) the Rights Agent will be liable hereunder only for its own negligence, bad faith or wilful default;

(d) the Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Voting Shares or Common Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Corporation only;

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(e) the Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the authorization, execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Common Share certificate or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to subsection 3.1(b)) or any adjustment required under the provisions of Section 2.3 or be responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.3 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization of any Common Shares to be issued pursuant to this Agreement or any Rights or as to whether any Common Shares will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable;

(f) the Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement;

(g) the Rights Agent is hereby authorized and directed to accept written instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be the Chairman of the Board, President, a Vice President, the Secretary or the Assistant Secretary or any Assistant Secretary of the Corporation, and to apply to such individual for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in reliance upon instructions of any such individual;

(h) the Rights Agent and any shareholder or stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity; and

(i) the Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

4.4 Change of Rights Agent

The Rights Agent may resign and be discharged from its duties under this Agreement upon 60 days’ notice (or such lesser notice as is acceptable to the Corporation) in writing delivered or mailed to the Corporation and to each transfer agent of Common Shares by registered or certified mail and to the holders of the Rights in accordance with Section 5.9. The Corporation may remove the Rights Agent upon 30 days’ notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Shares by registered or certified mail and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation

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will appoint a successor to the Right Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent then the resigning Rights Agent (at the Corporation’s expense) or the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorized to carry on the business of a trust company. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but upon payment of its outstanding fees and expenses the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and give notice thereof to the holders of the Rights in accordance with Section 5.9. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

ARTICLE 5

MISCELLANEOUS

5.1 Redemption and Waiver

(a) The Board of Directors acting in good faith may, at its option, at any time prior to the occurrence of a Flip-in Event, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.00001 per Right appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 if an event of the type analogous to any of the events described in Section 2.3 shall have occurred (such redemption price being herein referred to as the “Redemption Price”).

(b) If the Board of Directors elects or is deemed to have elected to redeem the Rights, the right to exercise the Rights will thereupon, without further action and without notice, terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price.

(c) Within 10 days after the Board of Directors electing or having been deemed to have elected to redeem the Rights, the Corporation shall give notice of redemption to the holders of the Rights in accordance with Section 5.9. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The Corporation may not redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 5.1 or other than in connection with the purchase of Common Shares prior to the Separation Time.

(d) The Board of Directors may, until a Flip-in Event shall occur, upon written notice delivered to the Rights Agent, determine to waive the application of Section 3.1 to such particular Flip-in Event; provided that if the Board of Directors waives the application of Section 3.1 to a particular Flip-in Event that may occur by reason of a Take-over Bid made to all holders of record of Voting Shares, the Board of Directors shall be deemed to have waived the application of Section 3.1 to any future Flip-in Event in respect of any other Take-over Bid made to all holders of record of Voting Shares prior to the expiry of the Take-over Bid in respect of which the waiver is, or is deemed to have been granted under this subsection 5.1(d).

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(e) The Board of Directors may waive the application of Section 3.1 in respect of the occurrence of any Flip-in Event if the Board of Directors has determined within eight Trading Days following a Stock Acquisition Date that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person under this Agreement and, in the event that such a waiver is granted by the Board of Directors, such Stock Acquisition Date shall be deemed not to have occurred. Any such waiver pursuant to subsection 5.1(e) must be on the condition that such Person, within 10 days after the foregoing determination by the Board of Directors or such earlier or later date as the Board of Directors may determine (the “Disposition Date”), has reduced its Beneficial ownership of Voting Shares such that the Person is no longer an Acquiring Person. If the Person remains an Acquiring Person at the close of business on the Disposition Date, the Disposition Date shall be deemed to be the date of occurrence of a further Stock Acquisition Date and Section 3.1 shall apply thereto.

(f) If a Person makes a Permitted Bid or a Competing Permitted Bid pursuant to which more than 50 per cent of the then outstanding Voting Shares (other than those Voting Shares Beneficially Owned by the Persons making the Permitted Bid or the Competing Permitted Bid, at the date of the Permitted Bid or the Competing Permitted Bid) are taken up and paid for by such Person, then the Board of Directors shall, immediately upon the consummation of such acquisition, without further formality, be deemed to have elected to redeem the Rights at the Redemption Price on the expiry date of the Permitted Bid or Competing Permitted Bid, as the case may be.

(g) Where a Take-over Bid that is not a Permitted Bid Acquisition is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-in Event, the Board of Directors may elect to redeem all the outstanding Rights at the Redemption Price.

(h) Upon the Rights being redeemed pursuant to subsection 5.1(g), all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Common Shares as of the Separation Time had not been mailed to each such holder and for all purposes of this Agreement the Separation Time shall be deemed not to have occurred.

5.2 Expiration

No Person shall have any rights whatsoever pursuant to or arising out of this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in subsections 4.1(a) and (b).

5.3 Issuance of New Rights Certificates

Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board of Directors to reflect any adjustment or change in the number or kind or class of shares purchasable upon exercise of Rights made in accordance with the provisions of this Agreement.

5.4 Supplements and Amendments

(a) Without the approval of any holders of Voting Shares or Rights, the Corporation may make amendments or supplements to this Agreement to correct any clerical or typographical error or which are required to maintain the validity of the Agreement as a result of any change in any applicable legislation, regulations or rules thereunder. The Corporation may in addition supplement or amend this Agreement without the approval of any holders of Rights or Voting Shares in order to make any changes which the Board of Directors acting in good faith may deem

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necessary or desirable. Notwithstanding anything in this Section 5.4 to the contrary, no supplement or amendment shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent to such change, supplement or amendment.

(b) Subject to subsection 5.4(a), the Corporation may, with the prior consent of the holders of Shares obtained as set forth below, at any time before the Separation Time, amend, vary, rescind, supplement any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if the action requiring such approval is approved by the affirmative vote of a majority of the votes cast by Independent Shareholders represented in person or by proxy at the Special Meeting.

(c) The Corporation may, with the prior consent of the holders of Rights obtained as set forth below, at any time after the Stock Acquisition Date amend, vary or rescind any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally), provided that no such amendment, variation or deletion shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent thereto. Such consent shall be deemed to have been given if such amendment, variation or deletion is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to vote at a meeting of the holders and representing a majority of the votes cast in respect thereof.

Any such amendment shall be effective from the date of the resolution of the Board of Directors adopting such amendment, until it is confirmed or rejected or until it ceases to be effective (as described in the next sentence) and, where such amendment is confirmed, it continues in effect in the form so confirmed. If such amendment is rejected by the shareholders or the holders of Rights or is not submitted to the shareholders or holders of Rights as required, then such amendment shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted (being a meeting of the holders of Rights to be called for on a date not later than immediately following the next meeting of shareholders of the Corporation) or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to amend this Agreement to substantially the same effect shall be effective until confirmed by the shareholders or holders of Rights, as the case may be.

(d) Any approval of the holders of Rights shall be deemed to have been given if the action requiring such approval is authorized by the affirmative votes of the holders of Rights present or represented and entitled to vote at a meeting of the holders of Rights and representing a majority of the votes cast in respect thereof. For the purposes hereof, each outstanding Right (other than Rights which are void pursuant to the provisions hereof) shall be entitled to one vote, and the procedures for the calling, holding and conduct of the meeting shall be those, as nearly as may be, which are provided in the Corporation’s by-laws and the Business Corporations Act (Alberta) with respect to meetings of shareholders of the Corporation.

(e) Any amendments or supplements made by the Corporation to this Agreement pursuant to Subsection 5.4(a) (other than an amendment or supplement to correct any clerical or typographical error or which are required to maintain the validity of the Agreement as a result of any change in any applicable legislation, regulations or rules thereunder) after this Agreement has been ratified and approved by the holders of Shares in accordance with the requirements of The Toronto Stock Exchange shall:

(i) if made before the Separation Time, be submitted to the Shareholders of the Corporation at the next meeting of Shareholders and the Shareholders may, by the majority referred to in subsection 5.4(b) confirm or reject such amendment;

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(ii) if made after the Separation Time, be submitted to the holders of Rights at a meeting to be called for on a date not later than immediately following the next meeting of Shareholders of the Corporation and the holders of Rights may, by resolution passed by the majority referred to in Subsection 5.4(d) confirm or reject such amendment.

(iii) Any such amendment shall be effective from the date of the resolution of the Board of Directors adopting such amendment, until it is confirmed or rejected or until it ceases to be effective (as described in the next sentence) and, where such amendment is confirmed, it continues in effect in the form so confirmed. If such amendment is rejected by the Shareholders or the holders of Rights or is not submitted to the Shareholders or holders of Rights as required, then such amendment shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to amend this Agreement to substantially the same effect shall be effective until confirmed by the Shareholders or holders of Rights as the case may be.

(f) The Corporation shall be required to provide the Rights Agent with notice in writing of any such amendment, variation or rescission to this Agreement and/or the Rights as referred to in this Section 5.4 within five days of effecting such amendment, variation or rescission.

5.5 Fractional Rights and Fractional Shares

(a) The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the Market Price of a whole Right determined on the date on which such fractional Right would otherwise be issuable.

(b) The Corporation shall not be required to issue fractions of Common Shares upon exercise of the Rights or to distribute certificates which evidence fractional Common Shares. Fractions of Common Shares may, at the election of the Corporation, be evidenced by scrip certificates or in lieu of issuing fractional Common Shares, the Corporation shall pay to the registered holders of Rights Certificates, at the time such Rights are exercised as herein provided, an amount in cash equal to the same fraction of the Market Price of one Common Share at the date of such exercise.

(c) The Rights Agent shall have no obligation to make any payments in lieu of issuing fractions of Rights or Common Shares pursuant to paragraph (a) or (b), respectively, unless and until the Corporation shall have provided to the Rights Agent the amount of cash to be paid in lieu of issuing such fractional Rights or Common Shares, as the case may be.

5.6 Rights of Action

Subject to the terms of this Agreement, all rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective registered holders of the Rights; and any registered holder of any Rights, without the consent of the Rights Agent or of the registered

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holder of any other Rights, may, on such holder’s own behalf and for such holder’s own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce such holder’s right to exercise such holder’s Rights in the manner provided in such holder’s Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any person subject to, this Agreement.

5.7 Regulatory Approvals

Any obligation of the Corporation or action or event contemplated by this Agreement shall be subject to the receipt of any requisite approval or consent from any governmental or regulatory authority, and, without limitation, necessary approval of The Toronto Stock Exchange shall be obtained, such as to the issuance of Common Shares upon the exercise of Rights under subsection 2.2(d). Notwithstanding any provision of this Agreement, any amendment to this Agreement will be subject to the prior written consent of The Toronto Stock Exchange.

5.8 Unlawful Distributions

If in the opinion of the Board of Directors (who may rely upon the advice of counsel) any action or event contemplated by this Agreement would require compliance by the Corporation with the securities laws or comparable legislation of a jurisdiction outside Canada or the United States, the Board of Directors acting in good faith shall take such actions as it may deem appropriate to ensure that such compliance is not required, including, without limitation, establishing procedures for the issuance to a Canadian or the United States resident trustee of Rights or securities issuable on exercise of Rights, the holding thereof in trust for the Persons entitled thereto (but reserving to the trustee or to the trustee and the Corporation, as the Corporation may determine, absolute investment discretion with respect thereto) and the sale thereof and remittance of proceeds of such sale, if any, to the Persons entitled thereto. In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada or the United States, in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes. Notwithstanding the foregoing, to the extent that the issuance or delivery of the Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any such jurisdiction in which such issue or delivery would be so unlawful, such Rights or securities shall be issued and delivered to such Persons to the extent the same may be so issued and delivered in reliance upon applicable exemptions from registration requirements in such jurisdictions.

5.9 Notices

Any notice or demand authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Corporation shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

BakBone Software Incorporated

900 10145 Pacific Heights Blvd.

San Diego, CA 92121

Fax: (858) 450-9929

Attention: Chief Financial Officer

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Any such notice or demand shall be deemed to have been received if delivered, on the date of delivery, or if sent by prepaid first class mail, on the fifth Business Day after mailing thereof, except in the case of interruption of regular mail service, in which case such notice shall be delivered.

Any notice or demand authorized or required by this Agreement to be given or made by the Corporation or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Corporation) as follows:

CIBC Mellon Trust Company

600, 333 – 7th Avenue S.W.

Calgary, Alberta, T2P 2Z1

Attention: Manager of Stock and Bond Transfer Department

Any such notice or demand shall be deemed to have been received if delivered, on the date of delivery, or if sent by prepaid first class mail, on the fifth Business Day after mailing thereof, except in the case of interruption of regular mail service, in which case such notice shall be delivered.

Any notice or demand authorized or required by this Agreement to be given or made by the Corporation or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the register of the Rights Agent or, prior to the Separation Time, on the register of the Corporation for its Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. In the event of any interruption of mail service, such notice required or permitted to be given hereunder will be deemed to be sufficiently given by advertisement of such notice in daily newspapers published in each of the cities of Calgary and Toronto.

5.10 Costs of Enforcement

The Corporation agrees that if the Corporation or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce his rights pursuant to any Rights or this Agreement.

5.11 Successors

All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

5.12 Benefits of this Agreement

Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights.

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5.13 Governing Law

This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the Province of Alberta and for all purposes shall be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such province.

5.14 Severability

If any Section, subsection, paragraph, subparagraph or other provision hereof or the application hereof to any circumstances or any right hereunder shall, in any jurisdiction and to any extent, be invalid or unenforceable, such Section, subsection, paragraph, subparagraph or other provision or such right shall be ineffective only as to such jurisdiction and to the extent of such invalidity or unenforceability in such jurisdiction without invalidating or rendering unenforceable or ineffective the remaining Sections, subsections, paragraphs, subparagraphs and other provisions hereof or rights hereunder in such jurisdiction or the application of such Section, subsection, paragraph, subparagraph or other provision or rights hereunder in any other jurisdiction or to circumstances other than those as to which it is specifically held invalid or unenforceable.

5.15 Effective Date

This Agreement is effective and in full force and effect in accordance with its terms from the date hereof.

5.16 Determinations and Actions by the Board of Directors

All actions, calculations and determinations (including, for purposes of Clause (ii) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors in good faith, shall: (i) be final, conclusive and binding on the Corporation, the Rights Agent, the holders of the Rights and all other parties; and (ii) not subject the Board of Directors to any liability to the holders of the Rights.

5.17 Time of the Essence

Time shall be of the essence in this Agreement.

5.18 Execution in Counterparts

This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute one and the same instrument.

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5.19 Language

Les parties aux présentes ont exigé que la présente convention ainsi que tous les documents et avis qui s’y rattachent et/ou que en découlent soient redigés en langue anglaise. The parties hereto have required that this Agreement and all documents and notices related thereto and/or resulting therefrom be drawn up in English.

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

BAKBONE SOFTWARE INCORPORATED
By:	/s/ Jeff Lawson
CIBC MELLON TRUST COMPANY
By:	/s/ Frances van der Basch
By:	/s/ Teri Zaghetto

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EXHIBIT A

[Form of Rights Certificate]

Certificate No.                      Rights

THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN THE SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 3.1(b) OF THE SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR TRANSFEREES OF AN ACQUIRING PERSON OR ITS AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY PERSON ACTING JOINTLY OR IN CONCERT WITH ANY OF THEM MAY BECOME VOID.

Rights Certificate

This certifies that                                 , or its registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Protection Rights Plan Agreement dated as of the 25th day of June, 2002 (the “Rights Agreement”) between BakBone Software Incorporated, a corporation incorporated under the Business Corporations Act (Alberta) (the “Corporation”) and CIBC Mellon Trust Company, a trust company, as rights agent (the “Rights Agent”) (which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Corporation at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the Expiration Time (as such term is defined in the Rights Agreement), one fully paid common share of the Corporation (a “Common Share”) at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate together with the Form of Election to Exercise duly executed and submitted to the Rights Agent at its principal office in either of the cities of Calgary or Toronto. Until adjustment thereof in certain events as provided in the Rights Agreement, the Exercise Price is One Hundred ($100.00) dollars.

In certain circumstances described in the Rights Agreement, each Right evidenced hereby may entitle the registered holder thereof to purchase or receive securities of an entity other than the Corporation, assets, debt, equity or other securities or property or assets of the Corporation, or more or less than one Common Share (or a combination thereof), all as provided in the Rights Agreement.

The Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement which terms, provisions and conditions are hereby incorporated herein by reference and made a part thereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Corporation and are available upon written request.

The Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and the date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights now exercised.

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No fractional Common Shares will be issued upon the exercise of any Rights evidenced hereby, but in lieu thereof a cash payment will be made as provided in the Rights Agreement.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Corporation at a redemption price of $0.00001 per Right, subject to adjustment in certain events, under certain circumstances at its option.

No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Shares or of any other securities which may at any time be issuable upon the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

The Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Corporation and its corporate seal.

DATE:	BakBone Software Incorporated
	By:
	By:

Countersigned: CIBC Mellon Trust Company
By:
	Authorized Signature

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FORM OF ASSIGNMENT

(To be executed by the registered holder if such holder desires to transfer the Rights Certificates)

FOR VALUE RECEIVED                          hereby sells, assigns and transfers unto

(please print name and address of transferee)

the Rights represented by this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                                      attorney, to transfer the within Rights Certificate on the books of the within-named Corporation, with full power of substitution.

Date:
	Signature

Signature Guarantee: (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever)

Note: Signature must be guaranteed by a major Canadian trust company, a Schedule I Canadian chartered bank, or a member of a recognized Medallion Guarantee program.

(To be completed by the assignor if true)

The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or by any Person acting jointly or in concert therewith. Capitalized terms shall have the meaning ascribed thereto in the Rights Agreement.

Signature

(please print name of Signatory)

2

(To be attached to each Rights Certificate)

FORM OF ELECTION TO EXERCISE

TO:

The undersigned hereby irrevocably elects to exercise                                      whole Rights represented by the Rights Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of:

Address

Social Insurance, Social Security or Other Taxpayer Identification Number

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to:

Address

Social Insurance, Social Security or Other Taxpayer Identification Number

Date:
	Signature

Signature Guaranteed: (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever)

Note: Signature must be guaranteed by a major Canadian trust company, a Schedule I Canadian chartered bank, or a member of a recognized Medallion Guarantee program.

(To be completed by exercisor if true)

The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or by any Person acting jointly or in concert therewith. Capitalized terms shall have the meaning ascribed thereto in the Rights Agreement.

Signature

(please print name of Signatory)

NOTICE

In the event the Certificate set forth above in the applicable Forms of Assignment or Election is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof and, in the case of an Assignment, will affix a legend to that effect on any Rights Certificates issued in exchange for this Rights Certificate. Capitalized terms shall have the meaning ascribed thereto in the Rights Agreement.

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EX-10.1

Exhibit 10.1

INDEMNITY AGREEMENT

Made effective the    day of         .

BETWEEN:

BAKBONE SOFTWARE INCORPORATED, a corporation incorporated under the laws of the Province of Alberta (hereinafter called the “Company”)

AND

                     (hereinafter called the “Indemnified Party”)

WHEREAS the Indemnified Party has agreed to act as a director and/or officer of the Company and the Company’s subsidiaries, or serve, at the request of the Company, as a director and/or officer of another body corporate of which the Company is a shareholder or creditor (as defined in the Business Corporations Act (Alberta) (the “Act”) and referred to herein as a “Body Corporate”);

AND WHEREAS in accordance with the provisions of the by-laws of the Company (the “By-Laws”) and the Act, it is desired that the Company indemnify the Indemnified Party in certain circumstances in respect of liability which the Indemnified Party may incur as a result of his acting as a director and/or officer of the Company, or as a director and/or officer of another Body Corporate;

NOW THEREFORE, IN CONSIDERATION OF the premises and mutual covenants herein contained, and in consideration of the sum of One ($1.00) Dollar paid by the Indemnified Party to the Company (the receipt of which is hereby acknowledged) and the Indemnified Party acting as a director and/or officer of the Company or as a director and/or officer of another Body Corporate, the Company and the Indemnified Party do hereby covenant and agree as follows:

1. Agreement to Serve

The Indemnified Party agrees to serve and/or continue to serve the Company and the Body Corporate of which the Company is a shareholder or creditor as a director and/or officer and to so serve faithfully and to the best of his ability so long as the Indemnified Party is duly elected or appointed, as the case may be, in accordance with the provisions of the Act and the By-Laws until such time as the Indemnified Party tenders in writing its resignation from such position.

2. Indemnification

The Company agrees, subject to applicable law:

(a) Except in respect of an action by or on behalf of the Company or a Body Corporate to procure a judgment in its favour, to indemnify the Indemnified Party and his heirs and legal representatives against all costs, charges and expenses, including an amount paid to settle an action, cause of action or to satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which the Indemnified Party is made a party by reason of being or having been a director or officers of the Company or of a Body Corporate of which the Company is or was a shareholder or creditor, if:

(i) the Indemnified Party acts honestly and in good faith with a view to the best interests of the Company; and

(ii) in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, the Indemnified Party had reasonable grounds for believing that the Indemnified Party’s conduct was lawful.

(b) To indemnify the Indemnified Party and his heirs and legal representative in respect of an action by or on behalf of the Company or a Body Corporate to procure a judgment in its favour, to which the Indemnified Party is made a party by reason of being or having been a director of officer of the Company or of a Body Corporate, against all costs, charges and expenses reasonably incurred by him in connection with the action if the Indemnified Party has fulfilled the conditions set forth in subsections a(i) and (ii) set out above and if the Company obtains the approval of the Court of Queen’s Bench of Alberta to so indemnify him.

(c) In the event that the approval of the Court of Queen’s Bench of Alberta or any other court is required to effect any indemnification granted hereunder, the Company agrees to make its best efforts to obtain the Court’s approval to such indemnification provided that the director seeking indemnification has fulfilled the conditions set forth in subsection a(i) and (ii) herein.

(d) Notwithstanding the foregoing, to indemnify the Indemnified Party and his heirs and legal representatives in respect of all costs, charges and expenses reasonably incurred by him in connection with the defence of any civil, criminal or administrative action or proceeding to which the Indemnified Party is made a party by reason of being or having been a director or officer of the Company or of a Body Corporate, if the Indemnified Party:

(i) was substantially successful on the merits in his defence of the action or proceeding;

(ii) fulfills the conditions set out in subsections a(i) and (ii) set out above; and

(iii) is fairly and reasonably entitled to indemnity.

(e) To indemnify the Indemnified party and his heirs and legal representatives in respect of all costs, charges and expenses reasonably incurred by him in connection with the defence of any threatened civil, criminal or administrative action or proceeding or alleged wrongdoing against the Indemnified Party by reason of being or having been a director or officer of the Company or of a Body Corporate.

The intention of this Agreement is to provide the Indemnified Party indemnification to the fullest extent permitted by law and, without limiting the generality of the foregoing and notwithstanding anything contained herein, nothing in this Agreement shall be interpreted, by implication or otherwise, in limitation of the scope of the indemnification provided in this Section 2, and this Section 2 is intended to provide indemnification to the Indemnified Party to the fullest extent permitted by the Act and, in the event that such statute is amended, to permit a broader scope of indemnification (including, without limitation, the deletion or limiting of one or more of the provisos to the applicability of indemnification), this Section 2 shall be deemed to be amended concurrently with the amendment to the statute so as to provide such broader indemnification.

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3. Pre-paid Expenses

All costs, charges and expenses reasonably incurred by the Indemnified Party in investigating, defending or appealing any civil, criminal or administrative action or proceeding, actual or threatened, covered hereunder shall, at the request of the Indemnified Party, be paid by the Company in advance as may be appropriate to enable the Indemnified Party to properly investigate, defend or appeal such proceeding, with the understanding and agreement being herein made that, in the event it is ultimately determined as provided hereunder that the Indemnified Party was not entitled to be so indemnified, or was not entitled to be fully so indemnified, that Indemnified Party shall indemnify and hold harmless the Company, and to pay to the Company such amount or the appropriate portion thereof, so paid in advance.

4. Other Rights and Remedies

Indemnification and advance payment of expenses as provided by this Agreement shall not be deemed to derogate from or exclude any other rights to which the Indemnified Party may be entitled under any provision of the Act or otherwise at law, the articles of the Company, the By-Laws, this Agreement, any vote of shareholders of the Company, or otherwise, both as a matter arising out of his capacity as a director and/or officer of the Company, or as to matters arising out of another capacity with the Company while being a director and/or officer of the Company, or as a matter arising by reason of his being or having been, at the request of the Company, a director and/or officer, of any other Body Corporate and shall continue after the Indemnified Party has ceased to be a director and/or officer of the Company or any other Body Corporate.

5. Limitation of Actions and Release of Claims

No legal action shall be brought and no course of action shall be asserted by or on behalf of the Company or any affiliate (as defined in the Act) of the Company against the Indemnified Party, his estate, executors, administrators, legal representatives or lawful heirs after the expiration of two years from the date the Indemnified Party ceased (for any reason) to be a director and/or officer of the Company or a Body Corporate if the Indemnified Party originally served in that position at the request or appointment of the Company, and the Company agrees that any claim or cause of action of the Company or of an affiliate shall be extinguished and the Indemnified Party, his estate, executors, administrators, legal representatives and lawful heirs deemed released therefrom absolutely unless asserted by the commencement of legal action in a court of competent jurisdiction within such two-year period.

6. Notice of Proceedings

The Indemnified Party agrees to give reasonable notice to the Company within seven days of being served with any statement of claim, writ, notice of motion, indictment or other document commencing or continuing any civil, criminal or administrative action or proceeding against the Indemnified Party as a party, and the Company agrees to notify the Indemnified Party in writing within seven days of being served with any statement of claim, writ, notice of motion, indictment or other document commencing or continuing any civil, criminal or administrative action or proceeding naming the Indemnified Party as a party to such proceeding.

7. Counsel

The Company may retain counsel, who shall be reasonably satisfactory to the Indemnified Party, to represent the Indemnified Party in any such matter. In any such matter the Indemnified Party shall have the right to retain counsel, or other counsel, to act on his behalf provided that the fees and disbursements of such other counsel shall be paid by the Indemnified Party unless:

(a) the Indemnified Party and the Company shall have mutually agreed to the retention of such other counsel;

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(b) the Company shall not have retained counsel to represent the Indemnified Party within 10 days of receiving notice of the claim or other matter to which indemnity may be required to be provided hereunder; or

(c) the named parties to any such action, claim, demand or proceeding (including any added third, or interpleaded parties) include the Company or Body Corporate and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them (including the availability of different defences)

in which event the Company agrees to pay the fees and disbursements of such counsel.

8. Indemnified Party to Cooperate

The Indemnified Party agrees to give the Company such information and cooperation as the Company may reasonably require from time to time in respect of all matters hereunder.

9. Insurance

The Company agrees that in the event the Company or Body Corporate shall maintain a policy of insurance with respect to liability relating to its directors or officers which policy may pursuant to its terms extend to the Indemnified Party in his capacity as a director and/or officer of the Company and/or Body Corporate, the Company will use its reasonable best efforts to include the Indemnified Party as an insured under such policy to the maximum extent reasonably possible.

10. Effective Time

This Agreement shall be effective as and from the first day that the Indemnified Party became or becomes a director and/or officer of the Company or commenced or commences to serve, at the request of the Company, as an officer and/or director of a Body Corporate.

11. Notices

Unless otherwise permitted by this Agreement, all notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been fully given if personally delivered to the party to whom the notice or other communication is directed.

If the Company receives notice from any other source of any matter which the Indemnified Party would otherwise be obligated hereunder to give notice of to the Company, then the Indemnified Party shall be relieved of his obligation hereunder to give notice to the Company, provided the Company has not suffered any damage from the failure of the Indemnified Party to give notice as herein required.

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12. 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, all portions of any paragraph of this Agreement containing such provisions held to be invalid, illegal or unenforceable that are not of themselves in whole invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and

(b) to the fullest possible extent, the provisions of this Agreement (including, without limitations, all portions of any paragraphs of this Agreement containing any such provisions held to be invalid, illegal or unenforceable, that are not of themselves in whole invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision which is held to be invalid, illegal or unenforceable.

13. Governing Law

The parties hereto agree that this agreement shall be construed and enforced in accordance with the laws of the Province of Alberta.

14. Modification and Waiver

No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

15. Entire Agreement

This Agreement shall supersede and replace any and all prior agreements (except any written agreement) of employment between the Company and the Indemnified Party, which shall remain in full force and effect (except to the extent augmented or amended hereby) between the parties hereto respecting the matter set forth herein, and shall constitute the entire agreement between the parties hereto in respect of the matter set forth herein.

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16. Successors and Assigns

This Agreement shall be binding upon and enure for the benefit of the Company and its successors and assigns and to the Indemnified Party and his estate, executors, administrators, legal representatives, lawful heirs, successors and assigns.

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

	BAKBONE SOFTWARE INCORPORATED
	Per:
Witness	{Indemnified Party}

6

EX-10.2

Exhibit 10.2

BAKBONE SOFTWARE INCORPORATED

STOCK OPTION PLAN

1. PURPOSE

The purpose of this Stock Option Plan (the “Plan”) is to authorize the grant to directors, officers, employees and consultants on an on-going basis (the “Consultants”) of BAKBONE SOFTWARE INCORPORATED (the “Company”) or any present or future subsidiary thereof of stock options (“Options”) to purchase common shares (“Shares”) of the Company’s capital and thus benefit the Company by enabling it to attract, retain and motivate directors, officers, employees and consultants by providing them with the opportunity, through Options, to acquire an increased proprietary interest in the Company.

2. ADMINISTRATION

The Plan shall be administered by the board of directors (the “Board”) of the Company. The Board may make grants, subject to the terms of the Plan, to such eligible persons (the “Optionees”) and will determine the number of Shares in the share capital of the Company which will be the object of Options, in its sole discretion.

3. SHARES SUBJECT TO PLAN

Subject to adjustment under the provisions of paragraph 12 hereof, Options may be granted in respect of authorized and un-issued Shares of the Company provided that, subject to the receipt of the approval of Toronto Stock Exchange and the approval of the shareholders of the Company, the maximum number of shares which may be reserved for issuance to this Plan and defined under the Securities Act (Alberta) under the Plan, and any other compensation mechanism, shall be as set out in the attached SCHEDULE “A”. The total number of Shares which may be reserved for issuance to any one Optionee under the Plan shall not exceed 5% of the total number of issued and outstanding Shares (on a non-diluted basis) less Shares reserved for issuance under any stock option agreement.

4. LIMITS WITH RESPECT TO INSIDERS

A share compensation arrangement, together with all of the Company’s other previously established or proposed share compensation arrangements, will not result, in either:

(a) the number of shares reserved for issuance pursuant to stock options granted to insiders exceeding 10% of the outstanding issue;

(b) the issuance to insiders, within a one-year period, of a number of shares exceeding 10% of the outstanding issue; or

(c) The issuance to any one insider and such insider’s associates, within a one-year period, of a number of shares exceeding 5% of the outstanding issue.

5. ELIGIBILITY

Options shall be granted only to directors, officers, employees and consultants of the Company or any subsidiary. The term “subsidiary” as used in the Plan shall mean any company in which the Company owns, directly or indirectly, 50% or more of the total combined voting rights of all classes of stock.

Subject to the foregoing, the Board shall have full and final authority to determine the persons who are to be granted Options under the Plan and the number of Shares subject to each Option.

6. PRICE

The purchase price (the “Price”) for the Shares of the Company under each Option shall be determined by the Board on the basis of the market price, where “market price” shall mean the prior trading day closing price of the Shares of the Company on the Toronto Exchange and where there is no such closing price, “market price” shall mean the weighted average of the closing price per share for the immediately preceding five (5) consecutive trading days on the Toronto Stock Exchange.

7. PERIOD OF OPTION AND RIGHTS TO EXERCISE

Subject to the provisions of this paragraph and paragraphs 8, 9 and 10 below, Options will be exercisable in whole or in part, and from time to time, during the currency thereof. Options shall not be granted for a term exceeding ten (10) years. The Shares to be purchased upon each exercise of any Option shall be paid for in full, in cash or by certified cheque, at the time of such exercise. Except as provided in paragraphs 8 and 9 below, no Option which is held by a director, officer or employee may be exercised unless the Optionee is then director, officer or in the employ of the Company or any subsidiary. Absence on leave approved for an officer of the Company or any subsidiary authorized to give such approval shall not be considered an interruption of employment for any purpose under the Plan.

8. NON TRANSFERABILITY & NON ASSIGNABILITY OF OPTION

No Option granted under the Plan shall be transferable or assignable by an Optionee otherwise than by will or by the laws of descent and distribution, and such Option shall be exercisable, during his lifetime, only by him, as provided in paragraph 10 below.

9. TERMINATION OF EMPLOYMENT

If any Optionee who is a director, officer or employee shall cease to be an officer, director or employee of the Company or any subsidiary for any reason (except as otherwise provided in paragraph 10), he may exercise his options, but only within the period of ninety (90) days succeeding such cessation and in no event after the expiry date of his Option. Before the expiry date of such Option, the Board shall notify the Optionee of such expiry in writing. The entitlement of a Consultant to Options, including the entitlement to Options upon termination, shall be determined by the terms of the Consultant’s agreement and the requirements of the Plan.

10. DEATH OF OPTIONEE

In the event of the death of an Optionee during the currency of his Option, the Option theretofore granted to him shall be exercisable within, but only within, the period of one year next succeeding his death, and in no event after the expiry date of his Option. Before expiry of an Option under this paragraph, the Board shall notify the Optionee’s representatives in writing of such expiry.

11. EXTENSION OF OPTION

Notwithstanding the provisions of paragraph 9 and 10, the Board may extend the period of time within which an Option held by a deceased Optionee may be exercised or within which an Option may be exercised by an Optionee who has ceased to be an officer, director or employee of the Company, but such an extension shall not be granted beyond a period of twelve (12) months in the case of officers and directors who are not also employees and thirty-six (36) months in the case of employees and, in any event, shall not extend beyond the original expiry date of the Option. Any extension of Options granted under this Plan are subject to regulatory approval.

12. ADJUSTMENTS IN SHARES SUBJECT TO PLAN

The aggregate number and class of Shares available under the Plan shall be appropriately adjusted in the event of a reorganization, recapitalization, stock split, stock dividend, combination of Shares, merger, consolidation, share issuance pursuant to a rights offering or any other change in the corporate structure or Shares of the Company. The

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Option granted under the Plan shall contain such provisions as the Board may determine the appropriate adjustments to be made with respect to Options granted or to the granted relatively to the Option Price in the event of any such change. Any adjustment arising as a result of a stock dividend shall be subject to regulatory approval.

13. AMENDMENT AND TERMINATION OF THE PLAN

The Board may at any time amend or terminate the Plan upon receipt of requisite regulatory approval, provided, however that no such amendment alter or impair any of the terms of Options previously granted under the Plan without the consent of the Optionee.

14. EFFECTIVE DATE OF THE PLAN

The Plan became effective on the date of its adoption by the Board and Options may be granted immediately thereafter. Amendments to the Plan are effective as set forth under Section 21 hereof “Approval” and as is indicated on Schedule ”A”.

15. EVIDENCE OF OPTIONS

Each Option granted under the Plan shall be embodied in a written Option agreement between the Company and the Optionee which shall give the provisions of the Plan.

16. EXERCISE OF OPTION

Subject to the Provisions of the Plan, an Option may be exercised from time to time by delivering to the Secretary of the Company at its registered office a written notice of exercise specifying the number of Shares with respect to which the Option is being exercised and accompanied by payment in full, in cash or by certified cheque, of the purchase price of the Shares then being purchased. Certificates for such Shares shall be issued and delivered to the Optionee within a reasonable period of time following the receipt of such notice.

Upon receipt of a certificate of an authorized officer directing the issue of Shares purchased under the Plan, the transfer agent is authorized and directed to issue and countersign share certificates for the Options exercised in the name of such Optionee or his legal personal representative or as may be directed in writing by his legal personal representative.

17. NOTICE OF SALE OF ALL OR SUBSTANTIALLY ALL SHARES OR ASSETS

Should the Company sell all or a substantial part of its assets, or that it should be purchased by a third party or merged, the Optionee will then have the right to exercise its Options for the total number of unexercised Shares within thirty (30) days following the date of the completion of such sale. The Company may, at its discretion, reduce this thirty day delay.

18. RIGHTS PRIOR TO EXERCISE

The holder of an Option shall not have any rights as a shareholder of the Company with respect to any of the shares covered by such Option until such holder shall have exercised such Option in accordance with the terms of the Plan (including tendering payment in full of the Option price of the Shares in respect of which the Option is being exercised) and the issuance of Shares by the Company.

19. GOVERNING LAW

This Agreement shall be construed in accordance with and be governed by the laws of the Province of Alberta and shall be deemed to have been made in said Province and shall be in accordance with all applicable securities laws.

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20. EXPIRY OF OPTION

On the expiry date of any Option granted under the Plan, and pursuant to any extension of such expiry date permitted in accordance with the Plan, such Option hereby granted forthwith expires and terminate and be of no further force or effect whatsoever as to such of the optioned Shares in respect of which the Option has not been exercised.

21. APPROVAL

The Plan has been approved by the directors of the Company on September 12, 1996, as amended and approved by shareholders on March 13, 2000, and, subsequently, on October 30, 2000, and supersedes and replaces all prior stock option plans.

22. ENGAGEMENT OF THE COMPANY

The Company hereby acknowledges that pursuant to policy 634 of the Toronto Exchange, the Company is required to pre-clear any amendment to the Share Option Plan or to any Option within or outside such Plan with the Toronto Exchange. Consequently, the Company hereby undertakes to obtain the approval of The Toronto Exchange to any amendments it proposes to make to the Plan prior to the issuance of any Shares pursuant to such amendment.

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SCHEDULE “A”

The maximum number of shares which may be reserved for issuance under the Plan, shall be 3,340,304 common shares of the Company (effective March 13, 2000), as increased such that the maximum number of shares that may be reserved for issuance under the Plan is presently 4,100,000 common shares of the Company (effective October 30, 2000).

EX-10.4

EXHIBIT 10.4

BAKBONE SOFTWARE INCORPORATED

STOCK OPTION AGREEMENT

Date of Agreement:

BETWEEN BAKBONE SOFTWARE INCORPORATED, a body corporate, with an office in the City of Calgary, in the Province of Alberta (hereinafter called “the Corporation”) and

Name of Optionee:

(hereinafter called the “Optionee”)                

As the Optionee is a full-time employee, director or officer of the Corporation or a consultant to the Corporation or a subsidiary of the Corporation and the Committee considers its appropriate to grant an option to the Optionee under the Corporation’s Share Option Plan;

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Corporation hereby grants to the Optionee an option, irrevocable unless otherwise terminated pursuant to the terms of this Agreement, to purchase that number of common shares of the Corporation (the “Optioned Shares”) set forth below at, subject to adjustment the Optioned Shares at, subject to adjustment pursuant to Section 6, $ 1.90 Canadian      (the “Exercise Price”) until the Expiration Time subject to and upon the terms and conditions set forth herein (including, without limitation, those terms and conditions attached hereto and forming part hereof).

Optioned Shares Vesting Provisions Expiration Date

SIGNED, SEALED AND DELIVERED

in the presence of:

Witness as to the signature of the Optionee	(Optionee)
	(address, including postal code)

BAKBONE SOFTWARE INCORPORATED

Per:

Reserved for office use only: Option Number:

BAKBONE SOFTWARE INCORPORATED

STOCK OPTION AGREEMENT

TERMS AND CONDITIONS

The following terms and conditions are attached to and form part of the grant of options to the Optionee by BakBone Software Incorporated.

1. In this Agreement, unless the context otherwise requires:

“Board of Directors” means the board of directors of the Corporation, or any committee thereof empowered in respect of the matter referred to;

“Business Day” means a day on which Canadian chartered banks are open for business in the City of Calgary;

“Common Shares” means the common shares in the capital of the Corporation as constituted on the date hereof provided that after any adjustment pursuant to Section 6, the term “Common Shares” shall be interpreted to mean the shares, or other securities or property, the Optionee is entitled to receive upon the exercise of the Option;

“Current Market Price” in respect of a Common Share at any date means the weighted average price per share for Common Shares for any 20 consecutive trading days (selected by the Board of Directors) commencing not more than 30 trading days before such date on the Exchange (or on any other Canadian stock exchange on which the Common Shares shall then be listed and designated by the Board of Directors for such purpose if the Common Shares shall not then be listed on the Exchange); the weighted average price shall be determined by dividing the aggregate of the sale prices of all such shares sold on the said exchange or market, as the case may be, during the said 20 consecutive trading days by the total number of such shares so sold; or if:

i. the Common Shares are not listed upon a stock exchange in Canada; or

ii. within such 20 consecutive trading days there have not been at least five days in which at least 100 Common Shares have traded,

the Current Market Price in respect of a Common Share shall be determined by the Board of Directors acting reasonably and in good faith;

“Exchange” means The Canadian Venture Exchange provided that if the Common Shares at the relevant time are listed and posted for trading on The Toronto Stock Exchange, than any reference herein to the “Exchange” shall mean The Toronto Stock Exchange;

“Expiration Time” means 4:00 p.m. (Calgary time) on the Expiration Date;

“Option” means the option to purchase Optioned Shares granted pursuant to this Agreement upon the terms and conditions herein provided; and

“Voting Shares” means voting shares, within the meaning of the Securities Act (Alberta), of the Corporation.

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2. The Option may be exercised by the Optionee for any vested Optioned Shares at any time after the applicable Vesting Date (as set out on the face page of this agreement) with respect to such Optioned Shares and prior to the Expiration Date, unless earlier terminated in accordance with Section 4 or 5.

3. The Option shall be exercisable by notice in writing given by the Optionee, or the Optionee’s legal personal representative, to the Corporation specifying the number of Optioned Shares in respect of which it is exercised and accompanied by payment in cash or by cheque in an amount equal to the Exercise Price on the date of such exercise for each of the Optioned Shares specified in such notice. Upon any such exercise of the Option as aforesaid, the Corporation shall forthwith cause the transfer agent and registrar of the Corporation to deliver to the Optionee, or the Optionee’s legal personal representative (or as such person may otherwise direct in the notice of the exercise of the option), within 5 days following receipt of the Corporation of any such notice of exercise and payment, a certificate or certificates in the name of the Optionee or the Optionee’s nominee representing in the aggregate the number of Optioned Shares the Optionee or the Optionee’s legal personal representative shall have then paid for.

4. If the Optionee shall retire or be terminated without cause from the Corporation’s service or the service of a subsidiary of the Corporation, as the case may be, the Option shall terminate and become null and void in respect of any Optioned Shares in respect of which the Option is not exercised on or before the earlier of the Expiration Time and 4:00 p.m. (Calgary time) on that date which is 60 days after the date of such retirement or termination.

If the Optionee shall resign or be terminated with cause from the Corporation’s service or the service of a subsidiary of the Corporation, as the case may be, the Option shall terminate and become null and void in respect of any Optioned Shares in respect of which the Option is not exercised on or before the earlier of the Expiration Time and 4:00 p.m. (Calgary time) on that date which is 30 days after the date of such resignation or termination. In connection with the foregoing, there shall be no early vesting of the Optioned Shares, and the Optionee shall only be entitled to exercise those shares which have vested.

For clarity, no termination by the Corporation, either with or without cause, shall cause an early vesting of the Options unless specifically agreed to by the Corporation (and the parties acknowledge that the Corporation shall have no obligation to agree to the same).

5. In the event of the death of the Optionee occurring prior to the Expiration Time while the Optionee is still in the service of the Corporation or the service of a subsidiary of the Corporation, as the case may be, the Optionee’s legal personal representative shall have the right to exercise the Option to purchase any Optioned Shares which the Optionee would have been entitled to purchase under the terms of this Agreement at the time of the Optionee’s death but the Option hereby granted shall terminate and become null and void in respect of any Optioned Shares not purchased by the Optionee or the Optionee’s legal personal representative on or before the earlier of the Expiration Time and 4:00 p.m. (Calgary time) on that date which is six months after the date of the death of the Optionee. In connection with the foregoing, the Optioned Shares shall vest in full (100%) immediately after the date of death. In the event the Optionee is medically determined disabled, defined as if you are, for six consecutive months, unable to attend work and perform normal and regular duties as a result of a physical and/or mental disability, shall have the right to exercise the Option to purchase any Optioned Shares which the Optionee would have been entitled to purchase under the terms of this Agreement at the time of the Optionee’s disability but the Option hereby granted shall terminate and become null and void in respect of any Optioned Shares not purchased by the Optionee or the Optionee’s legal personal representative on or before the earlier of the Expiration Time and 4:00 p.m. (Calgary time) or that date which is seven months after the date of the disability of the Optionee. In connection with the foregoing, the Optioned Shares shall vest in full (100%) six months after the date of disability.

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6. The rights pursuant to the Option in effect at any date shall be subject to adjustment from time to time as follows:

a. If and whenever, at any time after the date hereof and prior to the Expiration Date, the Corporation shall:

i. subdivide the outstanding Common Shares into a greater number of Common Shares;

ii. consolidate the outstanding Common Shares into a lesser number of Common Shares; or

iii. issue Common Shares (or securities convertible into or exchangeable for Common Shares) to the holders of all or substantially all of the outstanding Common Shares by way of a stock dividend (other than the issue of Common Shares or securities convertible into or exchangeable for Common Shares to such holders who exercise an option to receive equivalent dividends in Common Shares (or securities convertible into or exchangeable for Common Shares) in lieu of receiving cash dividends);

the Exercise Price shall, on the effective date of such subdivision or consolidation or on the record date of such stock dividend, as the case may be, be adjusted to that amount which is in the same proportion to the Exercise Price in effect immediately prior to such subdivision, consolidation or stock dividend as the number of outstanding Common Shares before giving effect to such subdivision, consolidation or stock dividend bears to the number of outstanding Common Shares after giving effect to such subdivision, consolidation or stock dividend (including in the case where securities convertible into or exchangeable for Common Shares are issued, the number of Common Shares which would have been outstanding had such securities been converted into or exchanged for Common Shares on such effective or record date). Such adjustment shall be made successively whenever any event referred to in this subsection shall occur, and any such issue of Common Shares by way of a stock dividend shall be deemed to have been made on the record date for the stock dividend for the purpose of calculating the number of outstanding Common Shares under subsections b. and c. of this Section.

b. If and whenever, at any time after the date hereof and prior to the Expiration Date, the Corporation shall:

i. fix a record date for the issuance of rights, options or warrants to all or substantially all the holders of the outstanding Common Shares entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for Common Shares); or

ii. issue Common Shares (or securities convertible into or exchangeable for Common Shares) (otherwise than as described in paragraph i. above);

at a price per share (or having a conversion or exchange price per share) less than 90% of the Current Market Price on such record date or date of issue, the Exercise Price shall be adjusted immediately after such record date or date of issue so that it shall equal the price determined by multiplying:

(1) the Exercise Price in effect on such record date or date of issue, by

(2) a fraction, of which:

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(a) the numerator shall be the total number of Common Shares outstanding on such record date or date of issue plus the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase or issue (or the aggregate conversion or exchange price of the convertible securities so offered or issued) by such Current Market Price, and

(b) the denominator shall be total number of Common Shares outstanding on such record date or date of issue plus the total number of additional Common Shares offered for subscription or purchase or issue (or into which the convertible or exchangeable securities so offered or issued are convertible or exchangeable);

any Common Shares owned by or held for the account of the Corporation or any subsidiary of the Corporation shall be deemed not be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed or issue occurs; to the extent that any rights, options or warrants are not so issued or any such rights, options or warrants are not exercised prior to the expiration thereof, the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect based upon the number and aggregate price of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be.

c. If and whenever, at any time after the date hereof and prior to the Expiration Date, the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of:

i. shares of any class other than Common Shares (or securities convertible into or exchangeable for Common Shares), whether of the Corporation or any other corporation;

ii. rights, options or warrants (excluding those referred to in subsection (b)’ whether or not exercisable at a price per Common Share (or having a conversion or exchange price per Common Share) less than 90% of the Current Market Price);

iii. evidences of its indebtedness; or

iv. assets (excluding cash dividends not, together with cash dividends declared in the twelve months preceding the record date for payment of such cash dividends, exceeding 5% of the Current Market Price on such record date);

v. assets (excluding cash dividends not, together with cash dividends, declared in the twelve months preceding the record date for payment of such cash dividends, exceeding 5% of the Current Market Price on such record date);

then, and in each such case, the Exercise Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying:

(1) the Exercise Price in effect on such record date, by

(2) a fraction, of which:

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(a) the numerator shall be the Current Market Price on such record date multiplied by the total number of Common Shares outstanding on such record date, less the aggregate fair market value (as determined by the Board of Directors, which determination shall be conclusive) of such shares, rights, options, warrants, evidences of indebtedness or assets so distributed, and

(b) the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Current Market Price;

any Common Shares owned by or held for the account of the Corporation or any subsidiary of the Corporation shall be deemed not to be outstanding for the purpose of any computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that such distribution is not so made, the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or to the Exercise Price which would then be in effect based upon such shares, rights, options, warrants, evidences of indebtedness or assets actually distributed, as the case may be.

d. If and whenever, at any time after the date hereof and prior to the Expiration Date, there shall be any reclassification of the Common Shares or change of the Common Shares into other shares, or a consolidation, amalgamation or merger of the Corporation with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other shares), or a transfer of the undertaking or assets of the Corporation as an entirety to another person, the Optionee upon thereafter exercising the right to purchase Common Shares hereunder shall be entitled to receive, and shall accept, in lieu of the number of Common Shares to which the Optionee was theretofore entitled upon such exercise, the kind and amount of shares and other securities or property which the Optionee would have been entitled to receive as a result of such reclassification, change, consolidation, amalgamation, merger or transfer if, on the effective date thereof, the Optionee had been the registered holder of the number of Common Shares to which the Optionee was theretofore entitled upon such exercise.

e. If necessary, appropriate adjustments shall be made in the application of the provisions set forth in this Section 6 with respect to the rights and interest thereafter of the Optionee to the end that the provisions set forth in this Agreement shall thereafter correspondingly be made applicable as nearly as may reasonably be possible in relation to any shares or other securities or property thereafter deliverable upon the exercise of the Option. Any such adjustment shall be made by and set forth in an amendment hereto approved by the Corporation and by the Optionee and shall for all purposes conclusively be deemed to be an appropriate adjustment The subdivision or consolidation of the Common Shares at any time outstanding into a greater or lesser number of Common Shares shall be deemed not to be a reclassification of the capital of the Corporation for the purposes of this Section.

f. If and whenever, at any time after the date hereof and prior to the Expiration Date, the Common Shares shall be subdivided into a greater or consolidated into a lesser number of shares, or the Corporation shall issue Common Shares as a stock dividend of the nature referred to in paragraph iii. of subsection a., the Optionee who has not exercised all of the rights of purchase pursuant to the Option on or prior to the effective date or record date, as the case may be, of such subdivision, consolidation or stock dividend, upon the exercise of such right thereafter, shall be entitled to receive and shall accept in lieu of the number of Common Shares which would otherwise then have been subscribed

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for by the Optionee, but for the same aggregate consideration payable therefor, the aggregate number of Common Shares that the Optionee would have been entitled to receive as a result of such subdivision, consolidation or stock dividend if, on such record date or effective date thereof, the Optionee had been the registered holder of the number of Common Shares to which the Optionee was previously entitled upon such exercise.

g. If the purchase price provided for in any right, warrant or option issued as described in subsection b. or c. is decreased, or the price at which shares are issued as described in subsection a. is decreased or the rate of conversion or exchange at which any convertible or exchangeable securities which are issued as described in subsection a. is increased, the Exercise Price shall forthwith be changed so as to decrease the Exercise Price to such Exercise Price as would have obtained had the adjustment made in connection with the issuance of all such rights, options or securities been made upon the basis of such purchase price as so decreased or such rate as so increased, provided that the provisions of this subsection shall not apply to any such increase or decrease resulting from provisions in any such rights, options or securities intended to prevent dilution if such increase or decrease shall not have been proportionately greater than the decrease, if any, in the Exercise Price to be made at the same time pursuant to the provisions of this Section 6.

h. No adjustment in the Exercise Price shall be required unless such adjustment would result in a change of at least 10% in the Exercise Price then in effect, provided, however, that any adjustments which, except for the provisions of this Section 6 would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment.

i. No adjustment in the Exercise Price shall be made in respect of any event described in subsections a.iii., b. or c. if the Optionee is entitled to participate in such event on the same terms with the necessary changes in detail as if the Optionee had exercised the Optionee’s rights of purchase pursuant to the Option prior to the effective date or record date of such event.

j. In determining at any time and from time to time the number of Common Shares outstanding at any particular time for purposes of this Section 6, there shall be included that number of Common Shares which would be outstanding upon conversion of all convertible securities then outstanding, and upon exercise of all rights, options or warrants then outstanding to purchase Common Shares, and there shall be excluded any Common Shares (and Common Shares which would be outstanding upon conversion of convertible securities) held by or for the account of the Corporation.

k. Whenever Common Shares shall have been issued for non-cash consideration in whole or in part, the issue price for such Common Shares shall be determined by the Board of Directors.

l. No adjustment to the Exercise Price shall be made, other than pursuant to subsection a.ii. and subsection m., which would have the effect of increasing the Exercise Price.

m. Upon the expiry of the period for conversion of convertible securities and the exercise period for rights, options or warrants (other than rights, options or warrants in respect of which they are entitled to participate, as contemplated in subsection i.) to purchase Common Shares or convertible securities, the Exercise Price shall be adjusted to what it would have been if such unconverted convertible securities and unexercised rights, options or warrants had not been issued.

n. Notwithstanding subsections c. and k., if a dispute shall at any time arise with respect to any adjustments provided in this Section, such dispute shall be conclusively determined

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by the auditors of the Corporation or if they are unable or unwilling to act, by such firm of independent chartered accountants as they may select and any such determination shall be binding upon the pates hereto.

o. The adjustments provided for in this Section in the Exercise Price and in the number or classes of shares which are to be received on the exercise of the option hereby granted are cumulative. After any adjustment pursuant to this Section, the term “Common Shares” where used in this Agreement shall be interpreted to mean the shares or other securities or property of adjustments pursuant to this Section, the Optionee is entitled to receive upon the exercise of the Option, and the number of Common Shares indicated in any exercise made pursuant to the Option shall be interpreted to mean the number of shares of all classes which, as a result of all prior adjustments pursuant to this Section, the Optionee is entitled to receive upon the full exercise of the Option entitling the Optionee to purchase the number of Common Shares so indicated.

p. No fractional shares or script representing fractional shares shall be issued upon the exercise of any rights pursuant to the Option. To the extent that the Optionee would otherwise be entitled to a fraction of a Share such right may be exercised only in combination with other rights which in the aggregate entitle the Optionee to purchase a whole number of Common Shares.

q. If in the opinion of the Board of Directors the provisions of Section 6 are not strictly applicable, or if strictly applicable would not fairly protect the rights of the Optionee in accordance with the intent and purposes hereof, the Board of Directors shall make any adjustment in such provisions as the Board of Directors deems appropriate for the benefit of the Optionee.

r. The Corporation covenants with the Optionee that so long as this Agreement remains in force, it will give notice to the Optionee of its intention to fix a record date for any event referred to in subsection a., b., c. or d. (other than the subdivision, consolidation or reclassification of the Common Shares) which may give rise to an adjustment in the Exercise Price, of its intention to take any action described in subsection f. or of its intention to fix a record date for the payment of dividends on the Common Shares and, in each case, such notice shall specify the particulars of such event and the record date and/or the effective date for such event; provided that the Corporation shall only be required to specify in such notice such particulars of such event as shall have been fixed and determined on the date on which such notice is given. Such notice shall be given in each case not less than 14 days prior to such applicable record date or effective date.

7. In the event of:

i. the sale by the Corporation of all the assets of the Corporation or substantially all the assets of the Corporation; or

ii. the acquisition (otherwise than pursuant to a formal bid referred to below) by any person of Voting Shares (or other securities of the Corporation having rights of purchase, conversion or exchange into Voting Shares) which together with securities of the Corporation held by such person, together with persons acting in concert with such person, exceeds 51% of the issued and outstanding Voting Shares (assuming the purchase, conversion or exchange of such other securities, whether then purchasable, convertible or exchangeable or not, into the highest number of Voting Shares, such person or persons would be entitled to); or

iii. the amalgamation, arrangement, merger or other consolidation of the Corporation with or into any one or more other corporations,

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b. pursuant to which a person or company or combination of persons and/or companies thereafter hold a greater number of Voting Shares or other securities of the successor or continuing corporation having rights of purchase, conversion or exchange into Voting Shares of the successor or continuing corporation (assuming the purchase, conversion or exchange of such other securities whether then purchasable. convertible or exchangeable or not into the highest number of Voting Shares of the successor or continuing corporation such persons and/or companies would be entitled to) than the number of Voting Shares of the successor or continuing corporation held directly and indirectly by former shareholders of the Corporation; or

c. pursuant to which the President of the Corporation immediately prior thereto is not immediately thereafter the President of the successor or continuing corporation; or

d. such other amalgamation, arrangement, merger or other consolidation which, in the opinion of the Board of Directors, should be subject to this section 7 in order to fairly protect the rights of the Optionee;

then the Option may be exercised, notwithstanding Section 2, as to all or any of the Optioned Shares in respect of which the Option has not been exercised on or before the earlier of the Expiration Time and 4:00 p.m. (Calgary time) on that date which is 60 days after the date of notice to the Optionee of such event. After such date the provisions of this Agreement apart from this section 7 shall reapply with respect to the balance of the Optioned Shares in respect of which the Option has not been exercised provided that, for the purposes of Section 2, any Optioned Shares purchased pursuant to this subsection shall be deemed to have been the Optioned Shares in respect of which the Optionee could have exercised the Option earliest.

e. In the event of a bona fide offer (within the meaning of the Securities Act (Alberta)) being made to acquire outstanding Voting Shares or other securities of the Corporation having rights of purchase, conversion or exchange into Voting Shares which together with securities of the Corporation held by the offeror, together with persons acting jointly or in concert with the offeror, will exceed 51% of the issued and outstanding Voting Shares (assuming the purchase, conversion or exchange of such other securities, whether then purchasable, convertible or exchangeable or not, into the highest number of Voting Shares such offeror and other persons, if any, would be entitled to) in respect of which bid the Board of Directors recommended acceptance of the bid, then the Corporation shall give notice of such bid to the Optionee immediately upon becoming aware of such bid and in any event at least 14 days before the expiration of such bid. Subject to the condition subsequent set forth below, the Optionee shall have the right, whether or not such notice is given to the Optionee by the Corporation, to exercise the Option, notwithstanding Section 2, as to all or any of the Optioned Shares in respect of which the Option has not been exercised on or before the earlier of the Expiration Date and the expiration of the bid provided, however, that such exercise shall only be for the purpose of tendering such shares pursuant to such bid. The foregoing right is subject to the condition that if for any reason such shares are not so tendered or, if tendered, are not for any reason taken up and paid for by the offeror pursuant to the bid, the Option respecting any such shares shall be deemed not to have been exercised, any such shares shall be added back to the number of Optioned Shares, if any, remaining, unexercised hereunder and upon presentation to the Corporation of share certificate representing such shares properly endorsed for transfer back to the Corporation, such share certificates shall be deemed not to have been issued and the Corporation shall refund to the Optionee all consideration paid by him. After the earlier of the Expiration Date and the expiration of the bid, the provisions of this Agreement, apart from this subsection 7(b), shall reapply with respect to the balance of the Optioned Shares in respect of which the Option has not been exercised provided that, for the purposes of Section 2, any Optioned Shares purchased pursuant to this subsection shall be deemed to have been the Optioned Shares in respect of which the Optionee could have exercised the Option earliest.

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8. Nothing herein contained shall obligate the Optionee to purchase and/or pay for any of the Optioned Shares, except those Optioned Shares in respect of which the Optionee shall have exercised the Option.

9. The Optionee shall have no rights whatsoever as a shareholder in respect of any of the Optioned Shares (including any rights to receive dividends or other distributions therefrom or thereon) except those Optioned Shares in respect of which the Optionee shall have exercised the Option and which the Optionee shall have actually taken up and paid for.

10. The Option shall not be assignable by the Optionee.

11. Time shall be of the essence of this Agreement.

12. In the event that the date on or by which any action is required to be taken pursuant to this Agreement is not a Business Day, then such action shall be required to be taken on or by, as the case may be, the next following day which is a Business Day.

13. Except as otherwise set forth herein, this Agreement shall be binding upon and enure to the benefit of the heirs, executors, administrators, legal personal representatives to the extent provided in Section 5, successors and assigns of the Optionee and of the Corporation respectively.

14. Any notice in writing required or permitted to be given hereunder shall be addressed to:

a. the Corporation at principal offices of the Corporation; and

b. the Optionee at the address set forth below the Optionee’s signature herein.

Any such notice delivered shall be deemed to have been given and received on the date of delivery provided that such date is a Business Day and otherwise on the next following date which is a Business Day and, if mailed, shall be deemed to be received on the fifth Business Day following the date of mailing. Any such address for the giving of notices hereunder may be changed by notice in writing given hereunder.

15. This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.

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EX-10.6

EXHIBIT 10.6

Option Agreement for Optionees in Europe, Middle-East and Africa

EMEA

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933

BAKBONE SOFTWARE INCORPORATED

STOCK OPTION AGREEMENT

Bakbone Software Incorporated has granted to the individual (the “Optionee”) named in the Notice of Grant of Stock Option (the “Notice”) to which this Stock Option Agreement (the “Option Agreement”) is attached an option (the “Option”) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement. The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Bakbone Software Incorporated 2003 Stock Option Plan (the “Plan”), as amended to the Date of Option Grant, the provisions of which are incorporated herein by reference. By signing the Notice, the Optionee: (a) represents that the Optionee has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan and this Option Agreement, (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement.

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan.

1.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

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2. TAX CONSEQUENCES.

If the Notice designates the Option as either an “Incentive Stock Option” or a “Nonstatutory Stock Option,” please refer to Exhibit 2.2 of this Option Agreement.

3. ADMINISTRATION.

All questions of interpretation concerning this Option Agreement shall be determined by the Company’s Board of Directors (the “Board”). All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any executive officer or the corporate secretary of the Company (“Officer”) shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.

4. EXERCISE OF THE OPTION.

4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares.

4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased. The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price.

4.3 Payment of Exercise Price.

(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of whole shares of Stock owned by the Optionee having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b), or (iv) by any combination of the foregoing.

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(b) Limitations on Forms of Consideration.

(i) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock. The Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.

(ii) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve or terminate any such program or procedure.

4.4 Tax Withholding. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Option is not exercisable unless the tax withholding obligations of the Company are satisfied. Accordingly, the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Company have been satisfied by the Optionee.

4.5 Certificate Registration. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee.

4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration

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statement under the Securities Act of 1933, as amended (the “Securities Act”) shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option 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. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise of the Option.

5. NONTRANSFERABILITY OF THE OPTION.

The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee’s legal representative or by any person empowered to do so under the deceased Optionee’s will or under the then applicable laws of descent and distribution.

6. TERMINATION OF THE OPTION.

The Option shall terminate and may no longer be exercised after the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee’s Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8.

7. EFFECT OF TERMINATION OF SERVICE.

7.1 Option Exercisability.

(a) Disability. If the Optionee’s Service terminates because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date.

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(b) Death. If the Optionee’s Service terminates because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee’s legal representative or other person who acquired the right to exercise the Option by reason of the Optionee’s death at any time prior to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. The Optionee’s Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee’s termination of Service.

(c) Other Termination of Service. If the Optionee’s Service terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be exercised by the Optionee at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Board, in its discretion) after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date.

7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.

7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee’s termination of Service, or (iii) the Option Expiration Date.

8. CHANGE IN CONTROL.

8.1 Definitions.

(a) An “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.

(b) A “Change in Control” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the

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outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the “Transferee”), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.

8.2 Effect of Change in Control on Option. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquiring Corporation”), may, without the consent of the Optionee, either assume the Company’s rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation’s stock. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion.

9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive.

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10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.

The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee’s employment is “at will” and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the Service of a Participating Company or interfere in any way with any right of the Company to terminate the Optionee’s Service as an Employee or Consultant, as the case may be, at any time.

11. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT.

If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Optionee is entitled by reason of the Optionee’s ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Right of First Refusal with the same force and effect as the shares subject to the Right of First Refusal immediately before such event.

12. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.

The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement.

13. LEGENDS.

The Company may at any time place legends referencing the Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:

13.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”

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13.2 “THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO”). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO THE DISQUALIFYING DISPOSITION DATE OF ____________. ⁽¹⁾ SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.”

14. LOCK-UP AGREEMENT.

The Optionee hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering. The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act.

15. RESTRICTIONS ON TRANSFER OF SHARES.

No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Option Agreement and any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.

16. MISCELLANEOUS PROVISIONS.

16.1 Binding Effect. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

(1) Disqualifying Disposition Date is specific to each Notice of Exercise. This date will be determined when Share Certificates are issued.

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16.2 Termination or Amendment. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option, if designated an Incentive Stock Option in the Notice, to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing.

16.3 Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature or at such other address as such party may designate in writing from time to time to the other party.

16.4 Integrated Agreement. The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Company with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect.

16.5 Applicable Law. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California.

16.6 Counterparts. The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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EXHIBIT 2.2

Tax Consequences for Incentive and Nonstatutory Stock Options

In the event that the Optionee receiving options hereunder is a resident of the United Kingdom, such Optionee shall be liable, at the time of exercise, for all taxes due under the United Kingdom tax regime, including, without limitation, all United Kingdom National Insurance tax. The Company shall not be liable for any such taxes due at the time of exercise, or at any other time.

If an Option is exercised and the Optionee is liable to United Kingdom tax, duties or other amounts on such exercise and his employer or former employer being the Company or a subsidiary of the Company is liable to make a payment to the appropriate United Kingdom authorities on account of that liability the Optionee shall grant to the Company the irrevocable authority, as agent of the Optionee and on the Optionee’s behalf, to sell or procure the sale of sufficient of the Optioned Shared so that the new proceeds payable to the employer or former employer are so far as possible equal to but not less than the amount payable to the appropriate authorities and the Company shall account to the Optionee for any balance. No Optioned Shares shall be allotted to the Optionee until the employer or former employer has received payment.

If an Option is exercised and the Optionee is required to either bear the cost of all or part of the United Kingdom secondary National Insurance Contributions or to enter into an election in the Stock Option Exercise Notice to the Social Security Contribution and Benefits Act 1992 then the Optionee shall grant to the Company the irrevocable authority, as agent of the Optionee and on the Optionee’s behalf, to sell or procure the sale of sufficient of the Optioned Shares so that the net proceeds payable to the employer or former employer are so far as possible equal to but not less than the amount of the secondary National Insurance Contributions which the Optionee is liable for and the Company shall account to the Optionee for any balance. No shares shall be allotted to the Optionee until the employer or former employer has received payment.

The above provisions shall not apply if the Optionee makes alternative arrangements to the satisfaction of his employer or former employer and the Company is informed by the employer or former employer that the arrangements are satisfactory/the Optionee pays to the Company, as applicable, in Pounds Sterling (whether by cheque or by banker’s draft) the amount necessary to satisfy the total of the amount payable to the appropriate authorities and the secondary National Insurance Contributions.

™ Incentive Stock Option	Optionee:
™ Nonstatutory Stock Option	Date:

STOCK OPTION EXERCISE NOTICE

Bakbone Software Incorporated

Attention: Chief Financial Officer

_________________________

_________________________

Ladies and Gentlemen:

1. Option. I was granted an option (the “Option”) to purchase shares of the common stock (the “Shares”) of Bakbone Software Incorporated (the “Company”) pursuant to the Company’s 2003 Stock Option Plan (the “Plan”), my Notice of Grant of Stock Option (the “Notice”) and my Stock Option Agreement (the “Option Agreement”) as follows:

Grant Number:	_________________
Date of Option Grant:	_________________
Number of Option Shares:	_________________
Exercise Price per Share:	$________________

2. Exercise of Option. I hereby elect to exercise the Option to purchase the following number of Shares, all of which are Vested Shares in accordance with the Notice and the Option Agreement:

Total Shares Purchased:	_________________
Total Exercise Price (Total Shares X Price per Share)	$________________

3. Payments. I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:

™ Cash:	$________________
™ Check:	$________________
™ Tender of Company Stock:	Contact Plan Administrator

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4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate provision for the federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with the Option. If I am exercising a Nonstatutory Stock Option, I enclose payment in full of my withholding taxes, if any, as follows:

(Contact Plan Administrator for amount of tax due.)

™ Cash:	$________________
™ Check:	$________________

5. Optionee Information.

My address is:                                                                                                                                

                             _____________________________________________________

My Social Security Number is:__________________________________________

6. Notice of Disqualifying Disposition. If the Option is an Incentive Stock Option, I agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of the Shares within one (1) year from the date I exercise all or part of the Option or within two (2) years of the Date of Option Grant.

7. Binding Effect. I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Option Agreement, including the Right of First Refusal set forth therein, to all of which I hereby expressly assent. This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.

8. Transfer. I understand and acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act, an exemption from such registration is available, or they are sold in accordance with Rule 144 or Rule 701 under the Securities Act. I further understand and acknowledge that the Company is under no obligation to register the Shares. I understand that the certificate or certificates evidencing the Shares will be imprinted with legends which prohibit the transfer of the Shares unless they are registered or such registration is not required in the opinion of legal counsel satisfactory to the Company.

I am aware that Rule 144 under the Securities Act, which permits limited public resale of securities acquired in a nonpublic offering, is not currently available with respect to the Shares and, in any event, is available only if certain conditions are satisfied. I understand that any sale of the Shares that might be made in reliance upon Rule 144 may only be made in limited amounts in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to me upon request.

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I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my Option Agreement, copies of which I have received and carefully read and understand.

Very truly yours,

(Signature)

Receipt of the above is hereby acknowledged.

Bakbone Software Incorporated

By:

Title:

Dated:

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Option Agreement for Optionees in Pacific Rim and North America

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933

BAKBONE SOFTWARE INCORPORATED

STOCK OPTION AGREEMENT

Bakbone Software Incorporated has granted to the individual (the “Optionee”) named in the Notice of Grant of Stock Option (the “Notice”) to which this Stock Option Agreement (the “Option Agreement”) is attached an option (the “Option”) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement. The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Bakbone Software Incorporated 2003 Stock Option Plan (the “Plan”), as amended to the Date of Option Grant, the provisions of which are incorporated herein by reference. By signing the Notice, the Optionee: (a) represents that the Optionee has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan and this Option Agreement, (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement.

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan.

1.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

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2. TAX CONSEQUENCES.

If the Notice designates the Option as either an “Incentive Stock Option” or a “Nonstatutory Stock Option,” please refer to Exhibit 2.1 of this Option Agreement.

3. ADMINISTRATION.

All questions of interpretation concerning this Option Agreement shall be determined by the Company’s Board of Directors (the “Board”). All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any executive officer or the corporate secretary of the Company (“Officer”) shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.

4. EXERCISE OF THE OPTION.

4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares.

4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased. The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price.

4.3 Payment of Exercise Price.

(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of whole shares of Stock owned by the Optionee having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b), or (iv) by any combination of the foregoing.

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(b) Limitations on Forms of Consideration.

(i) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock. The Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.

(ii) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve or terminate any such program or procedure.

4.4 Tax Withholding. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Option is not exercisable unless the tax withholding obligations of the Company are satisfied. Accordingly, the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Company have been satisfied by the Optionee.

4.5 Certificate Registration. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee.

4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration

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statement under the Securities Act of 1933, as amended (the “Securities Act”) shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option 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. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise of the Option.

5. NONTRANSFERABILITY OF THE OPTION.

The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee’s legal representative or by any person empowered to do so under the deceased Optionee’s will or under the then applicable laws of descent and distribution.

6. TERMINATION OF THE OPTION.

The Option shall terminate and may no longer be exercised after the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee’s Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8.

7. EFFECT OF TERMINATION OF SERVICE.

7.1 Option Exercisability.

(a) Disability. If the Optionee’s Service terminates because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date.

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(b) Death. If the Optionee’s Service terminates because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee’s legal representative or other person who acquired the right to exercise the Option by reason of the Optionee’s death at any time prior to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. The Optionee’s Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee’s termination of Service.

(c) Other Termination of Service. If the Optionee’s Service terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be exercised by the Optionee at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Board, in its discretion) after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date.

7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.

7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee’s termination of Service, or (iii) the Option Expiration Date.

8. CHANGE IN CONTROL.

8.1 Definitions.

(a) An “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.

(b) A “Change in Control” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the

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outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the “Transferee”), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.

8.2 Effect of Change in Control on Option. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquiring Corporation”), may, without the consent of the Optionee, either assume the Company’s rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation’s stock. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion.

9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive.

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10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.

The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee’s employment is “at will” and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the Service of a Participating Company or interfere in any way with any right of the Company to terminate the Optionee’s Service as an Employee or Consultant, as the case may be, at any time.

11. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT.

If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Optionee is entitled by reason of the Optionee’s ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Right of First Refusal with the same force and effect as the shares subject to the Right of First Refusal immediately before such event.

12. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.

The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement.

13. LEGENDS.

The Company may at any time place legends referencing the Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:

13.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”

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13.2 “THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO”). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO THE DISQUALIFYING DISPOSITION DATE OF                     . ⁽¹⁾ SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.”

14. LOCK-UP AGREEMENT.

The Optionee hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering. The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act.

15. RESTRICTIONS ON TRANSFER OF SHARES.

No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Option Agreement and any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.

16. MISCELLANEOUS PROVISIONS.

16.1 Binding Effect. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

(1) Disqualifying Disposition Date is specific to each Notice of Exercise. This date will be determined when Share Certificates are issued.

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16.2 Termination or Amendment. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option, if designated an Incentive Stock Option in the Notice, to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing.

16.3 Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature or at such other address as such party may designate in writing from time to time to the other party.

16.4 Integrated Agreement. The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Company with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect.

16.5 Applicable Law. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California.

16.6 Counterparts. The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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EXHIBIT 2.1

Tax Consequences for Incentive and Nonstatutory Stock Options

(a) Incentive Stock Option. If the Notice so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee’s own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Internal Revenue Code (the “Code”), including, but not limited to, holding period requirements. (NOTE TO OPTIONEE: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.)

(b) Nonstatutory Stock Option. If the Notice so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.

(c) ISO Fair Market Value Limitation. If the Notice designates this Option as an Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock Options granted to the Optionee under all stock option plans of the Company, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options. For purposes of this Section 2.2, options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of stock is determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 2.2, such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code. If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 2.2, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. (NOTE TO OPTIONEE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Company) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.)

(d) Notices of Sales. If the Notice designates this Option as an Incentive Stock Option, the Optionee shall (a) promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within

one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and (b) provide the Company with a description of the circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee’s name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company’s stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence.

™ Incentive Stock Option	Optionee:
™ Nonstatutory Stock Option	Date:

STOCK OPTION EXERCISE NOTICE

Bakbone Software Incorporated

Attention: Chief Financial Officer

_________________________

_________________________

Ladies and Gentlemen:

1. Option. I was granted an option (the “Option”) to purchase shares of the common stock (the “Shares”) of Bakbone Software Incorporated (the “Company”) pursuant to the Company’s 2003 Stock Option Plan (the “Plan”), my Notice of Grant of Stock Option (the “Notice”) and my Stock Option Agreement (the “Option Agreement”) as follows:

Grant Number:	__________________
Date of Option Grant:	__________________
Number of Option Shares:	__________________
Exercise Price per Share:	$ _________________

2. Exercise of Option. I hereby elect to exercise the Option to purchase the following number of Shares, all of which are Vested Shares in accordance with the Notice and the Option Agreement:

Total Shares Purchased:	__________________
Total Exercise Price (Total Shares X Price per Share)	$ _________________

3. Payments. I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:

™ Cash:	$ _________________
™ Check:	$ _________________
™ Tender of Company Stock:	Contact Plan Administrator

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4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate provision for the federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with the Option. If I am exercising a Nonstatutory Stock Option, I enclose payment in full of my withholding taxes, if any, as follows:

(Contact Plan Administrator for amount of tax due.)

™ Cash:	$ _________________
™ Check:	$ _________________

5. Optionee Information.

My address is:                                                                                                                                                    

                             ______________________________________________________________

My Social Security Number is:                                                                                                                       

6. Notice of Disqualifying Disposition. If the Option is an Incentive Stock Option, I agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of the Shares within one (1) year from the date I exercise all or part of the Option or within two (2) years of the Date of Option Grant.

7. Binding Effect. I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Option Agreement, including the Right of First Refusal set forth therein, to all of which I hereby expressly assent. This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.

8. Transfer. I understand and acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act, an exemption from such registration is available, or they are sold in accordance with Rule 144 or Rule 701 under the Securities Act. I further understand and acknowledge that the Company is under no obligation to register the Shares. I understand that the certificate or certificates evidencing the Shares will be imprinted with legends which prohibit the transfer of the Shares unless they are registered or such registration is not required in the opinion of legal counsel satisfactory to the Company.

I am aware that Rule 144 under the Securities Act, which permits limited public resale of securities acquired in a nonpublic offering, is not currently available with respect to the Shares and, in any event, is available only if certain conditions are satisfied. I understand that any sale of the Shares that might be made in reliance upon Rule 144 may only be made in limited amounts in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to me upon request.

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I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my Option Agreement, copies of which I have received and carefully read and understand.

Very truly yours,

(Signature)

Receipt of the above is hereby acknowledged.

Bakbone Software Incorporated

By:

Title:

Dated:

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EX-10.8

Exhibit 10.8

10145 Pacific Heights Blvd.

Suite 900

San Diego, CA 92121

P (858) 450 9929

F (858) 450 9929

www.bakbone.com

BakBone

SOFTWARE

January 24, 2002

Mr. John Fitzgerald

7048 Cowles Mountain Road

La Mesa, California 92119

Dear John:

It gives me great pleasure to formally offer you the position of Chief Financial Officer (CFO) of BakBone Software, Inc., effective immediately. This position reports directly to the CEO/President of BakBone, and will be located in our San Diego office.

Effective January 1, 2002, your annual salary will be increased to $120,000. In addition, you will be eligible for an annual bonus of $20,000 based on the company achieving specified financial objectives. This bonus, to be defined by April 1, 2002, will be payable on a quarterly basis at up to $5,000 per quarter, with an opportunity for an over-achievement payment at the completion of the fiscal year. For the current quarter your bonus of $5,000 will be based on the objectives, as they are currently defined, for your position as Company Controller.

Your salary and bonus will be reviewed on April 1, 2003, and then annually thereafter.

In the event that your employment with BakBone is terminated for other than cause, you will be provided with three (3) months of salary (i.e. excludes bonus amount).

In addition to the above compensation, you will be provided with an additional 34,000 options of the company’s stock. These options will vest over a period of 4 years, with the first 25% vesting on the 12-month anniversary of the date of grant, and the remainder vesting in 36 equal monthly amounts over the term of the option agreement. In the event the company is acquired, these options will all immediately vest.

Attached is a job description for the CFO position.

John, I am delighted that you’ve been appointed to this very critical position in our company. I look forward to working with you as a “partner” as we together grow BakBone into a key player in the storage management software arena.

Sincerely,

/s/ Keith Rickard

Keith Rickard

President/CEO

BakBone Software, Inc.

Accepted By:	/s/ John Fitzgerald
	John Fitzgerald
Dated:

EX-10.9

Exhibit 10.9

10145 Pacific Heights Blvd. Suite 900 San Diego, CA 92121 Phone: (858) 450-9009 Fax: (858) 450-9929

Memo to:	Fabrice Helliker
From:	Keith Rickard
Date:	December 18, 2003
Subject:	Relocation to San Diego

Fabrice,

Following our discussions I am documenting the details of the package that we have agreed to regarding your relocation to San Diego as Vice President of Engineering for BakBone Software.

The details are as follows:

Duration of stay

The assumed duration of your stay in San Diego will be a minimum of 36 months. After the 36 month period BakBone agrees to pay reasonable costs (based upon receipts) of moving you and your family back to the United Kingdom (if desired).

Start date

You will be relocating to the United States in January 2004, assuming that the necessary work visa can be completed in time.

Compensation

Your compensation effective when you relocate to San Diego will be as follows:

Base salary:	$	200,000
Bonus compensation at 100%:		50,000
Total Compensation:	$	250,000 USD

The details of the Bonus portion of your compensation will need to be confirmed, but it is assumed that they will be substantially similar to your current compensation package.

Your compensation package will next be reviewed on April 1, 2005.

Relocation

You will receive a cash allowance of $80,000 for all costs associated with your relocation. No additional expenses will be covered except as outlined in this letter. No receipts will be required to cover this one time allowance. This cash allowance will be paid to you in 3 equal payments, the first of which will be paid at the time of your relocation to San Diego. The other two installments will be paid 12 and 24 months respectively after your relocation to San Diego.

Visits to the UK

During the 3 year period you and your direct family will be entitled to one trip back to the UK each year. BakBone will pay all air and ground transportation for you and your immediate family. You will be responsible for accommodation costs, meals, etc.

Accountancy assistance

BakBone will pay for the reasonable cost of accountancy services (in the UK and the US) to assist you with tax planning, preparation, etc.

Termination without cause

If your employment is terminated by BakBone without cause at any time during the 3 year period, BakBone will pay the reasonable cost of moving you and your family back to the UK (if desired by you), based upon appropriate receipts.

Furthermore, should your employment be terminated without cause, BakBone Software will provide you with 3 (three) months salary as severance payment.

Temporary living

You and your family will be entitled to use the BakBone corporate apartment, at no cost to yourself, for a period not to exceed 3 months.

You will be provided with a car rental for a period of one month while you and your family relocate to San Diego. If you are unable to purchase a car during this period due to insurance etc. considerations, then the period of car rental will be extended as required.

BakBone will cover living and meal expenses for a period of one month for you and your family while you relocate to San Diego.

Benefits

You will participate in the standard US benefits package. Please see the attached Summary Plan Document (SPD) for information on medical co-pays, deductibles, insurance choices and all other additional benefits.

Your vacation accruals will be based upon the current BakBone US employee policy, and will take into account your total years of service (including Willow and NetVault (UK) Ltd.) Your current accrued vacation hours will be transferred to Human Resources and Payroll in the US office to ensure proper accruals.

Green Card

BakBone Software will pay the costs associated with applying for all necessary work permits on your behalf. BakBone will also sponsor you for a Green Card and pay the necessary fees associated with obtaining a Green Card for you. These processes will be managed through a joint effort with Human Resources and BakBone’s current Immigration attorneys, Larrabee and Zimmerman.

BakBone Stock Options

In addition to any stock options previously provided to you, you will receive an additional 200,000 (two hundred thousand) options of BakBone Software shares. These share options will be vested over 4 years, with 25% vesting on each anniversary of the grant date.

Fab, I look forward to your moving to San Diego, and to working with you to build BakBone into a world class software company!

Regards,

/s/ Keith Rickard

Keith Rickard

Chief Executive Officer and President

Accepted By:	/s/ Fabrice Helliker	Date:	January 7, 2004
	(Fabrice Helliker)

EX-10.10

Exhibit 10.10

January 26, 2004

Adrian Jones

28442 Camino La Ronda

San Juan Capistrano

CA 92675

RE: Offer of Employment from BakBone Software, Inc.

Dear Adrian:

Following our recent discussions, on behalf of BakBone Software, I am pleased to extend our offer to you for the position of Senior Vice President, Worldwide Alliances and OEMs for BakBone Software. This position will be based out of our Corporate Offices in San Diego, California. In this position you will report directly to me, and your anticipated start date will be February 17, 2004.

As Senior Vice President, Worldwide Alliances and OEMs your annual Targeted Earnings upon achievement of your planned objectives will be $350,000 per annum. This will consist of a base salary of $240,000.00 annually, and a bonus of $110,000.00 annually for achievement of your planned goals and objectives. The specific goals and objectives that this bonus will be based upon are to be determined. Specifically we have discussed that one third of your bonus will be based upon achievement of non-financial management objectives. The other two thirds of your bonus will based upon a combination of OEM revenues and world wide company revenues. The bonus plan will provide you with an opportunity for additional payment upon over-achievement of your goals.

To assist you in making the transition to BakBone, the first 3 (three) months of your Targeted Earnings will be guaranteed (i.e. you will be guaranteed to make at least 100% of your bonus amount during that 3 month period).

All employees are entitled to participate in our health and dental benefits programs. Your coverage will begin on March 1, 2004. Additionally, the Company carries a $100,000 life insurance policy on you. Details of all benefit plans including 401K, Flex Spending and 529 will be provided to you upon your employment.

You are eligible to participate in the Company’s stock option plan and will be granted 250,000 options, at a price to be determined. Options granted under this plan will vest annually in equal portions over a four (4) year period beginning on your effective start date. One hundred thousand (100,000) of these options will include a change of control provision whereby these options will immediately vest in the event that:

1. There is a change of control in the company (as defined in the stock option agreement), and

2. You are not offered a similar level position within the new entity to your then-current position within BakBone at the time of this change of control.

However, if a change of control occurs in the first 12 months of your employment at BakBone, then these 100,000 options will vest immediately (i.e. regardless of whether you are offered a similar level position within the new entity).

If the above two conditions exist (i.e. change of control with no similar level position offered) at any time during your employment with BakBone you would also be entitled to receive six (6) month Targeted Earnings as a severance payment should you leave the company at that time.

If at any time during your employment with BakBone (except in the case of a change of control) you are dismissed without cause you will be entitled to 3 months severance pay of your salary.

By accepting this offer of employment you will be required to sign BakBone’s standard corporate personnel acknowledgements and Employee Handbook that are required of all employees and management. This offer is conditional in all respects to verification, as is acceptable to the Company, of your authorization to work in the United States. BakBone is an equal opportunity employer and does not discriminate based on any category protected by California or Federal law.

BakBone Software is an at-will employer. This means that you and/or the Company have the right to terminate your employment at any time with or without cause and with or without notice. Any contrary representations are superceded by this offer. Any modifications to this at-will term of your employment must be in writing and signed by you and a Company officer. This Offer of Employment in no way creates an employment contract between you and the Company.

We agree that, to the extent permitted by law, all claims or disputes between you and the Company, or its officers, employees or affiliates, will be resolved by final, binding arbitration, in accordance with the employment dispute resolution rules of American Arbitration Association. This agreement includes disputes of any nature, including, without limitation, all claims for any alleged unlawful employment practice, discrimination, harassment, termination of employment, or any other disputes which may hereafter advise.

This offer will expire on the January 30, 2004.

Adrian, I am delighted to make this offer and look forward to your assistance in taking BakBone to the “next level”. If these terms are agreeable to you, please sign below and return to the Human Resources department at fax # 858-450-6928.

BakBone Software, Inc.

/s/ Keith Rickard                                  this                      26th                      day of         January                , 2004.

Keith Rickard

CEO/President

Acknowledged, Agreed and Accepted by:

/s/ Adrian Jones                                      this                      28th                      day of         January                , 2004.

Adrian Jones (by signing, I agree to keep the terms of my employment confidential.)

2

EX-10.11

Exhibit 10.11

BAKBONE SOFTWARE LIMITED

TERMS & CONDITIONS OF EMPLOYMENT

TO:                 Mr. P. Clarke

                Brick Lane

                Beck Hall

                Tealby

                Market Rasen

                Lincolnshire

                LN8 3XS

DATE:             January 7, 2004

Dear Pat,

On behalf of BakBone Software Limited I am delighted to submit this offer of employment to you. We are hereby offering you the position of Vice President, EMEA (Europe, Middle East and Africa) Sales.with BakBone Software Limited. In this position you will report directly to the President/CEO of BakBone. The position will based in the United Kingdom.

As Vice President, EMEA Sales your annual Targeted Earnings upon achievement of your planned objectives will be £200,000 per annum. This will consist of a base salary of £130,000 annually, and a bonus of £70,000 annually for achievement of your planned revenue and profit goals. The bonus plan will also provide you with an opportunity for additional payment upon over-achievement of your goals.

To assist you in making the transition to BakBone, the first 3 (three) months of your Targeted Earnings will be guaranteed (i.e. you will be guaranteed to make at least 100% of your bonus amount during that 3 month period).

You will also be provided with a company car allowance of £700 per month, as well as reimbursement of your gasoline expenses. In addition, you will be re-imbursed up to £1,000 per annum for your car insurance costs, based on receipts.

To assist you with your relocation the company will provide you with a one time moving allowance, upon commencement of your employment with BakBone, of £20,000. This allowance will not have to be supported by receipts.

Your start date with BakBone Software will be Monday, February 2, 2004. It is understood and agreed that during the first few weeks of your employment with BakBone you may need to spend some time with your previous employer assisting them in making a transition to a new employee.

You are eligible to participate in the Company’s stock option plan and will be granted 200,000 options, at a price to be determined at the start of your employment with BakBone. Options granted under this plan will vest annually in equal portions over a four (4) year period beginning after your effective start date. Seventy Five Thousand (75,000) of these options will include a change of control provision whereby these options will immediately vest in the event that:

1. There is a change of control in the company (as defined in the stock option agreement), and

2. You are not offered a similar level position within the new entity to your then-current position within BakBone at the time of this change of control

Furthermore, if the above two conditions exist (i.e. change of control with no similar level position offered) you would be entitled to receive three (3) month Targeted Earnings as a severance payment should you leave the company at that time.

Your compensation package will be next reviewed on April 1, 2005.

This offer is subject to satisfactory completion of three (3) employment references by BakBone Software.

This offer will remain valid until 5:00 p.m. GMT on Friday, January 9, 2004. After that time the company reserves the right to make changes to the terms of this offer or to withdraw the offer.

The additional terms and conditions for employment within BakBone Software (UK) Ltd. are as outlined below:

1.     Working Hours

Normal working hours are calculated on a 37.5 hour week, 9.00 am to 5.30 pm Monday to Friday with one hour lunch break. However, actual hours may vary depending on local requirements.

2.     Annual Leave and Public Holidays

Holidays are accrued from 1 January to 31 December and may be taken from 1 January to 31 December in the same year. Holiday entitlement is not normally transferable from year to year. Your paid holiday entitlement is 20 days rising to 25 after five years continuous service. This is accrued at the rate of one day per year.

Statutory public holidays are in addition to the above entitlement.

Payment will not be made in lieu of leave not taken save in the event of termination. In this event a pro-rata entitlement from the preceding January 1 will be calculated and payment for any days outstanding will be made as part of the final settlement. If, at the time of leaving, you have taken holiday in excess of your entitlement, an adjustment may be made to your final salary payment.

3.     Sickness

From the date of joining you are eligible for Sick Pay for the absence from work due to illness or industrial injury. The Sick Pay year is from 1 January to 31 December, within which you are entitled to 10 weeks at full pay (50 working days). Following completion of 3 years’ service your entitlement will increase at the rate of 2 weeks (10 days) additional sickness benefit for each additional year of service up to a maximum of 10 years’ service (i.e. 24 weeks sickness benefit) as follows:

0-3 years service	—	10 weeks
4 years service	—	12 weeks
5 years service	—	14 weeks
6 years service	—	16 weeks
7 years service	—	18 weeks
8 years service	—	20 weeks
9 years service	—	22 weeks
10 years service	—	24 weeks

You are required to complete a Self Certification form, obtainable from your Manager or Director for all periods of illness. Where your GP or hospital has provided medical certificates, a copy must accompany the completed self certification form.

Failure to complete or supply such certificates invalidates the entitlement in this section. Additionally on the first two days of absence you must inform your Supervisor/Department Head before 10.00 am that day, of your incapacity for work.

4.     Pension Scheme

The company operates a voluntary pension scheme. Details of the scheme will be issued separately to employees, who are eligible to join the scheme after a 3 month probationary period, on commencement with the company. Employees who are eligible to join the scheme but do not wish to for one reason or another must state so in writing giving details of the alternative pension arrangements they have made.

5.     Private Health Scheme

You will be eligible, after a 3 month probationary period, for inclusion into the Company Private Health scheme. Further details will be supplied upon request.

6.     Period of Notice

During the first three months of your employment you are entitled to receive one week’s notice of termination. After three months’ continuous service the notice period for either party wishing to terminate employment, for any reason including redundancy, the following terms will be applicable:

One month notice to be given by either party, of which one month to be worked in accordance with general working practices.

7.     Termination

The company reserves the right to terminate your employment without notice in any case of serious misconduct or breach of contract, in line with the Company Disciplinary Procedure.

8.     Personal Relationships

You are asked to consider the implications should you form an intimate personal relationship with any other employee of the Company and to ensure that any such relationship is not detrimental to the performance of your duties or the duties of any other employee and does not adversely affect the business of the Company. If the Company considers the relationship to be detrimental, disciplinary action may be taken.

9.     Protection of Goodwill

In view of your position and the responsibility entrusted to you by the Company, you will in the course of your employment acquire information in connection with the Company’s goodwill and trading connections and the Company requires that this information be preserved and protected while your employment continues and after its termination.

In the course of your employment you will be expected to acquire knowledge of the business of the Company and to form working relationships with customers and other employees. To the extent that such working relationships are formed in the course of the business of the Company they form part of the goodwill and trading connections of the Company, and as such are a fixed asset the Company, the Company is entitled to be assured that your personal influence over customers or employees will not be abused after termination of your employment so as to entice them away from the Company.

The Company acknowledges your right after termination of your employment to use for the purpose of earning your living all skills and experience, including that acquired in the course of your employment with us, but subject always to the provisions of this clause.

After termination of your employment you shall not at any time directly or indirectly:

a) represent to others that you are or remain connected with this Company.

b) be engaged or interested in or carry on any business under or use any name or corporate style, logo or image used by the Company before termination of your employment or which includes any material part of such name, style, logo or image, or is in the opinion of the Company likely to cause confusion with one used by the Company.

For a period of twelve months after termination of your employment, you shall not directly or indirectly:

c) be engaged in or interested in any other business in respect of which unauthorised use or disclosure of information relating to the Company goodwill and trading connections could be expected to arise.

d) attempt to secure business from customers of the Company who were customers within the last twelve months of your employment, on the basis of your special knowledge of their requirements or preference or business conditions obtained in the course of your connection with this Company, or attempt to use or exert any personal influence over customers of the Company by virtue of any relationship established with customers within the course of your employment so as to entice such customers away from the company.

e) at any time before the expiration of six months from the date on which an employee or ex-employee ceased to be employed by the Company, engage, employ or solicit for employment in any business any person who at the date of termination of your employment is or at any time in the preceding six months has been an employee of the Company.

None of the foregoing undertakings shall prohibit any action specifically consented to in writing by the Company.

Each provision of this clause shall be severable from every other provision thereof.

10.   Disciplinary Rules

If you breach company regulations or fail to attain an acceptable standard of performance you will be subject to the Company Disciplinary Procedure, a copy of which is available from the Personnel Department.

11.   Grievance

If you should consider you have a grievance relating to your employment it should, in the first instance, be taken up with the Manager/Director to whom you are responsible. If it is not settled then it should be pursued using the Company’s Grievance Procedure, a copy of which is available from the Personnel Department.

12.   Right to Search

a) No employee shall have in his/her possession, or take out from the Company’s premises, any goods or materials belonging to the Company unless given written authorisation to do so by management.

b) The Company reserves the right to search all employees on entering or leaving the premises or at any time whilst on the premises and this right shall be a condition of employment with the Company. In the event of searching, each employee has the right to have another employee present.

13.   Confidentiality

a) You shall not, during the continuance of your employment, nor after the termination thereof, disclose or in any way make use of the benefit of any of the secrets, confidential knowledge or financial information relating to the Company in any manner whatsoever. The only exception will be when:

i)     ordered by a Court of competent jurisdiction, or

ii)     reasonably necessary for the promotion of the business of the Company.

This understanding shall also extend to any confidential information relating to the secrets or business affairs of any other company which is disclosed to the Company under the conditions of confidentiality.

b) All records, papers and documents kept or made by you relating to any method of manufacture, work experiment or research carried on by the Company or in any way relating to the Company’s business or affairs shall be and remain the property of the Company and be handed over to the Company on the termination of your employment, or earlier, on request by the Company.

c) Your attention is drawn to the Data Protection Act 1984. Any data relating to living individuals, whether or not employed by the Company, which is processed or held by you in the course of the Company’s business, must be regarded as confidential. It must not be disclosed to any unauthorised person, or used for any purpose for which its use is not registered under the above Act.

14.   Conflicts of Interest

It is expected during your employment, that your professional efforts and activities will be devoted solely to the interest of the Company.

15.   Medical Examination

During your employment it may be necessary for the Company to request you to attend a private medical examination by your own Doctor or by a Doctor appointed by the Company in the interest of ascertaining your general or occupational health, which you shall not reasonably refuse. The Company will bear the cost of any medical examination or report carried out as a result of the Company requesting such an examination or report, and you will not incur any loss of earnings in attending the medical examination.

16.   Changes in Terms and Conditions of Employment

a) Changes and particulars of a general nature affecting your employment will normally be notified by notices posted on the notice board.

b) Changes in your own status of employment will be notified to you personally in writing.

17.   Additional Terms and Conditions

These terms and conditions may be varied by memorandum signed by both parties and attached hereto.

Signed on behalf of BakBone Software Limited:

/s/ Keith Rickard

Date: January 7, 2004

D E C L A R A T I O N

I declare that I have read and understood the terms and conditions as outlined above and I agree to accept employment with the Company on those terms and conditions.

Employee: /s/ Pat Clarke

Date: January 12, 2004

EX-10.12

Exhibit 10.12

January 8, 2004

Mr. Pat Clarke

Brick Lane

Beck Hall

Tealby

Market Rasen

Lincolnshire

LN8 3XS

Re: Modifications to Terms and Conditions of Employment dated January 7, 2004

Dear Pat:

Further to our letter of offer dated January 7, 2004, I am pleased to submit the following modifications to that offer:

1) We have satisfactorily checked the references that you provided and hereby remove that condition from our offer. Our offer of employment is no longer conditional, with the exception that the offer expires 5:00pm (GMT), January 9, 2004.

2) Clause 6, Period of Notice, is hereby deleted in its entirety, and replaced with the following:

“In the event of termination without cause, the Company will provide three (3) months notice to you. Should you elect to leave the Company you will provide three (3) months notice to the Company. In the event of termination due to serious misconduct or breach of contract there will be no notice period”.

Please sign below, in addition to signing the original offer letter, to indicate your acceptance of these terms.

Signed on behalf of BakBone Software Limited:

/s/ Keith Rickard

Date: January 8, 2004

I hereby accept this modification letter together with the original terms of the offer of employment (as modified by this letter):

Employee: /s/ Pat Clarke

Date: January 12, 2004

EX-10.13

Exhibit 10.13

U.S. - Accredited Investor

SUBSCRIPTION FOR COMMON SHARES

TO:	Bakbone Software Incorporated (the “Corporation”)
AND TO:	Burnet, Duckworth & Palmer LLP

The undersigned (the “Subscriber”) hereby irrevocably subscribes for and agrees to purchase the number of common shares (“Common Shares”) of the Corporation set forth below at a subscription price of Cdn $0.88 per Common Share, upon and subject to the terms and conditions set forth in “Terms and Conditions of Subscription for Common Shares of Bakbone Software Incorporated” attached hereto (the “Subscription Agreement”).

Name of Subscriber (please print)

By:

        Authorized Signature

Official Capacity or Title (please print)

(Please print name of individual whose signature appears above if different than the name of the subscriber printed above.)

Subscriber’s Address, including zip code

Telephone Number

Social Insurance Number or Taxation Account Number

Register the Common Shares as set forth below:

Name

Account reference, if applicable

Address, including zip code

Number of Common Shares:                             

Aggregate Subscription Price: $                            

If the Subscriber is signing as agent for a principal and is not a trust company or a portfolio manager, in either case, purchasing as trustee or agent for accounts fully managed by it, complete the following:

Name of Principal

Principal’s Address

Deliver the Common Shares as set forth below:

Name

Account reference, if applicable

Contact Name

Address, including zip code

Telephone Number

ACCEPTANCE: The Corporation hereby accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement.

Bakbone Software Incorporated

		Subscription No.
Per:	, 200

This is the first page of an agreement comprised of 6 pages (excluding Exhibits “1” and “2” attached hereto).

U.S. - Accredited Investor

TERMS AND CONDITIONS OF SUBSCRIPTION FOR

COMMON SHARES OF BAKBONE SOFTWARE INCORPORATED

Representations and Warranties by Corporation

1. The Corporation hereby represents and warrants to the Subscriber (and acknowledges that the Subscriber is relying thereon) that:

(a) the Corporation has the full corporate right, power and authority to execute and deliver this Subscription Agreement and to issue the Common Shares to the Subscriber;

(b) this Subscription Agreement constitutes a binding obligation of the Corporation enforceable in accordance with its terms; and

(c) the execution and delivery of, and the performance of the terms of this Subscription Agreement by the Corporation, including the issue of the Common Shares, does not and will not constitute a breach of or default under the constating documents of the Corporation or any law, regulation, order or ruling applicable to the Corporation or any agreement, contract or indenture to which the Corporation is a party or by which it is bound.

Representations, Warranties and Covenants by Subscriber

2. The Subscriber acknowledges that this subscription is subject to rejection or allotment by the Corporation. It is understood and agreed that this subscription and all monies tendered herewith shall be returned to the Subscriber, without interest, at the address of the Subscriber set out on the face page hereof if this subscription is not accepted.

3. The Subscriber acknowledges that upon a subscription being accepted by the Corporation, the Corporation will, subject to the terms and conditions set out herein, issue to the Subscriber certificates evidencing the Subscriber’s ownership of the Common Shares.

4. The Subscriber acknowledges that the Common Shares subscribed for by it hereunder form part of a larger issuance and sale by the Corporation of up to 2,500,000 Common Shares.

5. By executing this subscription, the Subscriber (and, if applicable, the others for whom it is contracting hereunder) represents, warrants and covenants to the Corporation (and acknowledges that the Corporation and its counsel are relying thereon) that:

(a) it has been independently advised as to restrictions with respect to trading in the Common Shares imposed by applicable securities legislation in the jurisdiction in which it resides, confirms that no representation has been made to it by or on behalf of the Corporation with respect thereto, and acknowledges that it is aware of the characteristics of the Common Shares, the risks relating to an investment therein and of the fact that it may not be able to resell the Common Shares except in accordance with limited exemptions under applicable securities legislation and regulatory policy until expiry of the applicable restricted period and in compliance with the other requirements of applicable securities laws. The Subscriber further acknowledges that it should consult its own legal counsel in its jurisdiction of residence for full particulars of applicable resale restrictions; and

(b) it has not received, nor has it requested, nor does it have any need to receive, any prospectus, sales or advertising literature, offering memorandum or any other document (other than financial statements, interim financial statements or any other document, other than an offering memorandum, the content of which is prescribed by statute or regulation) describing the business and affairs of the Corporation which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Common Shares, and it has not become aware of any advertisement in printed public media, radio, television or telecommunications, including electronic display such as the Internet, with respect to the distribution of the Common Shares; and

(c) it has relied solely upon publicly available information relating to the Corporation and not relied upon any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation except as expressly set forth herein; and

(d) it is resident in the jurisdiction set forth as the “Subscriber’s Address” opposite its signature on the face page of this Subscription Agreement, and if the Subscriber is acting as agent for a disclosed principal/beneficial purchaser, such disclosed

principal/beneficial purchaser is resident in the jurisdiction set forth in the Subscription Agreement as the “Principal’s Address” of the beneficial purchaser; and

2

U.S. - Accredited Investor

(e) it understands and acknowledges that the Common Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or the securities laws of any state of the United States and that:

(i) the sale contemplated hereby is being made in reliance upon the exemption from registration under the U.S. Securities Act provided by section 4(2) thereof and exemptions from registration under applicable state securities laws; and

(ii) all such sales are being made in transactions not involving any public offering within the meaning of the U.S. Securities Act. Accordingly, the Common Shares will be “restricted securities” within the meaning of the United States Securities and Exchange Commission’s Rule 144, and therefor may not be offered or sold by it, directly or indirectly, in the United States without registration under United States federal and state securities laws, except in compliance with (i) below; and

(f) it is an institution or an individual that is an “Accredited Investor”, as that term is defined in Rule 501(a)(1), (2), (3), (5), (6) or (7) of Regulation D under the U.S. Securities Act as set out in Exhibit ”1” attached hereto and which is incorporated herein; and

(g) it is acquiring the Common Shares for its own account or for the account of another Accredited Investor with respect to which it exercises sole investment discretion; and

(h) it is purchasing Common Shares having an aggregate acquisition cost of not less than CDN $97,000 and if it is a corporation, syndicate, partnership or other form of unincorporated organization, it pre-existed the offering of the Common Shares and has a bona fide purpose other than investment in the Common Shares, or, if created to permit such investment, the individual share of the aggregate acquisition cost for each participant is not less than CDN $97,000; and

(i) it agrees that it will not offer, sell, pledge, hypothecate or otherwise transfer the Common Shares except in compliance with applicable Canadian laws and regulations as applicable and: (A) to the Corporation, (B) outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, or (C) inside the United States in a transaction exempt from registration under the U.S. Securities Act and, in any event, in compliance with any applicable state securities laws of the United States; it understands that the Common Shares will bear a legend to the foregoing effect and that prior to any transfer pursuant to the foregoing clause (C), the Corporation will require an opinion of counsel, satisfactory to it, that such transfer is exempt from registration under the U.S. Securities Act and applicable state securities laws; it understands and acknowledges that the certificates for the Common Shares and any certificates issued in replacement thereof or exchange therefore shall have been endorsed thereon a legend reflecting such restrictions on transfer; it understands and acknowledges that the Corporation is not obligated to file and has no present intention of filing with the United States Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resales of the Common Shares in the United States; and

(j) it further acknowledges that because the subscription is being made pursuant to exemptions from the prospectus and registration requirements of applicable securities law:

(i) its ability to enforce civil liabilities under the United States federal securities laws may be affected adversely by, among other things: (1) the fact that the Corporation is organized under the laws of Canada; (2) some or all of its directors and its officers may be residents of Canada, and (3) all or substantial portion of the assets of the Corporation and said persons may be located outside the United States;

(ii) it may not receive information that might otherwise be required to be provided to the Subscriber under the applicable securities laws if the exemptions were not being used; and

(iii) the Corporation is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemptions were not being used; and

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U.S. - Accredited Investor

(k) it acknowledges that it has not purchased the Common Shares as a result of any general solicitation or general advertising, as such terms are defined in Regulation D under the U.S. Securities Act, including without limitation, advertisements, articles, notices or other communications published in any newspaper, magazine or similar media, or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; and

(l) it understands that the investment in the Common Shares may have tax consequences under the laws of the United States and of Canada and that it is the sole responsibility of the Subscriber to determine and assess such tax consequences as may apply to its particular circumstances; and

(m) if an individual, it is of the full age of majority and is legally competent to execute this Subscription Agreement and take all action pursuant hereto; and

(n) this Subscription Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; and

(o) if a corporation, partnership, unincorporated association or other entity, it has the legal capacity and competence to enter into and be bound by this Subscription Agreement and further certifies that all necessary approvals of directors, shareholders or otherwise have been given and obtained; and

(p) the entering into of this Subscription Agreement and the transactions contemplated hereby will not result in a violation of any of the terms and provisions of any law applicable to it, or any of its constating documents, or of any agreement to which the Subscriber is a party or by which it is bound; and

(q) it has such knowledge in financial and business affairs as to be capable of evaluating the merits and risks of its investment and it, or, where it is not purchasing as principal, each beneficial purchaser, is able to bear the economic risk of loss of its investment; and

(r) it understands and acknowledges that the Corporation: (i) is under no obligation to be or to remain a “foreign issuer”; (ii) may not, at the time it sells such securities or at any other time, be a “foreign issuer”; and (iii) may engage in one or more transactions which could cause the Corporation not to be a “foreign issuer”. If the Corporation is not a “foreign issuer” at the time of any sale pursuant to Rule 904 of Regulation S, the certificate delivered to the purchaser will, if required under the U.S. Securities Act, bear the legend referred to in paragraph (i) above and may not constitute “good delivery” in settlement of a trade on stock exchanges in Canada; and

(s) it is aware that no securities commission or similar regulatory authority has reviewed or passed on the merits of the Common Shares; that there is no government or other insurance covering the Common Shares; that there are risks associated with the purchase of the Common Shares; that there are restrictions on the Subscriber’s ability to resell the Common Shares and it is the responsibility of the Subscriber to find out what those restrictions are and to comply with them before selling the Common Shares; that the Corporation has advised the Subscriber that the Corporation is relying on an exemption from the requirements as to the filing of a prospectus, to provide the Subscriber with a prospectus and as to the delivery of an offering memorandum, as well as to sell securities through a person or company registered to sell securities under the Securities Act (Alberta) and, as a consequence of acquiring securities pursuant to this exemption, certain protections, rights and remedies provided by the Securities Act (Alberta), including statutory rights of rescission or damages, will not be available to the Subscriber, that it may not receive information that might otherwise be required to be provided to the Subscriber under applicable securities laws if the exemption were not being used; and that the Corporation is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemption were not being used; and

(t) if required by applicable securities legislation, regulations, rules, instruments, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute, deliver, file and otherwise assist the Corporation in filing, such reports, undertakings and other documents with respect to the issue of the Common Shares as may be required (including, without limitation, the private placement questionnaire and undertaking required by The Toronto Stock Exchange and the Certificate of Accredited Investor, copies of which are attached hereto); and

(u) it does not act jointly or in concert with any other Subscriber for Common Shares for the purposes of the acquisition of the Common Shares; and

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U.S. - Accredited Investor

(v) the Subscriber is capable of assessing the proposed investment as a result of the Subscriber’s financial experience or as a result of advice received from a registered person other than the Corporation or any affiliates thereof; and

(w) it will not resell the Common Shares, except in accordance with the provisions of applicable securities legislation and stock exchange rules, if applicable, in the future; and

(x) it acknowledges that the certificates representing the Common Shares may bear a restrictive legend in accordance with applicable securities legislation; and

(y) the delivery of this subscription, the acceptance hereof by the Corporation and the issuance of the Common Shares to the Subscriber complies with all applicable laws of the Subscriber’s jurisdiction of residence and domicile and will not cause the Corporation or any of its officers or directors to become subject to or require any disclosure, prospectus or other reporting requirement; and

(z) none of the funds the Subscriber is using to purchase the Common Shares are, to the knowledge of the Subscriber, proceeds obtained or derived, directly or indirectly, as a result of illegal activities.

The Subscriber agrees that the above representations, warranties and covenants will be true and correct both as of the execution of this subscription and as of the Closing Time (as defined in paragraph 7 below) and will survive the completion of the issuance of the Common Shares.

Closing

6. The Subscriber agrees to deliver to the Corporation at 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121 Attention: John Fitzgerald, as soon as possible and, in any event, not later than 2:00 p.m. (Calgary time) on December 26, 2002 (or two business days before the Closing Date of which the Subscriber receives notice): (a) this duly completed and executed Subscription Agreement; (b) a duly completed “accredited investor” certificate, attached hereto as Exhibit “1”; (c) a duly completed Toronto Stock Exchange private placement questionnaire and undertaking, attached hereto as Exhibit “2”; (d) such other documents as may be requested as contemplated by subsection 5(t) hereof; and (e) a certified cheque or bank draft payable to the Corporation for the aggregate subscription price or payment of the same amount in such other manner as is acceptable to the Corporation.

7. The sale of the Common Shares will be completed at the offices of Burnet, Duckworth & Palmer LLP in Calgary, Alberta at 9:00 a.m. (Calgary time), or such other time as the Corporation may determine (the “Closing Time”) on December 30, 2002, or such other date as the Corporation may determine (the “Closing Date”).

8. The Subscriber hereby irrevocably authorizes the Corporation, in its sole discretion: (a) to act as its representative at the closing and to execute in its name and on its behalf all closing receipts and documents required; (b) to complete or correct any errors or omissions in any form or document provided by the Subscriber; (c) to receive on its behalf certificates representing the Common Shares subscribed for under this subscription; and (d) to approve any opinions, certificates or other documents addressed to the Subscriber.

9. The Corporation shall be entitled to rely on delivery of a facsimile copy of executed Subscription Agreements, and acceptance by the Corporation of such agreements shall be legally effective to create a valid and binding agreement between the Subscriber and the Corporation in accordance with the terms hereof. Notwithstanding the foregoing, the Subscriber shall deliver originally executed copies of the documents listed in Section 6 hereof to the Corporation within two business days of the Closing Date. In addition, this Subscription Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same document.

10. The Subscriber expressly waives and releases the Corporation from, to the fullest extent permitted by law, all rights of withdrawal to which it might otherwise be entitled pursuant to the provisions of securities laws of the jurisdiction in which the Subscriber is resident.

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U.S. - Accredited Investor

General

11. The representations, warranties and covenants of the Subscriber herein are made with the intent that they be relied upon in determining the suitability of a purchaser of Common Shares and will be true and correct at the Closing Time on the Closing Date and the Subscriber agrees to indemnify the Corporation and its directors and officers against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur caused or arising from reliance thereon. The Subscriber undertakes to immediately notify the Corporation at Bakbone Software Incorporated, 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121, Attention: John Fitzgerald, Chief Financial Officer, of any change in any statement or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time on the Closing Date.

12. The contract arising out of this Subscription Agreement and all documents relating to it, which by common accord have been or will be drafted in the English language, shall be governed by and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable therein and the Subscriber and the Corporation each irrevocably attorn to the jurisdiction of the courts of the Province of Alberta.

13. Time shall be of the essence hereof.

14. This Subscription Agreement represents the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein.

15. The Subscriber acknowledges and agrees that all costs incurred by the Subscriber (including any fees and disbursements of any counsel retained by the Subscriber) relating to the sale of the Common Shares to the Subscriber shall be borne by the Subscriber.

16. The terms and provisions of this Subscription Agreement shall be binding upon and enure to the benefit of the Subscriber and the Corporation and their respective heirs, executors, administrators, successors and assigns; provided that, except for the assignment by a Subscriber who is acting as nominee or agent to the beneficial owner and as otherwise herein provided, this Subscription Agreement shall not be assignable by any party without prior written consent of the other parties.

17. The Corporation will have the right to accept or reject the Subscriber’s offer to purchase at any time at or prior to the Closing Time. Notwithstanding the foregoing, the Subscriber acknowledges and agrees that the acceptance of the Subscription Agreement will be conditional among other things upon the sale of the Common Shares to the Subscriber being exempt from any prospectus and offering memorandum requirements of all applicable securities laws and receipt of all stock exchange approvals and consents. The Corporation will be deemed to have accepted this Subscription Agreement upon the delivery at closing of the certificates representing the Common Shares to or upon the direction of the Subscriber in accordance with the provisions hereof.

18. The Subscriber, on its own behalf and, if applicable, on behalf of the others for whom it is contracting hereunder, agrees that this offer is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Subscriber, on its own behalf and, if applicable, on behalf of the others for whom it is contracting hereunder.

19. Subject to paragraph 8 above, neither this Subscription Agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

20. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.

6

EXHIBIT “1”

CERTIFICATE OF ACCREDITED INVESTOR

Accredited Investor – (defined in subsection 501(a) of SEC Reg. D) means any person who comes within any of the following categories at the time of the sale of the securities to that person:

___	(501(a)(1)) any bank as defined in Section 3(a)(2) of the Securities Act of 1933, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of such Act whether acting in its individual or fiduciary capacity, any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, any insurance company as defined in Section 2(13) of the Securities Act of 1933, any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940, any small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000, any employee benefit plan within the meaning of Title 1 of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of the Employee Retirement Income Security Act of 1974, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
___	(501(a)(2)) any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
___	(501(a)(3)) any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
___	(501(a)(5)) a natural person whose individual net worth, or joint net worth with that of such individual’s spouse, at the time of purchase exceeds $1,000,000;
___	(501(a)(6)) an individual with an income in excess of $200,000 in each of the two most recent years or joint income with that of such individual’s spouse in excess of $300,000 in each of those years and have a reasonable expectation of reaching the same income level in the current year;
___	(501(a)(7)) any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in SEC Rule 506(b)(2)(ii).

NOTE: The investor must initial beside the applicable portion of the above definition.

All monetary references in this Exhibit “1” are in United States Dollars.

United States Accredited Investor

EXHIBIT “2”

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

1.	DESCRIPTION OF TRANSACTION
(a)	Name of Issuer of the Securities - BAKBONE SOFTWARE INCORPORATED
(b)	Number and Class of Securities to be Purchased -
	Common Shares of Bakbone Software Incorporated
(c)	Purchase Price: $0.88 (Canadian) per Common Share.
2.	DETAILS OF PURCHASER
(a)	Name of Purchaser -
(b)	Address -
(c)	Names and addresses of persons having a greater than 10% beneficial interest in the purchaser –
3.	RELATIONSHIP TO ISSUER
(a)	Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Ontario Securities Act (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider –
(b)	If the answer to (a) is “no”, are the purchaser and the issuer controlled by the same person or company? If so, give details.
4.	DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the 60 days preceding the date hereof -

U.S. - Accredited Investor

UNDERTAKING

TO: The Toronto Stock Exchange

The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this Private Placement Questionnaire and Undertaking.

The undersigned undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation,whichever is longer, without the prior consent of The Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED AT
	(Name of Purchaser)
this      day of December, 200    .
	(Authorized Signature)
	(Official Capacity)
	(Please print here name of individual whose signature appears above, if different from name of purchaser printed above)

1

APPENDIX

The following current and former officers and directors of BakBone Software Incorporated were issued Common Shares and Warrants to purchase Common Shares pursuant to this form of Subscription for Common Shares in the amounts indicated below:

	Common Shares Issued	Warrants Issued
Howard Weiss (officer)	35,800	17,900
Peter Eck (officer)	35,681	17,840
Keith Rickard (officer and director)	100,000	50,000
Scott Peterson (officer)	8,920	4,460
Fred Moore (former director)	21,409	10,704
John Boose (former director)	8,920	4,460

EX-10.14

Exhibit 10.14

U.S. Non-Accredited Investors

SUBSCRIPTION FOR COMMON SHARES

TO:	Bakbone Software Incorporated (the “Corporation”)
AND TO:	Burnet, Duckworth & Palmer LLP

The undersigned (the “Subscriber”) hereby irrevocably subscribes for and agrees to purchase the number of common shares (“Common Shares”) of the Corporation set forth below at a subscription price of Cdn $0.88 per Common Share, upon and subject to the terms and conditions set forth in “Terms and Conditions of Subscription for Common Shares of Bakbone Software Incorporated” attached hereto (the “Subscription Agreement”).

Name of Subscriber (please print)
By:
	Authorized Signature
Official Capacity or Title (please print)
(Please print name of individual whose signature appears above if different than the name of the subscriber printed above.)
Subscriber’s Address, including zip code
Telephone Number
Social Insurance Number or Taxation Account Number

Register the Common Shares as set forth below:

Name

Account reference, if applicable

Address, including zip code

Number of Common Shares:                                     

Aggregate Subscription Price: $                              

If the Subscriber is signing as agent for a principal and is not a trust company or a portfolio manager, in either case, purchasing as trustee or agent for accounts fully managed by it, complete the following:

Name of Principal

Principal’s Address

Deliver the Common Shares as set forth below:

Name

Account reference, if applicable

Contact Name

Address, including zip code

Telephone Number

ACCEPTANCE: The Corporation hereby accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement.

Bakbone Software Incorporated

Per:                                                                                            , 200         Subscription No.

This is the first page of an agreement comprised of 6 pages (excluding Exhibits “1” and “2” attached hereto).

U.S. Non-Accredited Investors

TERMS AND CONDITIONS OF SUBSCRIPTION FOR

COMMON SHARES OF BAKBONE SOFTWARE INCORPORATED

Representations and Warranties by Corporation

1. The Corporation hereby represents and warrants to the Subscriber (and acknowledges that the Subscriber is relying thereon) that:

(a) the Corporation has the full corporate right, power and authority to execute and deliver this Subscription Agreement and to issue the Common Shares to the Subscriber;

(b) this Subscription Agreement constitutes a binding obligation of the Corporation enforceable in accordance with its terms; and

(c) the execution and delivery of, and the performance of the terms of this Subscription Agreement by the Corporation, including the issue of the Common Shares, does not and will not constitute a breach of or default under the constating documents of the Corporation or any law, regulation, order or ruling applicable to the Corporation or any agreement, contract or indenture to which the Corporation is a party or by which it is bound.

Representations, Warranties and Covenants by Subscriber

2. The Subscriber acknowledges that this subscription is subject to rejection or allotment by the Corporation. It is understood and agreed that this subscription and all monies tendered herewith shall be returned to the Subscriber, without interest, at the address of the Subscriber set out on the face page hereof if this subscription is not accepted.

3. The Subscriber acknowledges that upon a subscription being accepted by the Corporation, the Corporation will, subject to the terms and conditions set out herein, issue to the Subscriber certificates evidencing the Subscriber’s ownership of the Common Shares.

4. The Subscriber acknowledges that the Common Shares subscribed for by it hereunder form part of a larger issuance and sale by the Corporation of up to 2,500,000 Common Shares.

5. By executing this subscription, the Subscriber (and, if applicable, the others for whom it is contracting hereunder) represents, warrants and covenants to the Corporation (and acknowledges that the Corporation and its counsel are relying thereon) that:

(a) it has such knowledge in financial and business affairs as to be capable of evaluating the merits and risks of its investment and it, or, where it is not purchasing as principal, each beneficial purchaser, is able to bear the economic risk of loss of its investment; and

(b) it is capable of assessing the proposed investment as a result of its financial experience or as a result of advice received from a registered person other than the Corporation or any affiliates thereof and has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which the Corporation possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished under section (d) below; and

(c) it has been independently advised as to restrictions with respect to trading in the Common Shares imposed by applicable securities legislation in the jurisdiction in which it resides, confirms that no representation has been made to it by or on behalf of the Corporation with respect thereto, and acknowledges that it is aware of the characteristics of the Common Shares, the risks relating to an investment therein and of the fact that it may not be able to resell the Common Shares except in accordance with limited exemptions under applicable securities legislation and regulatory policy until expiry of the applicable restricted period and in compliance with the other requirements of applicable securities laws. The Subscriber further acknowledges that it should consult its own legal counsel in its jurisdiction of residence for full particulars of applicable resale restrictions; and

(d) it has received (A) a copy of the Corporation’s most recent filing on Form 20-F* for fiscal year ended March 31, 2002, (B) a copy of the Corporation’s filings on Form 6-K* dated July 1, 2002, July 1, 2002, August 20, 2002, and November 8, 2002, and (C) a copy of the “Transaction Summary,” attached hereto as Exhibit “1”; and

* Copies of all exhibits to these forms will be made available to the Subscriber upon the Subscriber’s written request for such materials.

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U.S. Non-Accredited Investors

(e) it is resident in the jurisdiction set forth as the “Subscriber’s Address” opposite its signature on the face page of this Subscription Agreement, and if the Subscriber is acting as agent for a disclosed principal/beneficial purchaser, such disclosed principal/beneficial purchaser is resident in the jurisdiction set forth in the Subscription Agreement as the “Principal’s Address” of the beneficial purchaser; and

(f) it understands and acknowledges that the Common Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or the securities laws of any state of the United States and that:

(i) the sale contemplated hereby is being made in reliance upon the exemption from registration under the U.S. Securities Act provided by section 4(2) thereof and exemptions from registration under applicable state securities laws; and

(ii) all such sales are being made in transactions not involving any public offering within the meaning of the U.S. Securities Act. Accordingly, the Common Shares will be “restricted securities” within the meaning of the United States Securities and Exchange Commission’s Rule 144, and therefor may not be offered or sold by it, directly or indirectly, in the United States without registration under United States federal and state securities laws, except in compliance with (i) below; and

(g) it is acquiring the Common Shares for its own account with respect to which it exercises sole investment discretion; and

(h) it is purchasing Common Shares having an aggregate acquisition cost of not less than CDN $97,000 and if it is a corporation, syndicate, partnership or other form of unincorporated organization, it pre-existed the offering of the Common Shares and has a bona fide purpose other than investment in the Common Shares, or, if created to permit such investment, the individual share of the aggregate acquisition cost for each participant is not less than CDN $97,000; and

(i) it agrees that it will not offer, sell, pledge, hypothecate or otherwise transfer the Common Shares except in compliance with applicable Canadian laws and regulations, and such offer, sale, pledge, hypothication or transfer will either be (A) to the Corporation, or (B) outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, or (C) inside the United States in a transaction exempt from registration under the U.S. Securities Act and, in any event, in compliance with any applicable state securities laws of the United States; it understands that the Common Shares will bear a legend to the foregoing effect and that prior to any transfer pursuant to the foregoing clause (C), the Corporation will require an opinion of counsel, satisfactory to it, that such transfer is exempt from registration under the U.S. Securities Act and applicable state securities laws; it understands and acknowledges that the certificates for the Common Shares and any certificates issued in replacement thereof or exchange therefore shall have been endorsed thereon a legend reflecting such restrictions on transfer; it understands and acknowledges that the Corporation is not obligated to file and has no present intention of filing with the United States Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resales of the Common Shares in the United States; and

(j) it has relied solely upon publicly available information relating to the Corporation and not relied upon any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation except as expressly set forth herein; and

(k) it further acknowledges that because the subscription is being made pursuant to exemptions from the prospectus and registration requirements of applicable securities law:

(i) its ability to enforce civil liabilities under the United States federal securities laws may be affected adversely by, among other things: (1) the fact that the Corporation is organized under the laws of Canada; (2) some or all of its directors and its officers may be residents of Canada, and (3) all or substantial portion of the assets of the Corporation and said persons may be located outside the United States;

(ii) it may not receive information that might otherwise be required to be provided to the Subscriber under the applicable securities laws if the exemptions were not being used; and

(iii) the Corporation is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemptions were not being used; and

(l) it acknowledges that it has not purchased the Common Shares as a result of any general solicitation or general advertising, as such terms are defined in Regulation D under the U.S. Securities Act, including without limitation, advertisements, articles, notices or other communications published in any newspaper, magazine or similar media, or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; and

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U.S. Non-Accredited Investors

(m) it understands that the investment in the Common Shares may have tax consequences under the laws of the United States and of Canada and that it is the sole responsibility of the Subscriber to determine and assess such tax consequences as may apply to its particular circumstances; and

(n) if an individual, it is of the full age of majority and is legally competent to execute this Subscription Agreement and take all action pursuant hereto; and

(o) this Subscription Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; and

(p) if a corporation, partnership, unincorporated association or other entity, it has the legal capacity and competence to enter into and be bound by this Subscription Agreement and further certifies that all necessary approvals of directors, shareholders or otherwise have been given and obtained; and

(q) the entering into of this Subscription Agreement and the transactions contemplated hereby will not result in a violation of any of the terms and provisions of any law applicable to it, or any of its constating documents, or of any agreement to which the Subscriber is a party or by which it is bound; and

(r) it understands and acknowledges that the Corporation: (i) is under no obligation to be or to remain a “foreign issuer”; (ii) may not, at the time it sells such securities or at any other time, be a “foreign issuer”; and (iii) may engage in one or more transactions which could cause the Corporation not to be a “foreign issuer”. If the Corporation is not a “foreign issuer” at the time of any sale pursuant to Rule 904 of Regulation S, the certificate delivered to the purchaser will, if required under the U.S. Securities Act, bear the legend referred to in paragraph (i) above and may not constitute “good delivery” in settlement of a trade on stock exchanges in Canada; and

(s) it is aware that no securities commission or similar regulatory authority has reviewed or passed on the merits of the Common Shares; that there is no government or other insurance covering the Common Shares; that there are risks associated with the purchase of the Common Shares; that there are restrictions on the Subscriber’s ability to resell the Common Shares and it is the responsibility of the Subscriber to find out what those restrictions are and to comply with them before selling the Common Shares; that the Corporation has advised the Subscriber that the Corporation is relying on an exemption from the requirements as to the filing of a prospectus, to provide the Subscriber with a prospectus and as to the delivery of an offering memorandum, as well as to sell securities through a person or company registered to sell securities under the Securities Act (Alberta) and, as a consequence of acquiring securities pursuant to this exemption, certain protections, rights and remedies provided by the Securities Act (Alberta), including statutory rights of rescission or damages, will not be available to the Subscriber, that it may not receive information that might otherwise be required to be provided to the Subscriber under applicable securities laws if the exemption were not being used; and that the Corporation is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemption were not being used; and

(t) if required by applicable securities legislation, regulations, rules, instruments, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute, deliver, file and otherwise assist the Corporation in filing, such reports, undertakings and other documents with respect to the issue of the Common Shares as may be required (including, without limitation, the private placement questionnaire and undertaking required by The Toronto Stock Exchange, copies of which are attached hereto); and

(u) it does not act jointly or in concert with any other Subscriber for Common Shares for the purposes of the acquisition of the Common Shares; and

(v) it will not resell the Common Shares, except in accordance with the provisions of applicable securities legislation and stock exchange rules, if applicable, in the future; and

(w) it acknowledges that the certificates representing the Common Shares may bear a restrictive legend in accordance with applicable securities legislation; and

(x) the delivery of this subscription, the acceptance hereof by the Corporation and the issuance of the Common Shares to the Subscriber complies with all applicable laws of the Subscriber’s jurisdiction of residence and domicile and will not cause the Corporation or any of its officers or directors to become subject to or require any disclosure, prospectus or other reporting requirement; and

(y) none of the funds the Subscriber is using to purchase the Common Shares are, to the knowledge of the Subscriber, proceeds obtained or derived, directly or indirectly, as a result of illegal activities.

4

U.S. Non-Accredited Investors

The Subscriber agrees that the above representations, warranties and covenants will be true and correct both as of the execution of this subscription and as of the Closing Time (as defined in paragraph 7 below) and will survive the completion of the issuance of the Common Shares.

Closing

6. The Subscriber agrees to deliver to the Corporation at 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121 Attention: John Fitzgerald, as soon as possible and, in any event, not later than 2:00 p.m. (Calgary time) on December 26, 2002 (or two business days before the Closing Date of which the Subscriber receives notice): (a) this duly completed and executed Subscription Agreement; (b) a duly completed Toronto Stock Exchange private placement questionnaire and undertaking, attached hereto as Exhibit “2”; (c) such other documents as may be requested as contemplated by subsection 5(t) hereof; and (d) a certified cheque or bank draft payable to the Corporation for the aggregate subscription price or payment of the same amount in such other manner as is acceptable to the Corporation.

7. The sale of the Common Shares will be completed at the offices of Burnet, Duckworth & Palmer LLP in Calgary, Alberta at 9:00 a.m. (Calgary time), or such other time as the Corporation may determine (the “Closing Time”) on December 30, 2002, or such other date as the Corporation may determine (the “Closing Date”).

8. The Subscriber hereby irrevocably authorizes the Corporation, in its sole discretion: (a) to act as its representative at the closing and to execute in its name and on its behalf all closing receipts and documents required; (b) to complete or correct any errors or omissions in any form or document provided by the Subscriber; (c) to receive on its behalf certificates representing the Common Shares subscribed for under this subscription; and (d) to approve any opinions, certificates or other documents addressed to the Subscriber.

9. The Corporation shall be entitled to rely on delivery of a facsimile copy of executed Subscription Agreements, and acceptance by the Corporation of such agreements shall be legally effective to create a valid and binding agreement between the Subscriber and the Corporation in accordance with the terms hereof. Notwithstanding the foregoing, the Subscriber shall deliver originally executed copies of the documents listed in Section 6 hereof to the Corporation within two business days of the Closing Date. In addition, this Subscription Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same document.

10. The Subscriber expressly waives and releases the Corporation from, to the fullest extent permitted by law, all rights of withdrawal to which it might otherwise be entitled pursuant to the provisions of securities laws of the jurisdiction in which the Subscriber is resident.

General

11. The representations, warranties and covenants of the Subscriber herein are made with the intent that they be relied upon in determining the suitability of a purchaser of Common Shares and will be true and correct at the Closing Time on the Closing Date and the Subscriber agrees to indemnify the Corporation and its directors and officers against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur caused or arising from reliance thereon. The Subscriber undertakes to immediately notify the Corporation at Bakbone Software Incorporated, 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121, Attention: John Fitzgerald, Chief Financial Officer, of any change in any statement or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time on the Closing Date.

12. The contract arising out of this Subscription Agreement and all documents relating to it, which by common accord have been or will be drafted in the English language, shall be governed by and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable therein and the Subscriber and the Corporation each irrevocably attorn to the jurisdiction of the courts of the Province of Alberta.

13. Time shall be of the essence hereof.

14. This Subscription Agreement represents the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein.

15. The Subscriber acknowledges and agrees that all costs incurred by the Subscriber (including any fees and disbursements of any counsel retained by the Subscriber) relating to the sale of the Common Shares to the Subscriber shall be borne by the Subscriber.

16. The terms and provisions of this Subscription Agreement shall be binding upon and enure to the benefit of the Subscriber and the Corporation and their respective heirs, executors, administrators, successors and assigns; provided that, except for the assignment by a Subscriber who is acting as nominee or agent to the beneficial owner and as otherwise herein provided, this Subscription Agreement shall not be assignable by any party without prior written consent of the other parties.

5

U.S. Non-Accredited Investors

17. The Corporation will have the right to accept or reject the Subscriber’s offer to purchase at any time at or prior to the Closing Time. Notwithstanding the foregoing, the Subscriber acknowledges and agrees that the acceptance of the Subscription Agreement will be conditional among other things upon the sale of the Common Shares to the Subscriber being exempt from any prospectus and offering memorandum requirements of all applicable securities laws and receipt of all stock exchange approvals and consents. The Corporation will be deemed to have accepted this Subscription Agreement upon the delivery at closing of the certificates representing the Common Shares to or upon the direction of the Subscriber in accordance with the provisions hereof.

18. The Subscriber, on its own behalf and, if applicable, on behalf of the others for whom it is contracting hereunder, agrees that this offer is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Subscriber, on its own behalf and, if applicable, on behalf of the others for whom it is contracting hereunder.

19. Subject to paragraph 8 above, neither this Subscription Agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

20. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.

* * *

6

Exhibit “1”

Transaction Summary

I. Description of Securities.

The Securities to be issued in this transaction are Common Shares, no par value. The Corporation’s articles of association permit but do not require the Board of Directors to declare and pay dividends with respect to the Common Shares. Each holder of Common Shares is entitled to one vote per share on all matters coming for a vote before the shareholders. There is no cumulative voting. Directors stand for one-year terms and are elected at each annual meeting of shareholders. All holders of Common Shares are entitled to share equally in any surplus in the event of a liquidation of the Company after the Company’s obligations are repaid. There are no provisions calling for redemption of securities, establishing any sinking fund, or establishing any obligation to participate in further capital calls by the Company. There is no provision discriminating against existing or prospective holders of Common Shares as a result of such shareholder owning a substantial number of shares.

II. Use of Proceeds.

10% of the gross proceeds from this transaction will be used to pay down the Corporation’s term note dated February 2002, and the balance will be used as operating capital by the Corporation.

III. Material Changes to the Corporation’s Affairs Which Are Not Considered in the Form 20-F and Forms 6-K Previously Provided to Subscriber.

There have been no material changes to the Corporation’s affairs since November 8, 2002 being the date of the most recent Form 6-K provided to the Subscriber.

IV. Description of Material Written Information Concerning the Offering That Has Been Provided to Accredited Investors Participating in the Offering.

The Corporation has not provided any material written information concerning the Offering to Accredited Investors participating in the Offering that has not been provided to Non-Accredited Investors.

U.S. Non-Accredited Investors

Exhibit “2”

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

1.	DESCRIPTION OF TRANSACTION
(a)	Name of Issuer of the Securities - BAKBONE SOFTWARE INCORPORATED
(b)	Number and Class of Securities to be Purchased -
	Common Shares of Bakbone Software Incorporated
(c)	Purchase Price: $0.88 (Canadian) per Common Share.
2.	DETAILS OF PURCHASER
(a)	Name of Purchaser -
(b)	Address -
(c)	Names and addresses of persons having a greater than 10% beneficial interest in the purchaser –
3.	RELATIONSHIP TO ISSUER
(a)	Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Ontario Securities Act (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider –
(b)	If the answer to (a) is “no”, are the purchaser and the issuer controlled by the same person or company? If so, give details.
4.	DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
	Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the 60 days preceding the date hereof -

U.S. Non-Accredited Investors

UNDERTAKING

TO:     The Toronto Stock Exchange

The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this Private Placement Questionnaire and Undertaking.

The undersigned undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of The Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED AT
	(Name of Purchaser)
	(Authorized Signature)
this     day of December, 200    .
	(Official Capacity)
	(Please print here name of individual whose signature appears above, if different from name of purchaser printed above)

Appendix

John Fitzgerald, a current officer of BakBone Software Incorporated, was issued 35,681 Common Shares and a Warrant to purchase 17,840 Common Shares pursuant to this form of Subscription for Common Shares.

EX-10.15

Exhibit 10.15

CANADA – AB, BC, ONT

SUBSCRIPTION FOR UNITS

TO:	Bakbone Software Incorporated (the “Corporation”)
AND TO:	Burnet, Duckworth & Palmer LLP

The undersigned (hereinafter referred to as the “Subscriber”) hereby irrevocably subscribes for and agrees to purchase that number of units (“Units”) of the Corporation set forth below, for the aggregate subscription price set forth below, representing a subscription price of $0.88 (Canadian) per Unit (the “Subscription Price”), each Unit comprised of one (1) Common Share and one-half of one warrant (“Warrant”), each whole Warrant entitling the holder thereof to acquire one (1) Common Share at a price of $1.00 per share for a period of one year from the date of issuance, upon and subject to the terms and conditions set forth in “Terms and Conditions of Subscription for Units of Bakbone Software Incorporated”, attached hereto (the “Subscription Agreement”).

Name of Subscriber (please print)

By:

        Authorized Signature

Official Capacity or Title (please print)

(Please print name of individual whose signature appears above if different than the name of the subscriber printed above.)

Subscriber’s Address, including postal code

Telephone Number

Register the Units as set forth below:

Name

Account reference, if applicable

Address, including postal code

Number of Units of the Corporation currently held by the Subscriber:

Number of Units:

Aggregate Subscription Price: $

If the Subscriber is signing as agent for a
principal and is not a trust company or a portfolio
manager, in either case, purchasing as trustee or
agent for accounts fully managed by it, complete
the following:

Name of Principal

Principal’s Address

Deliver the Units as set forth below:

Name

Account reference, if applicable

Contact Name

Address, including postal code

Telephone Number

ACCEPTANCE: The Corporation hereby accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement.

		Subscription No.
Bakbone Software Incorporated
Per:	, 200

This is the first page of an agreement comprised of 7 pages, not including the Exhibits hereto.

CANADA – AB, BC, ONT

TERMS AND CONDITIONS OF SUBSCRIPTION FOR

UNITS OF BAKBONE SOFTWARE INCORPORATED

Representations and Warranties by Corporation

1. The Corporation hereby represents and warrants to the Subscriber (and acknowledges that the Subscriber is relying thereon) that:

(a) the Corporation has the full corporate right, power and authority to execute and deliver this Subscription Agreement and to issue the Units to the Subscriber;

(b) this Subscription Agreement constitutes a binding obligation of the Corporation enforceable in accordance with its terms; and

2. the execution and delivery of, and the performance of the terms of this Subscription Agreement by the Corporation, including the issue of the Units, does not and will not constitute a breach of or default under the constating documents of the Corporation or any law, regulation, order or ruling applicable to the Corporation or any agreement, contract or indenture to which the Corporation is a party or by which it is bound.

Representations, Warranties and Covenants by Subscriber

3. The Subscriber acknowledges that this subscription is subject to rejection or allotment by the Corporation.

4. The Subscriber acknowledges that the Units subscribed for by it hereunder form part of a larger issuance and sale by the Corporation of up to 2,500,000 Units (the “Offering”).

5. By executing this subscription, the Subscriber (and, if applicable, the others for whom it is contracting hereunder) represents, warrants and covenants to the Corporation (and acknowledges that the Corporation and its counsel are relying thereon) that:

(a) it has been independently advised as to restrictions with respect to trading in the Common Shares and Warrants comprising the Units, and the Common Shares issuable upon exercise of the Warrants (collectively, the “Securities”) imposed by applicable securities legislation in the jurisdiction in which it resides, confirms that no representation has been made to it by or on behalf of the Corporation with respect thereto, acknowledges that it is aware of the characteristics of the Securities, the risks relating to an investment therein and of the fact that it may not be able to resell the Securities except in accordance with limited exemptions under applicable securities legislation and regulatory policy until expiry of the applicable resale restriction and in compliance with other requirements of applicable law; and it agrees that any certificates representing the Securities may bear a legend indicating that the resale of the Securities is restricted. The Subscriber further acknowledges that it should consult its own legal counsel in its jurisdiction for full particulars of applicable resale restrictions; and

(b) it has not received, nor has it requested, nor does it have any need to receive, any prospectus, sales or advertising literature, offering memorandum or any other document (other than financial statements, interim financial statements or any other document, other than an offering memorandum, the content of which is prescribed by statute or regulation) describing the business and affairs of the Corporation which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Securities, and it has not become aware of any advertisement in printed public media, radio, television or telecommunications, including electronic display such as the Internet with respect to the distribution of the Securities; and

(c) except as expressly set forth herein, it has relied solely upon publicly available information relating to the Corporation and not relied upon any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation or any employee, agent or affiliate thereof or any other person associated therewith; and

(d) it is resident in the province or jurisdiction set forth as the “Subscriber’s Address” below its signature on the face page of this Subscription Agreement, and if the Subscriber is acting as agent for a disclosed principal/beneficial purchaser, such disclosed principal/beneficial purchaser is resident in the jurisdiction set forth in the Subscription Agreement as the “Principal’s Address” of the beneficial purchaser; and

(e) if it is purchasing the Securities as principal, or if it is an insurer, trust company or portfolio manager purchasing the Securities as an agent or trustee for accounts that are fully managed by it and is specifically deemed to be acting as principal

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CANADA – AB, BC, ONT

under the securities legislation of the Provinces of Alberta, British Columbia or Ontario, as the case may be, in which it is resident, and:

(i) if it is resident in or otherwise subject to the laws of the Province of Alberta:

(A) the aggregate acquisition cost of the Securities purchased by it is not less than $97,000 and:

(I) if the Subscriber is not an individual but is a corporation, syndicate, partnership or other form of unincorporated organization, it pre-existed the offering of the Securities and has a bona fide purpose other than investment in the Securities; or

(II) if the Subscriber was created to permit such investment, the individual share of the aggregate acquisition cost of the Securities for each participant is not less than $97,000; or

(B) it is an “accredited investor”, as such term is defined in Multilateral Instrument 45-103 (“MI 45-103”) and has concurrently executed and delivered a Representation Letter in the form attached as Exhibit “1” to this Subscription Agreement; or

(C) it is:

(I) a director, senior officer or control person of the Corporation or of an affiliate of the Corporation; or

(II) a spouse, parent, grandparent, brother, sister or child of any person referred to in subclause (I) above; or

(III) a close personal friend of any person referred to in subclause (I) above and has known such person for a sufficient period of time to be in a position to assess the capabilities and trustworthiness of such person; or

(IV) a close business associate of any person referred to in subclause (I) above and has had sufficient prior business dealings with such person to be in a position to assess the capabilities and trustworthiness of such person; or

(V) a person or company that is wholly-owned by any combination of persons or companies referred to in subclauses (I), (II), (III) or (IV) above; or

(D) it is an employee of the Corporation or of an affiliate of the Corporation and is not, directly or indirectly, required by the Corporation to purchase the Securities; and

(ii) if it is resident in or otherwise subject to the laws of the Province of British Columbia it is an “accredited investor”, as such term is defined in MI 45-103 and has concurrently executed and delivered a Representation Letter in the form attached as Exhibit “1” to this Subscription Agreement; or

(iii) if it is resident in or otherwise subject to the laws of the Province of Ontario it is an “accredited investor” as defined in Ontario Securities Commission Rule 45-501 entitled “Exempt Distributions” promulgated under the Securities Act (Ontario) and has concurrently executed and delivered a Representation Letter in the form attached as Exhibit “2” to this Subscription Agreement; and

(f) if it is acting as agent for one or more disclosed principals, it is duly authorized to enter into this Subscription Agreement and to execute and deliver all documentation in connection with the purchase on behalf of each of such principals, it acknowledges that the Corporation is required by law to disclose to certain regulatory authorities the identity of each of such disclosed principals for whom it may be acting, each of such principals is purchasing as a principal for its own account for investment purposes and not with an intention for resale or distribution of the Securities and not for the benefit of any other person, each of such principals complies with such of subparagraphs (i), (ii) and (iii) of paragraph 6(e) as are applicable to it by virtue of its place of residence, and the Subscriber has concurrently executed and delivered, as agent for such principals, the applicable Representation Letter, if any, required by such subparagraphs; and

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CANADA – AB, BC, ONT

(g) if it is a resident of any jurisdiction referred to in the preceding paragraphs but not purchasing thereunder, it is purchasing pursuant to an exemption from prospectus and registration requirements (particulars of which are enclosed herewith) available to it under applicable securities legislation and shall deliver to the Corporation such further particulars of the exemption(s) and the Subscriber’s qualifications thereunder as the Corporation may request; and

(h) if it is a resident of any jurisdiction not referred to in the preceding paragraphs, it complies with the provisions above as if it were a resident of Alberta and the requirements of all applicable securities legislation in the jurisdiction of its residence and will provide such evidence of compliance with all such matters as the Corporation may request; and

(i) it is aware that the Securities have not been and will not be registered under the United States Securities Act of 1933 (the “U.S. Securities Act”) and that these securities may not be offered or sold in the United States without registration under the U.S. Securities Act or compliance with requirements of an exemption from registration; and

(j) it is not a “U.S. Person” (as that term is defined by Regulation S under the U.S. Securities Act, which definition includes, but is not limited to, an individual resident in the United States, an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. Person and any partnership or corporation organized or incorporated under the laws of the United States) and is not acquiring the Securities or the account or benefit of a U.S. Person or a person in the United States; and

(k) the Securities have not been offered to the Subscriber in the United States, and the individuals making the order to purchase the Securities and executing and delivering this Subscription Agreement on behalf of the Subscriber were not in the United States when the order was placed and this Subscription Agreement was executed and delivered; and

(l) it undertakes and agrees that it will not offer or sell the Securities in the United States unless such securities are registered under the U.S. Securities Act and the securities laws of all applicable states of the United States or an exemption from such registration requirements is available, and further that it will not resell the Securities, except in accordance with the provisions of applicable securities legislation, regulations, rules, policies and orders and stock exchange rules; and

(m) if an individual, it is of the full age of majority and is legally competent to execute this Subscription Agreement and take all action pursuant hereto; and

(n) this Subscription Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; and

(o) if a corporation, partnership, unincorporated association or other entity, it has the legal capacity and competence to enter into and be bound by this Subscription Agreement and further certifies that all necessary approvals of directors, shareholders or otherwise have been given and obtained; and

(p) the entering into of this Subscription Agreement and the transactions contemplated hereby will not result in a violation of any of the terms and provisions of any law applicable to it, or any of its constating documents, or of any agreement to which the Subscriber is a party or by which it is bound; and

(q) in the case of a subscription by it for Securities acting as agent for a disclosed principal, it is duly authorized to execute and deliver this Subscription Agreement and all other necessary documentation in connection with such Subscription Agreement on behalf of such principal and this Subscription Agreement has been duly authorized, executed and delivered by or on behalf of, and constitutes the legal, valid and binding agreement of, such principal; and

(r) it has such knowledge in financial and business affairs as to be capable of evaluating the merits and risks of its investment and it, or, where it is not purchasing as principal, each beneficial purchaser, is able to bear the economic risk of loss of its investment; and

(s) it is aware that no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities; that there is no government or other insurance covering the Securities, that there are risks associated with the purchase of the Securities; that there are restrictions on the Subscriber’s ability to resell the Securities and it is the responsibility of the Subscriber to find out what those restrictions are and to comply with them before selling the Securities; that the Corporation has advised the Subscriber that the Corporation is relying on an exemption from the requirements as to the filing of a prospectus, to provide the Subscriber with a prospectus as well as to sell securities through a person or company registered to sell securities under applicable securities legislation in the jurisdictions in Canada in which the

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CANADA – AB, BC, ONT

Securities are being sold and, as a consequence of acquiring securities pursuant to this exemption, certain protections, rights and remedies provided by applicable securities legislation, including statutory rights of rescission or damages, will not be available to the Subscriber, that it may not receive information that might otherwise be required to be provided to the Subscriber under applicable securities laws if the exemption were not being used; and that the Corporation is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemption were not being used; and

(t) if required by applicable securities legislation, regulations, rules, instruments, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute, deliver, file and otherwise assist the Corporation in filing, such reports, undertakings and other documents with respect to the issue of the Securities, as may be required; and

(u) neither the Subscriber nor any party on whose behalf it is acting is an investment club; and

(v) it does not act jointly or in concert with any other Subscriber for Securities for the purposes of the acquisition of the Securities; and

(w) the Subscriber is capable of assessing the proposed investment as a result of the Subscriber’s financial experience or as a result of advice received from a registered person other than the Corporation or any affiliates thereof; and

(x) it will not resell the Securities, except in accordance with the provisions of applicable securities legislation and stock exchange rules and, if the Subscriber is resident in or otherwise subject to the securities laws of Ontario, in addition to compliance with such restrictions on resale applicable under applicable securities legislation to which the Securities may be subject, the Subscriber may be required to file a report or pay a fee with and to the Ontario Securities Commission within the prescribed time of a trade in any of the Securities in accordance with the securities laws of Ontario, including Part 7 of Ontario Securities Commission Rule 45-501; and

(y) the delivery of this subscription, the acceptance hereof by the Corporation and the issuance of the Securities to the Subscriber complies with all applicable laws of the Subscriber’s jurisdiction of residence and domicile and (i) will not cause the Corporation or any of its officers or directors to become subject to or require any disclosure, prospectus or other reporting requirement and (ii) any registration or other obligation on the part of the Corporation; and

(z) none of the funds the Subscriber is using to purchase the Securities are, to the knowledge of the Subscriber, proceeds obtained or derived, directly or indirectly, as a result of illegal activities;

(aa) the Subscriber acknowledges that no person has made any written or oral representation: (i) that any person will resell or repurchase the Securities; (ii) that any person will return the purchase price of the Securities; or (iii) as to the future price or value of the Securities; and

(bb) it acknowledges that the certificates representing the Securities will bear a restrictive legend in accordance with applicable securities legislation.

The Subscriber agrees that the above representations, warranties and covenants will be true and correct both as of the execution of this subscription and as of the Closing Time (as defined herein) and will survive the completion of the issuance of the Securities. The Subscriber hereby agrees to notify, in writing, the Corporation immediately of any change or any representation, warranty, account, or other information relating to the Subscriber that may occur prior to Closing. The Subscriber agrees to indemnify and hold harmless the Corporation and its directors, officers, employees, counsel, advisors and shareholders from and against any and all loss, liability, claim, damage and expense whatsoever including, but not limited to, any fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, administrative proceeding or investigation commenced or threatened or any claim whatsoever arising out of or based upon any representation or warranty of the Subscriber contained herein or in any document furnished by the Subscriber to the Corporation or its counsel in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or in any document furnished by the Subscriber to the Corporation or its counsel in connection herewith.

In making an investment decision, investors must rely on their own examination of the Corporation and the terms of the Offering, including the merits and risks involved. These securities have not been recommended or approved or disapproved by any securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is an offence.

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CANADA – AB, BC, ONT

Closing

6. The Subscriber agrees to deliver to the Corporation, c/o of its counsel, Burnet, Duckworth & Palmer LLP at 1400, 350 – 7^th Avenue S.W., Calgary, Alberta T2P 3N9, Attn: Michael D. Sandrelli, as soon as possible and, in any event, not later than 2:00 p.m. (Calgary time) on December 26, 2002 (or two business days before the Closing Date of which the Subscriber receives notice): (a) this duly completed and executed Subscription Agreement; (b) if the Subscriber is a resident of Alberta or British Columbia and is purchasing as an “accredited investor”, a duly executed Representation Letter, attached hereto as Exhibit “1”; (c) if the Subscriber is a resident of Ontario, a duly executed Representation Letter, attached hereto as Exhibit “2”; (d) a duly completed Toronto Stock Exchange private placement questionnaire and undertaking, attached hereto as Exhibit “3”; (e) such other documents as may be requested as contemplated by subsection 5(t) hereof; and (f) a certified cheque or bank draft payable to “Bakbone Software Incorporated” for the aggregate Subscription Price or payment of the aggregate Subscription Price in such other manner as is acceptable to the Corporation.

7. The sale of the Common Shares will be completed at the offices of counsel to the Corporation, Burnet, Duckworth & Palmer LLP in Calgary, Alberta at 9:00 a.m. (Calgary time), or such other time as the Corporation may determine (the “Closing Time”) on December 30, 2002 or such date as the Corporation may elect (the “Closing Date”).

8. The Subscriber hereby irrevocably authorizes the Corporation: (a) to act as its representative at the closing and to execute in its name and on its behalf all closing receipts and documents required; (b) to complete or correct any errors or omissions in any form or document provided by the Subscriber; (c) to receive on its behalf certificates representing the Common Shares purchased under this subscription; and (d) to approve any opinions, certificates or other documents addressed to the Subscriber.

9. The Corporation and its counsel shall be entitled to rely on delivery of a facsimile copy of executed Subscription Agreements, and acceptance by the Corporation of such agreements shall be legally effective to create a valid and binding agreement between the Subscriber and the Corporation in accordance with the terms hereof. Notwithstanding the foregoing, the Subscriber shall deliver originally executed copies of the documents listed in Section 6 hereof to the Corporation within two business days of the Closing Date. In addition, this Subscription Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same document.

10. The Subscriber expressly waives and releases the Corporation from, to the fullest extent permitted by law, all rights of withdrawal to which it might otherwise be entitled pursuant to the provisions of securities laws of the jurisdiction in which the Subscriber is resident.

General

11. The representations, warranties and covenants of the Subscriber herein are made with the intent that they be relied upon in determining the suitability of a purchaser of Securities and will be true and correct at the Closing Time on the Closing Date and the Subscriber agrees to indemnify the Corporation and its directors and officers against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur caused or arising from reliance thereon. The Subscriber undertakes to immediately notify the Corporation at Bakbone Software Incorporated, 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121, Attention: John Fitzgerald, Chief Financial Officer, of any change in any statement or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time on the Closing Date.

12. The contract arising out of this Subscription Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable therein and the Subscriber and the Corporation each irrevocably attorn to the jurisdiction of the courts of the Province of Alberta.

13. Time shall be of the essence hereof.

14. This Subscription Agreement represents the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein.

15. The Subscriber acknowledges and agrees that all costs incurred by the Subscriber (including any fees and disbursements of any special counsel retained by the Subscriber) relating to the sale of the Securities to the Subscriber shall be borne by the Subscriber.

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CANADA – AB, BC, ONT

16. The terms and provisions of this Subscription Agreement shall be binding upon and enure to the benefit of the Subscriber and the Corporation and their respective heirs, executors, administrators, successors and assigns; provided that, except for the assignment by a Subscriber who is acting as nominee or agent to the beneficial owner and as otherwise herein provided, this Subscription Agreement shall not be assignable by any party without prior written consent of the other parties.

17. The Corporation will have the right to accept or reject the Subscriber’s offer to purchase at any time at or prior to the Closing Time. Notwithstanding the foregoing, the Subscriber acknowledges and agrees that the acceptance of the subscription agreement will be conditional among other things upon the sale of the Securities to the Subscriber being exempt from any prospectus and offering memorandum requirements of all applicable securities laws. The Corporation will be deemed to have accepted this subscription agreement upon the delivery at closing of the certificates representing the Securities to or upon the direction of the Subscriber in accordance with the provisions hereof.

18. The Subscriber, on its own behalf and, if applicable, on behalf of others for whom it is contracting hereunder, agrees that this offer is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Subscriber, on its own behalf and, if applicable, on behalf of others for whom it is contracting hereunder.

19. Neither this subscription agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

20. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.

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CANADA – AB, BC, ONT

ALBERTA AND BRITISH COLUMBIA RESIDENTS PURCHASING AS ACCREDITED INVESTORS

EXHIBIT “1”

REPRESENTATION LETTER

TO: Bakbone Software Incorporated (the “Corporation”)

In connection with the purchase by the undersigned purchaser (the “Purchaser”) of that number of units (“Units”) in the capital of the Corporation as set out in the attached Subscription Agreement, the Purchaser hereby represents, warrants, covenants and certifies to the Corporation that:

1. The Purchaser is resident in Alberta or British Columbia or is subject to the laws of the Province of Alberta or British Columbia;

2. The Purchaser is purchasing the Units as principal;

3. The Purchaser is an “accredited investor” within the meaning of Multilateral Instrument 45-103 entitled “Capital Raising Exemptions” by virtue of satisfying the indicated criterion as set out in Appendix “A” to this Representation Letter;

4. The above representations, warranties and covenants will be true and correct both as of the execution of this agreement and as of the Closing Time and will survive the completion of the issuance of Units; and

5. The foregoing representations, warranties and covenants are made by the undersigned with the intent that they be relied upon in determining its suitability as a purchaser of Units and the undersigned agrees to indemnify the Corporation and its directors and officers against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur caused or arising from reliance thereon. The undersigned undertakes to immediately notify the Corporation at Bakbone Software Incorporated, 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121, Attention: John Fitzgerald, Chief Financial Officer, of any change in any statement or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time.

Dated:             , 200
	Print name of Purchaser
	By:
		Signature
		Title

IMPORTANT: PLEASE INITIAL APPENDIX “A” ON THE NEXT PAGE.

CANADA – AB, BC, ONT

APPENDIX “A”

Accredited Investor - (defined in Multilateral Instrument 45-103) means:

___	(a)	a Canadian financial institution, or an authorized foreign bank listed in Schedule III of the Bank Act (Canada),
___	(b)	the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada),
___	(c)	an association under the Cooperative Credit Associations Act (Canada) located in Canada,
___	(d)	a subsidiary of any person or company referred to in paragraphs (a) to (c), if the person or company owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary,
___	(e)	a person or company registered under the securities legislation, or under the securities legislation of another jurisdiction of Canada, as an adviser or dealer, other than a limited market dealer registered under the Securities Act (Ontario),
___	(f)	an individual registered or formerly registered under the securities legislation, or under the securities legislation of another jurisdiction of Canada, as a representative of a person or company referred to in paragraph (e),
___	(g)	the government of Canada or a province, or any crown corporation or agency of the government of Canada or a province,
___	(h)	a municipality, public board or commission in Canada,
___	(i)	any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government,
___	(j)	a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority,
___	(k)	a registered charity under the Income Tax Act (Canada),
___	(l)	an individual who, either alone or jointly with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000,
___	(m)	an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent years and who, in either case, reasonably expects to exceed that net income level in the current year,
___	(n)	a corporation, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as shown on its most recently prepared financial statements,
___	(o)	a mutual fund or non-redeemable investment fund that, in the local jurisdiction, distributes its securities only to persons or companies that are accredited investors,
___	(p)	a mutual fund or non-redeemable investment fund that, in the local jurisdiction, distributes its securities under a prospectus for which the regulator has issued a receipt,

CANADA – AB, BC, ONT

___	(q)	an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) through (e) and paragraph (j) in form and function, or
___	(r)	a person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are accredited investors;

NOTE: The investor should initial beside the portion of the above definition applicable to it.

For the purposes hereof:

(a) “financial assets” means cash and securities; and

(b) “related liabilities” means:

(i) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets; or

(ii) liabilities that are secured by financial assets.

All monetary references are in Canadian Dollars.

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CANADA – AB, BC, ONT

ONTARIO RESIDENTS PURCHASING AS ACCREDITED INVESTORS

EXHIBIT “2”

REPRESENTATION LETTER

TO: Bakbone Software Incorporated (the “Corporation”)

In connection with the purchase by the undersigned purchaser (the “Subscriber”) of that number of units (“Units”) in the capital of the Corporation as set out in the attached Subscription Agreement, the Subscriber hereby represents, warrants, covenants and certifies to the Corporation that:

1. The Subscriber is resident in Ontario or is subject to the laws of the Province of Ontario;

2. The Subscriber is purchasing the Units as principal for its own account;

3. The Subscriber is an “accredited investor” within the meaning of Ontario Securities Commission Rule 45-501 promulgated under the Securities Act (Ontario) by virtue of satisfying the indicated criterion as set out in Appendix “A” to this Representation Letter;

4. The above representations, warranties and covenants will be true and correct both as of the execution of this agreement and as of the Closing Time and will survive the completion of the issuance of Units; and

5. The foregoing representations, warranties and covenants are made by the undersigned with the intent that they be relied upon in determining its suitability as a purchaser of Units and the undersigned agrees to indemnify the Corporation and its directors, officers and counsel against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur caused or arising from reliance thereon. The undersigned undertakes to immediately notify the Corporation at Bakbone Software Incorporated, 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA 92121, Attention: John Fitzgerald, Chief Financial Officer of any change in any statement or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time.

Dated:                 , 200
	Print name of Subscriber
	By:
		Signature
		Title

IMPORTANT: PLEASE INITIAL APPENDIX “A” ON THE NEXT PAGE.

United States Accredited Investor

EXHIBIT “2”

APPENDIX “A”

Accredited Investor - (defined in Ontario Securities Commission Rule 45-501) means:

___	(a)	a bank listed in Schedule I or II of the Bank Act (Canada), or an authorized foreign bank listed in Schedule III of the Bank Act (Canada);
___	(b)	the Business Development Bank incorporated under the Business Development Bank Act (Canada);
___	(c)	a loan corporation or trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other jurisdiction;
___	(d)	a co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case, located in Canada;
___	(e)	a company licensed to do business as an insurance company in any jurisdiction;
___	(f)	a subsidiary of any company referred to in paragraph (a), (b), (c), (d) or (e), where the company owns all of the voting shares of the subsidiary;
___	(g)	a person or company registered under the Securities Act (Ontario) or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer;
___	(h)	the government of Canada or of any jurisdiction, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government;
___	(i)	any Canadian municipality or any Canadian provincial or territorial capital city;
___	(j)	any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any instrumentality or agency thereof;
___	(k)	a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority;
___	(l)	a registered charity under the Income Tax Act (Canada);
___	(m)	an individual who beneficially owns, or who together with a spouse beneficially own, financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000;
___	(n)	an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year;
___	(o)	an individual who has been granted registration under the Securities Act (Ontario) or securities legislation in another jurisdiction as a representative of a person or company referred to in paragraph (g), whether or not the individual’s registration is still in effect;
___	(p)	a promoter of the issuer or an affiliated entity of a promoter of the issuer;
___	(q)	a spouse, parent, grandparent or child of an officer, director or promoter of the issuer;

___	(r)	a person or company that, in relation to the issuer, is an affiliated entity or a person or company referred to in clause (c) of the definition of distribution in subsection 1(1) of the Securities Act (Ontario);
___	(s)	an issuer that is acquiring securities of its own issue;
___	(t)	a company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements;
___	(u)	a person or company that is recognized by the Ontario Securities Commission as an accredited investor;
___	(v)	a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons or companies that are accredited investors;
___	(w)	a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Director (as defined in the Securities Act (Ontario));
___	(x)	a managed account if it is acquiring a security that is not a security of a mutual fund or non-redeemable investment fund;
___	(y)	an account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act (Ontario);
___	(z)	an entity organized outside of Canada that is analogous to any of the entities referred to in paragraphs (a) through (g) and paragraph (k) in form and function; and
___	(aa)	a person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are accredited investors.

NOTE: The investor should initial beside the portion of the above definition applicable to it.

For the purposes hereof:

(a) “company” means any corporation, incorporated association, incorporated syndicate or other incorporated organization;

(b) “control person” means any person, company or combination of persons or companies holding a sufficient number of any securities of the issuer to affect materially the control of the issuer but any holding of any persons, company or combination of persons or companies holding more than 20% of the outstanding voting securities of the issuer, in the absence of evidence to the contrary, shall be deemed to affect materially the control of the issuer;

(c) “director” where used in relation to a person, includes a person acting in a capacity similar to that of a director of a company;

(d) “entity” means a company, syndicate, partnership, trust or unincorporated or organization;

(e) “financial assets” means cash, securities, or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Securities Act (Ontario);

(f) “individual” means a natural person, but does not include a partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust or a natural person in his or her capacity as trustee, executor, administrator or other legal personal representative;

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(g) “managed account” means an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client’s express consent to a transaction;

(h) “mutual fund” includes an issuer of securities that entitle the holder to receive on demand, or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets, including a separate fund or trust account, of the issuer of the securities;

(i) “non-redeemable investment fund” means an issuer:

(i) whose primary purpose is to invest money provided by its securityholders;

(ii) that does not invest for the purpose of exercising effective control, seeking to exercise effective control, or being actively involved in the management of the issuers in which it invests, other than other mutual funds or non-redeemable investment funds; and

(iii) that is not a mutual fund;

(j) “officer” means the chair, any vice-chair of the board of directors, the president, any vice president, the secretary, the assistant secretary, the treasurer, the assistant treasurer, and the general manager of a company, and any other person designated an officer of a company by-law or similar authority, or any individual acting in a similar capacity on behalf of the issuer;

(k) “person” means an individual, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator, or other legal representative;

(l) “portfolio adviser” means

(i) a portfolio manager; or

(ii) a broker or investment dealer exempted from registration as an adviser under subsection 148(1) of the Regulation if that broker or investment dealer is not exempt from the by-laws or regulations of The Toronto Stock Exchange or the Investment Dealers’ Association of Canada referred to in that subsection;

(m) “promoter” means (a) a person or company who, acting alone or in conjunction with one or more other persons, companies or a combination thereof, directly or indirectly, has taken the initiative in founding, organizing or substantially reorganizing the business of the issuer, or (b) a person or company who, in connection with the founding, organizing or substantial reorganizing of the business of the issuer, directly or indirectly, received in consideration of services or property, or both services and property, 10% or more of any class of securities of the issuer or 10% or more of the proceeds from the sale of any class of securities of a particular issue, but a person or company who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this definition if such person or company does not otherwise take part in founding, organizing or substantially reorganizing the business;

(n) “related liabilities” means liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets;

(o) “spouse” in relation to an individual, means another individual to whom that individual is married, or another individual of the opposite sex or the same sex with whom that individual is living in a conjugal relationship outside marriage;

Affiliated Entities, Control and Subsidiaries

1. A person or company is considered to be an affiliated entity of another person or company if one is a subsidiary entity of the other, or if both are subsidiary entities of the same person or company, or if each of them is controlled by the same person or company.

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2. A person or company is considered to be controlled by a person or company if

(a) in the case of a person or company,

(i) voting securities of the first mentioned person or company carrying more than 50% of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of, the other person or company, and

(ii) the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;

(b) in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50% of the interests in the partnership; or

(c) in the case of a limited partnership, the general partner is the second-mentioned person or company.

3. A person or company is considered to be a subsidiary entity of another person or company if

(a) it is controlled by,

(i) that other, or

(ii) that other and one or more persons or companies each of which is controlled by that other, or

(iii) two or more persons or companies, each of which is controlled by that other, or

(b) it is a subsidiary entity of a person or company that is the other’s subsidiary entity.

All monetary references are in Canadian Dollars.

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EXHIBIT “3”

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

1.	DESCRIPTION OF TRANSACTION
(a)	Name of Issuer of the Securities - BAKBONE SOFTWARE INCORPORATED
(b)	Number and Class of Securities to be Purchased -
	Common Shares of Bakbone Software Incorporated
(c)	Purchase Price:    $0.88 (Canadian) per Common Share.
2.	DETAILS OF PURCHASER
(a)	Name of Purchaser -
(b)	Address -
(c)	Names and addresses of persons having a greater than 10% beneficial interest in the purchaser –
3.	RELATIONSHIP TO ISSUER
(a)	Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Ontario Securities Act (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider –
(b)	If the answer to (a) is “no”, are the purchaser and the issuer controlled by the same person or company? If so, give details.
4.	DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the 60 days preceding the date hereof -

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UNDERTAKING

TO: The Toronto Stock Exchange

The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this Private Placement Questionnaire and Undertaking.

The undersigned undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation,whichever is longer, without the prior consent of The Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED AT	(Name of Purchaser)
	(Authorized Signature)
this         day of                         , 200	(Official Capacity)
	(Please print here name of individual whose signature appears above, if different from name of purchaser printed above)

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APPENDIX

The following current directors of BakBone Software Incorporated were issued Common Shares and Warrants to purchase Common Shares pursuant to this form of Subscription for Units in the amounts indicated below:

	Common Shares Issued	Warrants Issued
Neil MacKenzie	113,600	56,800
Jeff Lawson	64,700	32,350
Archibald Nesbitt	100,000	50,000

EX-10.16

Exhibit 10.16

BAKBONE SOFTWARE INCORPORATED

SERIES A PREFERRED SHARE PURCHASE AGREEMENT

BAKBONE SOFTWARE INCORPORATED

SERIES A PREFERRED SHARE PURCHASE AGREEMENT

This Series A Preferred Share Purchase Agreement (the “Agreement”) is made as of the 18th day of June, 2003, by and between Bakbone Software Incorporated, a corporation incorporated under the laws of the Province of Alberta, Canada (the “Company”) and the investors listed on Exhibit A attached hereto (each a “Purchaser” and together the “Purchasers”).

The parties hereby agree as follows:

1. Purchase and Sale of Preferred Shares.

1.1 Sale and Issuance of Series A Preferred Shares.

(a) Subject to receipt of Shareholder Approval (as defined in Section 6.1), the Company shall adopt and file with the Registrar of Corporations for the Province of Alberta on or before the Closing (as defined below) the Articles of Amendment (“Articles of Amendment”) authorizing capital stock of the Company consisting of: (i) an unlimited number of common shares, and (ii) up to 22,000,000 Series A preferred shares, each such class of shares to have the rights, preferences and privileges as set forth in the Share Provisions attached hereto as Exhibit B (the “Share Provisions”).

(b) Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to each Purchaser at the Closing that number of Series A preferred shares of the Company set forth opposite each such Purchaser’s name on Exhibit A attached hereto at a purchase price of CDN. $1.00 per share. The Series A preferred shares issued to the Purchasers pursuant to this Agreement shall be hereinafter referred to as the “Stock” or the “Securities.”

1.2 Closing; Delivery.

(a) Subject to the conditions to closing set forth in Sections 4 and 5 hereof having been satisfied, the purchase and sale of the Stock shall take place at the offices of VantagePoint Venture Partners, 1001 Bayhill Drive, San Bruno, California, at 10:00 a.m., on July 17, 2003, or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the “Closing Date”). In the event there is more than one closing, the term “Closing” shall apply to each such closing unless otherwise specified herein.

(b) At the Closing, the Company shall deliver to each Purchaser a certificate representing the Stock being purchased thereby against payment of the purchase price therefor by certified check, bank draft or trust check payable to the Company or by wire transfer to a bank account designated by the Company.

2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser that, except as set forth on a Disclosure Schedule (the “Disclosure Schedule”) delivered separately by the Company to each Purchaser, specifically identifying the relevant subsection hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder:

2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the Province of Alberta, Canada, and has all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a Material Adverse Effect (as defined in Section 4.7).

2.2 Capitalization. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of:

(a) 22,000,000 Series A preferred shares, none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series A preferred shares are as stated in the Share Provisions.

(b) An unlimited number of common shares, 58,625,216 shares of which are issued and outstanding as at the date hereof, and there will be no change to the number of issued and outstanding common shares of the Company prior to the Closing Date, other than common shares issued on exercise of currently outstanding convertible securities. All of the outstanding common shares have been duly authorized, are fully paid and non-assessable and were issued in compliance with all applicable Canadian and U.S. federal, provincial and state securities laws.

(c) The Company has reserved 6,803,958 common shares for issuance to officers, directors, employees and consultants of the Company pursuant to its 2002 Stock Option Plan duly adopted by the board of directors of the Company (the “Board of Directors”) and approved by the Company shareholders (the “Stock Plan”) and the Board of Directors has authorized a 4,000,000 share increase to such plan, to a maximum of 10,803,958 common shares, subject to requisite shareholder approval. Of such reserved common shares, no shares have been issued pursuant to restricted stock purchase agreements, options to purchase 6,450,020 shares have been granted and are currently outstanding, and, subject to receipt of shareholder approval for the proposed increase in the Stock Plan, 4,245,961 common shares remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan.

(d) Except for (i) conversion privileges of the Series A preferred shares, (ii) the outstanding options issued pursuant to the Stock Plan at exercise prices ranging from $0.58 to $8.50 per share, (iii) 958,894 common share purchase warrants held by various subscribers, each entitling the holder thereof to acquire one (1) common share at an exercise price of CDN. $1.00 per share at any time on or prior to December 31, 2003, (iv) 300,000 warrants held by Bolder Venture Partners, LLC, each entitling the holder thereof to acquire one (1) common share at an exercise price of CDN. $1.25 per share at any time on or prior to February 11, 2005, (v) 200,000 warrants held by Jeffrey L. Taylor, each entitling the holder thereof to acquire one (1) common share at an exercise price of CDN. $1.24 per share at any time on or prior to January 31, 2004, (vi) 150,000 warrants held by Larry Fox, each entitling the holder thereof to acquire one (1) common share at an exercise price of CDN. $0.95 per share at any time on or prior to December 23, 2004, and (vii) 10,000 warrants held by Cornis Consult Finance, each entitling the holder thereof to acquire one (1) common share at an exercise price of

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CDN. $1.00 per share at any time on or prior to February 21, 2004 and except as set forth in the Investors’ Rights Agreement (as defined below), or as specifically listed on the Disclosure Schedule (defined herein), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. None of the Company’s share purchase agreements or stock option documents contains a provision for accelerated vesting (or lapse of a repurchase right) upon the occurrence of any event, other than the existing stock option agreements for the Company, the form of which has been provided to the Purchasers, which do provide for accelerated vesting in certain circumstances, including in the event of a bona fide offer being made to acquire in excess of 51% of the issued and outstanding voting securities of the Company, with such transaction subsequently being consummated (but provided further that the transactions contemplated by the present Agreement would not constitute an event triggering accelerated vesting under such stock option agreements). In October, 2000, the Company repriced 1,698,000 stock options from $11.82 to $7.74. In addition, on August 17, 2001, the Company announced a voluntary option cancel and regrant program for employees, under which program the Company’s employees were given the opportunity, at their election, to cancel outstanding stock options previously granted to them in return for an equal number of replacement options at a later date, with such replacement options being granted on March 1, 2002 at the then fair market value. Other than the foregoing, the Company has never adjusted or amended the exercise price of any stock options previously awarded, whether through amendment, cancellation, replacement grant, repricing, or any other means, other than as set forth in the SEC Documents or Canadian Securities Documents, as applicable.

(e) The list of shareholders of the Company, dated as of April 29, 2003, provided to counsel to the Purchasers, is true and correct as of the date hereof.

2.3 Subsidiaries. Except as set forth in Schedule 2.3, the Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement.

2.4 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the Investors’ Rights Agreement in the form attached hereto as Exhibit C (the “Investors’ Rights Agreement”) (the Investors’ Rights Agreement and this Agreement are referred to as the “Agreements”), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Securities have been taken or will be taken prior to the Closing, and the Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

2.5 Valid Issuance of Securities. The Securities that are being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable

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and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors’ Rights Agreement, applicable securities laws, and liens or encumbrances created by or imposed by a Purchaser. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Securities will be issued in compliance with all applicable securities laws. The Company covenants that neither it nor any authorized agent acting on its behalf will take any action hereafter that would cause the failure of such compliance. The common shares issuable upon conversion of the Securities have been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Share Provisions, shall be duly and validly issued, fully paid and non-assessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors’ Rights Agreement, applicable securities laws, and liens or encumbrances created by or imposed by a Purchaser, and will be issued in compliance with all applicable securities laws.

2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Canadian, 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, except for filings (i) pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, and Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), (ii) pursuant to the Securities Act (Alberta) (the “Alberta Securities Act”), and (iii) with the Toronto Stock Exchange in order to obtain the conditional listing approval of the Exchange for the transactions contemplated hereby.

2.7 Litigation. There is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its subsidiaries that questions the validity of the Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any Material Adverse Effect, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. Neither the Company nor any of its subsidiaries 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 of its subsidiaries currently pending or which the Company or any of its subsidiaries intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their use in connection with the Company’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.

2.8 SEC Documents. Since January 1, 2001, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the “Commission”) pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”) (all of the foregoing filed prior to or on the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). As of the date of filing of such SEC Documents, each such SEC Document, as it may have been subsequently amended by filings made by the Company with the SEC prior to the

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date hereof, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Document. None of the SEC Documents, as of the date filed and as they may have been subsequently amended by filings made by the Company with the Commission prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. No other written information provided by or on behalf of the Company to the Purchasers contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading. Except for the issuance of the Securities contemplated by this Agreement, no event, liability, development or circumstance has occurred or exists, or is currently contemplated to occur, with respect to the Company or its subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws and which has not been publicly disclosed. The Company and its subsidiaries are engaged only in the business described in the SEC Documents, which contain a complete and accurate description in all material respects of the business of the Company and its subsidiaries, taken as a whole.

2.9 Canadian Securities Law Compliance. The Company is a “reporting issuer” not in default under the securities laws of British Columbia, Alberta and Ontario. Since January 1, 2001, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Alberta Securities Commission, the British Columbia Securities Commission, the Ontario Securities Commission and the Toronto Stock Exchange pursuant to the reporting requirements of applicable Canadian provincial securities laws, the rules and regulations promulgated thereunder, and the bylaws, rules and regulations of the Toronto Stock Exchange (all of the foregoing filed prior to or on the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “Canadian Securities Documents”). As of the date of filing of such Canadian Securities Documents, each such Canadian Securities Document, as it may have been subsequently amended in accordance with applicable provincial securities legislation and/or the bylaws, rules and regulations of the Toronto Stock Exchange prior to the date hereof, complied in all material respects with the requirements of applicable Canadian provincial securities law, the rules and regulations promulgated thereunder, and the rules and regulations of the Toronto Stock Exchange applicable to such Canadian Securities Documents. None of the Canadian Securities Documents, as of the date filed and as they may have been subsequently amended in accordance with applicable Canadian provincial securities legislation and/or the bylaws, rules and regulations of the Toronto Stock Exchange prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company and its subsidiaries are engaged only in the business described in the Canadian Securities Documents and the Canadian Securities Documents contain a complete and accurate description in all material respects of the business of the Company and its subsidiaries, taken as a whole.

2.10 No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of

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any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the securities laws or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

2.11 Intellectual Property Rights.

(i) Schedule 2.11(i) summarizes all owned Intellectual Property (as defined below) of the Company, and all licensed Intellectual Property, in each case, with descriptions of their scope.

(ii) The Company and its subsidiaries own or possess adequate rights or licenses to use all Intellectual Property necessary or advisable to conduct their businesses as now conducted free and clear of all liens, encumbrances, adverse claims or obligations to license the owned Intellectual Property, other than software licenses entered into in the ordinary course of business.

(iii) No owned Intellectual Property of the Company or its subsidiaries which is necessary for the conduct of Company’s and each of its subsidiaries’ respective businesses as currently conducted has been or is now involved in any cancellation, dispute or litigation, and, to the Company’s knowledge, no such action is threatened.

(iv) All of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property which are necessary or advisable for the conduct of Company’s and each of its subsidiaries’ respective businesses as currently conducted to which the Company or any subsidiary is a party or by which any of their assets are bound (collectively, “License Agreements”) are valid and binding obligations of the Company or its subsidiaries that are parties thereto and, to the Company’s knowledge, the other parties thereto, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and there exists no event or condition which will result in a material violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Company or any of its subsidiaries under any such License Agreement.

(v) To the Company’s knowledge, the Company’s and its subsidiaries’ businesses as currently conducted does not infringe any Intellectual Property rights of any third party, and, to the Company’s knowledge, the Intellectual Property rights of the Company and its subsidiaries which are necessary for Company’s and each of its subsidiaries’ respective businesses as currently conducted are not being infringed by any third party. There is no litigation, arbitration action, or order pending or outstanding or, to the Company’s knowledge, threatened or imminent, that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of any Intellectual Property of the Company or its subsidiaries and the Company’s or its subsidiaries’ use of any Intellectual Property owned by a third party, and, to the Company’s knowledge, there is no valid basis for the same.

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(vi) The consummation of the transactions contemplated hereby will not result in the alteration, loss, impairment of or restriction on the Company’s or any of its subsidiaries’ ownership or right to use any of the Intellectual Property which is necessary or advisable for the conduct of Company’s and each of its subsidiaries’ respective businesses as currently conducted.

(vii) To the Company’s knowledge, all software owned by the Company or any of its subsidiaries, and, to the Company’s knowledge, all software licensed from third parties by the Company or any of its subsidiaries, (i) is free from any material defect or programming error; (ii) operates and runs in a reasonable and efficient business manner; and (iii) conforms in all material respects to the specifications and purposes thereof.

(viii) To the Company’s knowledge, the Company and its subsidiaries have taken reasonable steps to protect the Company’s and its subsidiaries’ rights in their confidential information and trade secrets. To the Company’s knowledge, each employee, consultant and contractor who has had access to proprietary Intellectual Property owned by the Company which is necessary or advisable for the conduct of Company’s and each of its subsidiaries’ respective businesses as currently conducted has executed an agreement to maintain the confidentiality of such Intellectual Property and has executed appropriate agreements that are substantially consistent with the Company’s standard forms thereof. To the Company’s knowledge, and except under confidentiality obligations, there has been no material disclosure of any of the Company’s or its subsidiaries’ confidential information or trade secrets to any third party. To the Company’s knowledge, each employee, consultant, and contractor who has developed any Intellectual Property of the Company has signed appropriate agreements with the Company ensuring that all developed Intellectual Property will be deemed solely owned by the Company.

(ix) “Intellectual Property” means all of the following: (1) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (2) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (3) copyrights and copyrightable works; (4) registrations, applications and renewals for any of the foregoing; (5) trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information); and (6) proprietary computer software (including but not limited to data, data bases and documentation).

2.12 Material Contracts & Commitments.

(a) Except as set forth in Schedule 2.12, the Company and its subsidiaries have no currently existing contract, obligation, agreement, plan, arrangement, commitment or the like (written or oral) of any material nature (the “Contracts”) including, without limitation, the following: (1) loans, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgages, pledges, liens, security interests or other encumbrances on any of the Company’s property or any agreement or instrument

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evidencing any guaranty by the Company of payment or performance by any other person; (2) employment, bonus or consulting agreements, pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company and agreements among shareholders and the Company; (3) agreements with dealers, sales representatives, brokers or other distributors, jobbers, advertisers or sales agencies; (4) agreements with any labor union or collective bargaining organization or other similar labor agreements; (5) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including without limitation agreements with processors and subcontractors; (6) any indenture, agreement or other document (including private placement brochures) relating to the sale or repurchase of securities; (7) any joint venture contract or arrangement or other agreement involving a sharing of profits or expenses to which the Company is a party; (8) agreements and purchase orders with customers; (9) agreements limiting the freedom of the Company to compete in a line of business or in any geographic area or with any person; (10) agreements providing for disposition of the business, assets or shares of the Company, agreements or merger or consolidation to which the Company is a party or letters of intent with respect to the acquisition of the business assets or shares of any other business; (11) agreements involving or letters of intent with respect to the acquisition of the business, assets or shares of any other business; (12) insurance policies; (13) license agreements; and (14) powers of attorney. For purpose of the foregoing, the reference to any contract, obligation, agreement, plan, arrangement, commitment of any “material nature” means that any such item would be reasonably required for the current conduct of the Company’s business and operations or, alternatively, the absence or termination of such item would have a Material Adverse Effect.

(b) The Company has provided the Purchasers with copies of all of the Contracts. Each of the Contracts is a valid and binding obligation of the Company or its subsidiaries that are parties thereto and, to the Company’s knowledge, the other parties thereto, enforceable in accordance with their terms, and are in full force and effect in all material respects. The Company is not in default under, or otherwise in violation of the terms of, any of the Contracts in any material respect. To the best of the Company’s knowledge, no other party to any of the Contracts is in default thereunder or otherwise in violation of the material terms thereof. To the Company’s knowledge, the performance of any such Contract would not result in a Material Adverse Effect and all were entered into in the ordinary course of business in arms-length transactions.

2.13 Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under its constating documents, the laws of the jurisdiction of its incorporation or the laws of any other jurisdiction which is or could become applicable to the Purchasers as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

2.14 Certain Practices. Neither the Company nor any of its subsidiaries nor, to the Company’s knowledge, any of their respective current or former shareholders, directors, officers, employees, agents or other persons or entities acting on behalf of the Company or any subsidiary thereof, has on behalf of the Company or any subsidiary thereof or in connection with

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their respective businesses: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of the Company or any subsidiary thereof; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

2.15 Sarbanes-Oxley. To the extent applicable to the Company, the Company has been and is in full compliance with the Sarbanes-Oxley Act of 2002.

2.16 Compliance with Other Instruments.

(a) The Company is not in violation or default of any provisions of its constating documents or Bylaws or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or of any provision of Canadian, provincial, federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby 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 which results in the creation of any lien, charge or encumbrance upon any assets of the Company.

(b) The Company 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 material license, distribution agreement or other agreement.

2.17 Agreements; Action.

(a) Other than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification agreements approved by the Board of Directors, and (iii) the purchase of shares of the Company’s capital stock and the issuance of options to purchase shares of the Company’s common shares, in each instance, approved by the Board of Directors, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof.

(b) Except for agreements explicitly contemplated by the Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company or any of its subsidiaries is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company or any of its subsidiaries in excess of $100,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its subsidiaries, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products.

(c) Other than as set forth in Schedule 2.17, neither the Company nor any of its subsidiaries has (i) declared or paid any dividends, or authorized or made any

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distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000 or in excess of $500,000 in the aggregate, which is presently outstanding, (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.

(d) The Company has not engaged in the past three months in any discussion (i) with any representative of any corporation or corporations regarding the merger of the Company with or into any such corporation or corporations in which more than 50% of the voting power of the Company would be disposed of, (ii) with any representative of 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 a transaction or series of related transactions in which more than 50% of the voting power of the Company would be disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company.

(e) For the purposes of subsections (b) and (c) 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 with that person or entity) shall be aggregated for the purposes of meeting the individual minimum dollar amounts of each such subsection.

2.18 No Conflict of Interest. Other than as set forth in Schedule 2.18, the Company is not indebted, directly or indirectly, to any of its officers or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. None of the Company’s officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company or, to the Company’s knowledge, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that officers, directors and/or shareholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded company that may compete with the Company. To the Company’s knowledge, other than employment agreements and stock option agreements entered into in the ordinary course of business, none of the Company’s officers or directors or any members of their immediate families are, directly or indirectly, interested in any contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.

2.19 Rights of Registration and Voting Rights. Except as contemplated in the Investors’ Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. To the knowledge of the Company, no stockholder of the Company has entered into any agreements with respect to the voting of capital shares of the Company.

2.20 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company’s

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ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances.

2.21 Financial Statements. The Company has made available to each Purchaser its audited financial statements (including balance sheet, income statement and statement of cash flows) as of March 31, 2002 and March 31, 2001, and for the fiscal year ended March 31, 2002 and March 31, 2001, and its unaudited financial statements (including balance sheet, income statement and statement of cash flows) as of March 31, 2003 and for the 12-month period ended March 31, 2003 (collectively, the “Financial Statements”). The Financial Statements have been prepared in accordance with generally accepted accounting principles of Canada applied on a consistent basis throughout the periods indicated, and reconciled to generally accepted accounting principles of the United States in the Company’s annual SEC filing on Form 20-F, and provided that the unaudited Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no liabilities in excess of $25,000, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to March 31, 2003, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate are not material to the financial condition or operating results of the Company and its subsidiaries.

2.22 Changes. Since March 31, 2002, there has not been:

(a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the SEC Documents and the Canadian Securities Documents, 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 the business, properties, prospects, or financial condition of the Company;

(c) any waiver or compromise by the Company 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 by the Company, except in the ordinary course of business and that is not material to the business, properties, prospects or financial condition of the Company;

(e) any material change to a material contract or agreement by which the Company or any of its assets is bound or subject;

(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;

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(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 officer or key employee of the Company; and the Company, is not aware of any impending resignation or termination of employment of any such officer or key employee;

(i) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable;

(j) any loans or guarantees made by the Company to or for the benefit of its 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;

(k) any declaration, setting aside or payment or other distribution in respect to any of the Company’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company;

(l) to the Company’s knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, condition (financial or otherwise), operating results, business, or prospects of the Company; or

(m) any arrangement or commitment by the Company to do any of the things described in this Section 2.23.

2.23 Employee Benefit Plans.

(a) The following definitions will apply to this Section 2.24:

a. “Code” shall mean the Internal Revenue Code of 1986, as amended;

b. “Company Employee Plan” shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Employee, or with respect to which the Company or any Affiliate has or may have any liability or obligation;

c. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended;

d. “ERISA Affiliate” shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder;

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e. “Multiemployer Plan” shall mean any “Pension Plan” (as defined below) which is a “multiemployer plan,” as defined in Section 3(37) of ERISA;

f. “Pension Plan” shall mean each Company Employee Plan which is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA;

(b) Neither the Company nor any ERISA Affiliate contributes to or has any contingent obligations to any Multiemployer Plan. Neither the Company nor any ERISA Affiliate has incurred any liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of assets described in Section 4204 of ERISA.

(c) Neither the Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code. Neither the Company nor any ERISA Affiliate has any liability with respect to any post-retirement benefit under any Company Employee Plan which is a welfare plan (as defined in section 3(l) of ERISA), other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA.

(d) Each Company Employee Plan complies, in both form and operation, in all material respects, with its terms, ERISA and the Code, and no condition exists or event has occurred with respect to any such plan which would result in the incurrence by the Company or any ERISA Affiliate of any material liability, fine or penalty. No Company Employee Plan is being audited or investigated by any government agency or is subject to any pending or threatened claim or suit. Neither the Company nor any ERISA Affiliate nor any fiduciary of any Company Employee Plan has engaged in a prohibited transaction under section 406 of ERISA or section 4975 of the Code.

(e) The Company has no Company Employee Plan subject to Canadian or Canadian provincial law.

2.24 Tax Returns and Payments. The Company 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 has paid all taxes and other assessments due.

2.25 Other Names. The business conducted by the Company prior to the date hereof has not been conducted under any corporate, trade or fictitious name.

2.26 Insurance Coverage. There is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility insuring the Company and its subsidiaries and their properties and business against such losses and risks, and in such amounts as are customary in the case of corporations engaged in the same or similar business and similarly situated. The Company and its subsidiaries have not been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will be unable to renew its existing insurance coverage as and when the same will expire upon terms at least as favorable as those presently in effect, other than possible increases in premiums that do not result from any act or omission of the Company. The Company has directors’ and officers’ liability insurance coverage protecting the directors in an amount no less than $10 million.

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2.27 Returns & Complaints. The Company has received no customer complaints concerning its products and/or services, the results of which would have a Material Adverse Effect, nor has it had any of its products returned by a purchaser or distributor thereof, outside of the ordinary course, other than minor non-recurring warranty problems, or returns not exceeding $10,000 in any event.

2.28 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its 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 knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which could have a material adverse effect on the assets, properties, condition (financial or otherwise), operating results, business, or prospects of the Company, nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company who is resident in the United States is terminable at the will of the Company. The Company has complied in all material respects with all applicable Canadian, state, and federal equal employment opportunity laws and with other laws related to employment.

2.29 Confidential Information and Intellectual Property Assignment Agreements. Each employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information and Intellectual Property assignment to the Company substantially in the form or forms delivered to the counsel for the Purchasers. The Company is not aware that any of its employees or consultants is in violation thereof, and the Company will use its reasonable best efforts to prevent any such violation.

2.30 Permits. The Company and each of its subsidiaries has all franchises, permits, licenses and any similar authority necessary for the conduct of its business. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

2.31 Corporate Documents. The constating documents and Bylaws of the Company are in the form provided to counsel for the Purchasers. The copy of the minute books of the Company provided to the Purchasers’ counsel contains minutes of all meetings of directors and shareholders and all actions by written consent without a meeting by the directors and shareholders since the date of incorporation and reflects all actions by the directors (and any committee of directors) and shareholders with respect to all transactions referred to in such minutes accurately in all material respects.

2.32 Real Property Holding Corporation. The Company is not a “United States real property holding corporation” within the meaning of the Code and any regulations promulgated thereunder.

2.33 Environmental and Safety Laws. The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. No Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or, to the Company’s knowledge,

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after reasonable investigation by any other person or entity on any property owned, leased or used by the Company. For the purposes of the preceding sentence, “Hazardous Materials” shall mean (a) materials which are listed or otherwise defined as “hazardous” or “toxic” under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials or (b) any petroleum products or nuclear materials.

2.34 Canadian Securities Trades. The Securities and the common shares issuable upon conversion of the Securities will generally be subject to a four month “hold period”, commencing on the Closing Date, under applicable Canadian securities legislation, after which time they will generally be freely tradable without restriction through the Toronto Stock Exchange, subject to restrictions imposed on trades which constitute “control distributions” under applicable securities legislation at the Closing Date.

2.35 Projections. All projections and expressions of opinion or predictions relating to future sales and financial performance of the Company previously delivered to the Purchasers by the Company or its representatives were made in good faith and prepared on a reasonable basis by the Company. The Company knows of no facts or circumstances that as of the date hereof (other than general economic conditions) would adversely affect the Company’s ability to meet its projections.

2.36 “Company’s Knowledge” Defined. As used in this Section 2, the terms “to the Company’s knowledge,” “to the best knowledge of the Company,” “known to the Company” or similar phrases shall mean to the best knowledge of the Company, its officers and directors, after careful consideration of the matters set forth in the representation that is so qualified and a diligent review of all files, documents, agreements and other material in such person’s possession or subject to his or her control, and shall include knowledge that should have been reasonably known to such person given such person’s position in the Company and/or access to information.

3. Representations and Warranties of the Purchasers. Each Purchaser, individually, hereby represents and warrants to the Company that:

3.1 Authorization. Such Purchaser has full power and authority to enter into the Agreements. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies.

3.2 Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation to the Company, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of applicable securities laws. The Purchaser has not been formed for the specific purpose of acquiring the Securities. The Purchaser does not act jointly or in concert with any other Purchaser for Securities for the purpose of the acquisition of the Securities.

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3.3 Restricted Securities. The Purchaser understands that the Securities have not been, and will not be (other than pursuant to the Investors’ Rights Agreement), registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the Securities are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available, or the Securities are sold on the Toronto Stock Exchange. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale in the United States except as set forth in the Investors’ Rights Agreement. The Purchaser further acknowledges that if an exemption from U.S. registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy.

3.4 Legends. The Purchaser understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends securities law purposes:

(a) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED IN THE UNITED STATES WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”

(b) Any legend set forth in the other Agreements.

(c) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended.

(d) “Unless permitted under securities legislation, the holder of the security shall not trade the securities before the date that is four months and a day after the distribution date.”

3.5 Accredited Investor. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, as defined in Multilateral Instrument 45-103 of the Alberta Securities Commission, and as defined in Ontario Securities Commission Rule 45-501.

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3.6 Exempt Distribution. Purchaser acknowledges that because its subscription under this Agreement is being made pursuant to exemptions from the prospectus and registration requirements of applicable securities law:

(a) its ability to enforce civil liabilities under the United States federal securities laws may be affected adversely by, among other things: (1) the fact that the Company is organized under the laws of Canada; (2) some or all of its directors and its officers may be residents of Canada, and (3) a substantial portion of the assets of the Company and said persons may be located outside the United States; and

(b) the Company is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemptions were not being used.

3.7 Tax Consequences. The Purchaser understands that the investment in the Securities and the underlying common shares may have tax consequences under the laws of the United States and of Canada and that it is the sole responsibility of the Purchaser to determine and assess such tax consequences as may apply to its particular circumstances.

3.8 Compliance With Applicable Law. Subject to the Company’s compliance with its representations, warranties and covenants hereunder, the entering into of the Agreements by the Purchaser and the completion of the transactions contemplated hereby will not result in a violation of any of the terms and provisions of any law applicable to it, or any of its constating documents, or of any agreement to which the Purchaser is a party or by which it is bound.

3.9 No Securities Commission Review. The Purchaser is aware that no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities or the underlying common shares; that there is no government or other insurance covering the Securities or the underlying common shares; that there is (a) a four month restriction on the Purchaser’s ability to resell the Securities or the underlying common shares and (b) a filing requirement for control persons, and it is the responsibility of the Purchaser to comply with such restrictions for selling the Securities or the underlying common shares before such sale; that the Company has advised the Purchaser that the Company is relying on an exemption under Canadian securities laws from the requirements as to the filing of a prospectus, to provide the Purchaser with a prospectus and as to the delivery of an offering memorandum, as well as to sell securities through a person or company registered to sell securities under the Securities Act (Alberta) and, as a consequence of acquiring securities pursuant to this exemption, certain protections, rights and remedies provided by the Securities Act (Alberta), including statutory rights of rescission or damages, will not be available to the Purchaser; and that the Company is relieved from certain obligations that would otherwise apply under the applicable securities laws if the exemption were not being used.

3.10 Delivery of Documents. If required by applicable securities legislation, regulations, rules, instruments, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Purchaser will execute, deliver, file and otherwise assist the Company in filing, such reports, undertakings and other documents with respect to the issue of the Securities as may be required (including, without limitation, the private placement questionnaire and undertaking required by The Toronto Stock Exchange and the Alberta Certificate of Accredited Investor, copies of which accompany this Agreement).

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3.11 Purchase Funds. None of the funds the Purchaser is using to purchase the Securities are, to the knowledge of the Purchaser, proceeds obtained or derived, directly or indirectly, as a result of illegal activities.

4. Conditions of the Purchasers’ Obligations at Closing. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived by each Purchaser, which conditions are for each Purchaser’s sole benefit and may be waived at any time in its sole discretion by providing the Company prior written notice thereto:

4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing.

4.2 Performance. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in the Agreements that are required to be performed or complied with by it on or before the Closing.

4.3 Compliance Certificate. The CEO of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.

4.4 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the Canada or United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing.

4.5 Opinion of Company Counsel. The Purchasers shall have received from Burnet, Duckworth & Palmer LLP (as to matters relating to Canadian and Alberta law), Goodman and Carr LLP (as to matters relating to Ontario law), Gray Cary Ware & Freidenrich (as to matters relating to United States law), Pillsbury Winthrop LLP (as to matters relating to the Company’s intellectual property) and Sean Collin (as to matters relating to the Company’s intellectual property), each counsel for the Company, an opinion, dated as of the Closing, in substantially the form of Exhibit D-1, Exhibit D-2, Exhibit D-3, Exhibit D-4 and Exhibit D-5, as applicable.

4.6 Investors’ Rights Agreement. The Company and each Purchaser shall have executed and delivered the Investors’ Rights Agreement in substantially the form attached as Exhibit C.

4.7 Indemnification Agreement. The Company shall have executed and delivered the Indemnification Agreement in the form attached as Exhibit E for the benefit of the director representatives of the Purchasers.

4.8 Material Adverse Effect. Between the time of the execution of this Agreement and the Closing Date, (i) no Material Adverse Effect shall occur or become known (whether or not arising in the ordinary course of business), and (ii) no transaction which is material and unfavorable to the Company shall have been entered into by the Company. As used

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in this Agreement, “Material Adverse Effect” means any material adverse effect or a change to the business, properties, assets, operations, results of operations, prospects, or condition (financial or otherwise) of the Company and its subsidiaries, or on the transactions contemplated hereby by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Agreements; provided, however, that a Material Adverse Effect will not be deemed to have occurred unless such effect or change or changes in aggregate relates to one or more adverse changes from a financial point of view of at least $100,000 or if such effect or change could have a material adverse effect or material adverse change to the business of the Company.

4.9 Delivery of Share Certificates. The Company shall have executed and delivered certificates for the securities purchased by the Purchasers at the Closing in form reasonably acceptable to the Purchasers.

4.10 Filings; Authorizations. The Company shall have made all filings under all applicable Canadian, provincial, federal and state securities laws and the bylaws, rules and regulations of the Toronto Stock Exchange necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws, and shall have obtained all authorizations, approvals and permits necessary to consummate the transactions contemplated by the Agreements and such authorizations, approvals and permits shall be effective as of the Closing Date.

4.11 No Injunctions. No temporary restraining order, preliminary or permanent injunction or other order or decree, and no other legal restraint or prohibition shall exist which prevents or arguably prevents the consummation of the transactions contemplated by the Agreements, nor shall any proceeding have been commenced or threatened with respect to the foregoing.

4.12 Shareholder Approval. The Company shall have received the requisite approval for the transactions contemplated by the Agreements from its shareholders, in compliance with all applicable laws, on or prior to July 31, 2003. Notwithstanding the foregoing, the Company covenants that no shareholder approval will be necessary if the Purchasers elect to exercise their right contained in Section 6.2 hereof.

4.13 Legal Investment. At the time of the Closing, the purchase of the Securities by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject.

4.14 Articles. The Company shall have filed the Articles of Amendment with the Registrar of Corporations of the Province of Alberta, Canada, in accordance with Section 1.1(a), on or prior to the Closing Date, which shall continue to be in full force and effect as of the Closing Date.

4.15 Confidential Information and Invention Assignment Agreement. The Company and each of its employees shall have entered into the Company’s standard form Confidential Information and Invention Assignment Agreement, in substantially the form provided to the Purchasers.

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4.16 Secretary’s Certificate. The Secretary of the Company shall deliver to the Purchasers at the Closing a certificate certifying (i) the constating documents of the company, (ii) the Bylaws of the Company, (iii) resolutions of the Board of Directors approving the Agreements and the transactions contemplated hereby and thereby, and (iv) resolutions of the shareholders of Company approving the Articles of Amendment

4.17 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers, and Purchasers (or their counsel) shall have received all such counterpart original and certified or other copies of such documents as reasonably requested. Such documents may include good standing certificates.

4.18 Toronto Stock Exchange. The common shares underlying the Securities (the “Subject Securities”) shall have been conditionally approved for listing on the Toronto Stock Exchange and the Toronto Stock Exchange shall have confirmed in writing that the Subject Securities will be posted or listed for trading on the Toronto Stock Exchange as of the Closing Date.

5. Conditions of the Company’s Obligations at Closing. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived:

5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.

5.2 Performance. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or complied with.

5.3 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the Canada, United States or of any province or state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing.

5.4 No Injunctions. No temporary restraining order, preliminary or permanent injunction or other order or decree, and no other legal restraint or prohibition shall exist which prevents the consummation of the transactions contemplated by the Agreements.

5.5 Shareholder Approval. The Company shall have received the requisite approval for the transactions contemplated by the Agreements from its shareholders, in compliance with all applicable laws, on or prior to July 31, 2003, and shall use its reasonable best efforts to obtain such shareholder approval. Notwithstanding the foregoing, the Company covenants that no shareholder approval will be necessary if the Purchasers elect to exercise their right contained in Section 6.2 hereof.

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5.6 Legal Investment. At the time of the Closing, the purchase of the Securities by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject.

6. Covenants.

6.1 Shareholder Approval.

(a) In connection with the issuance of the Securities, the Company shall provide to each shareholder entitled to vote at the next meeting of the shareholders of the Company, which meeting shall occur on or before July 31, 2003 (the “Shareholder Meeting Deadline”) a management proxy circular statement (the “Proxy Statement”), which has been previously reviewed by the Purchasers and their counsel, soliciting each such shareholder’s affirmative vote at such shareholder meeting for approval of the Company’s issuance of the Securities and the other transactions contemplated by the Agreements (such affirmative approval being referred to herein as the “Shareholder Approval”).

(b) The Company shall ensure that the Proxy Statement contains all material disclosures and is in compliance with all applicable laws, rules, and regulations, and that the solicitation of the Shareholder Approval is made in compliance with all applicable laws, rules, and regulations.

(c) Subject to the fiduciary obligations of the Board of Directors, the Company shall cause its Board of Directors to unanimously recommend to the Company’s shareholders that the Securities be issued on the terms set forth herein and that the other transactions contemplated by the Agreements be approved.

6.2 Alternative Right to Invest.

(a) If for any reason the Shareholder Approval is not obtained by the Shareholders Meeting Deadline, the Purchasers shall have an option (the “Purchasers’ Option”), exercisable in their sole discretion to purchase up to 14,619,111 common shares of the Company at CDN $1.00 per share.

(b) The Purchasers’ Option, if exercised, shall be exercised and closing shall occur on or prior to August 28, 2003.

(c) In connection with the exercise of the Purchasers’ Option, the Company’s representations and warranties shall apply, the Investors Rights Agreement shall be executed by the Company, and the Company shall take such other steps as reasonably required by the Purchasers to close the transactions contemplated by the Purchasers’ Option.

6.3 Increase in Stock Option Pool. Subject to requisite shareholder approval, effective as of the Closing Date, the aggregate number of common shares reserved for issuance shall be increased to 10,803,958 common shares of the Company.

6.4 Board Membership. Effective as of the Closing Date, the Company shall take all reasonable steps to ensure that Andrew Sheehan and Stephan Dolezalek are elected to the Board of Directors (provided that such individuals are at such time legally qualified individuals

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to serve as members of the board of directors of a public company) as the initial representatives of the holders of the Series A preferred shares. The four other Board of Directors members at the Closing Date shall be Keith Rickard, Jeff Lawson, Neil Mackenzie and Archie Nesbitt (provided that such individuals are at such time legally qualified individuals to serve as members of the board of directors of a public company).

7. Indemnification.

7.1 Indemnification by the Company. Subject to section 8.1 hereof, in consideration of each Purchaser’s execution and delivery of this Agreement and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Agreements, the Company shall defend, protect, indemnify and hold harmless each Purchaser and each permitted transferee of the Securities and all of their shareholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (collectively, “Claims”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Agreements, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Agreements (other than due to the material breach of the Agreements by the Purchasers), (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of any of the Agreements or any other certificate, instrument or document contemplated hereby or thereby and (d) the Company infringing the Intellectual Property rights of any third party in any material manner. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Claims which is permissible under applicable law.

7.2 Procedures for Indemnification. Promptly after an Indemnitee has knowledge of any Claim as to which such Indemnitee reasonably believes indemnity may be sought or promptly after such Indemnitee receives notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnitee shall, if a Claim in respect thereof is to be made against any the Company under this Section 7, deliver to the Company a written notice of such Claim, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel if, in the reasonable opinion of counsel retained by the Company, the representation by such counsel of the Indemnitee and the Company would be inappropriate due to actual or potential differing interests between such Indemnitee and the Company; provided, further, that the Company shall not be responsible for the reasonable fees and expense of more than one (1) separate legal counsel for such Indemnitee. In the case of an Indemnitee, the legal counsel referred to in the immediately preceding sentence shall be selected by the Purchasers holding at least a majority in interest of the Securities to which the Claim relates. The Indemnitee shall cooperate fully with

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the Company in connection with any negotiation or defense of any such action or Claim by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to such action or Claim. The Company shall keep the Indemnitee fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any Claim effected without its prior written consent; provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a full release from all liability in respect to such Claim and action and proceeding. After indemnification as provided for under this Agreement, the rights of the Company shall be subrogated to all rights of the Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the Company as provided in this Agreement shall not relieve the Company of any liability to the Indemnitee under this Section 7, except to the extent that the Company is prejudiced in its ability to defend such action.

7.3 Survival of and Limitation of Indemnification Obligations. The obligations of the Company under this Section 7 shall survive the transfer of the Securities by the Indemnitees; provided that such transfer is made to an existing investor in the Purchaser or an affiliated entity of the Purchaser. In addition, in no event shall the obligations of the Company to indemnify a Purchaser or permitted transferee exceed the aggregate amount of the Purchaser’s initial investment in the Company under this Agreement.

8. Miscellaneous.

8.1 Survival. The representations, warranties, covenants and agreements made herein shall survive the execution of this Agreement and the Closing of the transactions contemplated hereby, notwithstanding any investigation made by the Purchasers. No claim against the party making any representations and warranties under Section 2 or Section 3 in respect of a breach of any such representations and warranties shall be made or be enforceable, whether by legal proceeding or otherwise, unless written notice of such claim is given to such party by the party for whose benefit such representations and warranties were given within three (3) years from the Closing Date, except for the representations set forth in Sections 2.1 through and including 2.6, which shall survive indefinitely. All statements as to factual matters contained in any certificate, exhibit or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be the representations and warranties of the Company, as of the date of such certificate or instrument.

8.2 Transfer; Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

8.3 Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

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8.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

8.5 Construction. The titles and subtitles of this Agreement are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. This Agreement and its provisions contained therein and the exhibits hereto shall not be construed or interpreted for or against any party to this Agreement because said party drafted or caused the party’s legal representative to draft any of its provisions. The Company has been represented by legal counsel in connection with the drafting and negotiation of this Agreement. The language of this Agreement shall be construed as to its fair meaning.

8.6 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by fax (upon customary confirmation of receipt), or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party’s address as set forth on the signature page or Exhibit A hereto, or as subsequently modified by written notice, and (a) if to the Company, with a copy to Burnet, Duckworth & Palmer LLP, Suite 1400, 350 - 7th Avenue S.W., Calgary, Alberta, T2P 3N9, Attn: J.G. (Jeff) Lawson and to Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1100, San Diego, California 92121, Attn: Scott Stanton or (b) if to the Purchasers, with a copy to Orrick, Herrington & Sutcliffe LLP, 400 Sansome Street, San Francisco, CA 94111, Attn: Richard D. Harroch.

8.7 Finder’s Fee. Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction, other than a fee to Citigroup by the Company for the Closing of this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which each Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

8.8 Fees and Expenses. The Company shall pay the fees and expenses of counsel for the Purchasers, reasonable fees and expenses of experts, consultants and the like and other expenses incurred in connection with performing due diligence with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby up to a maximum of US $150,000 (a) at the Closing, (b) at the closing contemplated under Section 6.2, or (c) in the event of a material breach of this Agreement by the Company.

8.9 Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least a majority of the Common Shares issued or issuable upon conversion of the Stock. Any amendment or waiver effected in accordance with this Section 8.9 shall be binding upon the Purchasers and each transferee of the Securities, each future holder of all such Securities, and the Company.

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8.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms.

8.11 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

8.12 Entire Agreement. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled.

8.13 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.

8.14 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Securities.

8.15 Dispute Resolution. In the event of any dispute arising out of or relating to this Agreement, then such dispute shall be resolved solely and exclusively by confidential binding arbitration with the San Francisco branch of JAMS (“JAMS”) to be governed by JAMS’ Commercial Rules of Arbitration (the “JAMS Rules”) and heard before one arbitrator. The

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parties shall attempt to mutually select the arbitrator. In the event they are unable to mutually agree, the arbitrator shall be selected by the procedures prescribed by the JAMS Rules. Each party shall bear its own attorneys’ fees, expert witness fees, and costs incurred in connection with any arbitration.

[Signature Pages Follow]

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The parties have executed this Series A Preferred Share Purchase Agreement as of the date first written above.

COMPANY:	PURCHASERS:
Bakbone Software Incorporated	VantagePoint Venture Partners IV (Q), L.P. by VantagePoint Venture Associates IV L.L.C., Its General Partner
By:  /s/ Keith Rickard         Keith Rickard, President and CEO	By:      /s/ Alan E. Salzman
	Name: Alan E. Salzman
Address: 10145 Pacific Heights Boulevard	Title: Managing Partner
Suite 500
San Diego, California 92121
Fax:          (858) 450-9929	VantagePoint Venture Partners IV, L.P. by VantagePoint Venture Associates IV, L.L.C., Its General Partner
	By:      /s/ Alan E. Salzman
	Name: Alan E. Salzman
	Title: Managing Member
	VantagePoint Venture Partners IV Principals Fund, L.P. by VantagePoint Venture Associates IV, L.L.C., Its General Partner
	By:      /s/ Alan E. Salzman
	Name: Alan E. Salzman
	Title:    Managing Member

DISCLOSURE SCHEDULE

This Disclosure Schedule is given pursuant to Section 2 of the Series A Preferred Share Purchase Agreement attached hereto (the “Agreement). The schedule numbers in this Disclosure Schedule correspond to the section numbers in the Agreement. Any information disclosed under any section number in this Disclosure Schedule shall not be deemed disclosed under and incorporated into any other section number unless specifically cross referenced to such section under the Agreement where such disclosure would be appropriate. Terms defined in the Agreement have the same meaning when used in the Disclosure Schedule unless the context otherwise requires.

EXHIBITS

Exhibit A -	Schedule of Purchasers
Exhibit B -	Form of Amended and Restated Articles of Amalgamation
Exhibit C -	Form of Investors’ Rights Agreement
Exhibit D - 1	Form of Legal Opinion of with respect to Alberta law
Exhibit D - 2	Form of Legal Opinion of with respect to Ontario law
Exhibit D - 3	Form of Legal Opinion of U.S. Corporate Counsel
Exhibit D - 4	Form of Legal Opinion of Intellectual Property Counsel
Exhibit D - 5	Form of Legal Opinion of Intellectual Property Counsel (S. Collin)
Exhibit E -	Form of Indemnification Agreement

EXHIBIT A

SCHEDULE OF PURCHASERS

Purchasers	Total Number of Series A Preferred Shares to be Purchased	Total Purchase Price in Canadian Dollars
VantagePoint Venture Partners IV (Q), L.P.	19,929,800	$	19,929,800.00
VantagePoint Venture Partners IV, L.P.	1,997,600	$	1,997,600.00
VantagePoint Venture Partners IV Principals Fund, L.P.	72,600	$	72,600.00
TOTAL	22,000,000	$	22,000,000.00

EX-10.17

Exhibit 10.17

BAKBONE SOFTWARE INCORPORATED

INVESTORS’ RIGHTS AGREEMENT

BAKBONE SOFTWARE INCORPORATED

INVESTORS’ RIGHTS AGREEMENT

This Investors’ Rights Agreement (the “Agreement”) is made by and among Bakbone Software Incorporated, a corporation incorporated under the laws of the Province of Alberta, Canada (the “Company”) and the investors listed on the signature page hereof (the “Investors”).

RECITALS

The Company and the Investors have entered into a Series A Preferred Share Purchase Agreement (the “Purchase Agreement”) of even date herewith pursuant to which the Company desires to sell to the Investors and the Investors desire to purchase from the Company if, as when created in accordance with the terms of the Purchase Agreement, shares of the Company’s Series A Preferred Shares (the “Series A Preferred Shares,” which are convertible into common shares of the Company (the “Common Shares”). A condition to the Investors’ obligations under the Purchase Agreement is that the Company and the Investors enter into this Agreement. Terms not otherwise defined herein are defined in the Purchase Agreement.

AGREEMENT

The parties hereby agree as follows:

1. Registration Rights. The Company and the Investors covenant and agree as follows:

1.1 Definitions. For purposes of this Section 1:

(a) The term “Exchange Act” means the Securities Exchange Act of 1934, as amended (and any successor thereto) and the rules and regulations promulgated thereunder;

(b) The term “Form S-3” means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act that permits significant incorporation by reference of the Company’s subsequent public filings under the Exchange Act;

(c) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 of this Agreement;

(d) The term “Qualified Public Offering” means a firm commitment underwritten United States public offering by the Company of shares of its Common Shares pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than U.S. $2.04 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) which results in gross cash proceeds to the Company of not less than US $25,000,000;

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(e) The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document;

(f) The term “Registrable Securities” means (i) the Common Shares issuable or issued upon conversion of the Series A Preferred Shares, other than shares for which registration rights have terminated pursuant to Section 1.15 hereof, and (ii) any other reinvested Common Shares of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares listed in (i) and (ii); provided, however, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which his or her rights under this Agreement are not assigned;

(g) The number of shares of “Registrable Securities then outstanding” shall be determined by the number of Common Shares outstanding which are, and the number of Common Shares issuable pursuant to then exercisable or convertible securities which are, Registrable Securities;

(h) The term “SEC” means the Securities and Exchange Commission;

(i) The term “Securities Act” means the Securities Act of 1933, as amended (and any successor thereto) and the rules and regulations promulgated thereunder;

1.2 Request for Registration.

(a) If the Company shall receive at any time after the earlier of (i) one year following the date (the “Closing Date”) of closing of the sale of (x) Series A Preferred Stock pursuant to Section 1.2 of the Purchase Agreement or (y) common stock pursuant to Section 6.2 of the Purchase Agreement (either referred to as the “Closing”), or (ii) six months after the effective date of the first registration statement for a public offering of securities of the Company in the United States (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least 30% of the Registrable Securities then outstanding for an anticipated aggregate offering price, net of underwriting discounts and commissions, of not less than $2 million (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $5 million), then the Company shall, within 10 days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use its reasonable best efforts to file as soon as practicable, and in any event within 90 days of the receipt of such request, a registration statement under the Securities Act covering all Registrable Securities which the Holders request to be registered within 20 days of the mailing of such notice by the Company.

(b) If the Holders initiating the registration request hereunder (“Initiating Holders”) intend to distribute the Registrable Securities covered by their request by

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means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all participating Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each participating Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.

(c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period.

(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2:

(i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective;

(ii) During the period starting with the date 90 days prior to the Company’s good faith estimate of the date of filing of, and ending on a date 180 days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or

(iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.

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1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock under the Securities Act in connection with the U.S. public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Securities Act, a registration in which the only stock being registered is Common Shares issuable upon conversion of debt securities which are also being registered, or any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 4.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered.

1.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of not less than 35% of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any 12-month period; (iv) if the Company has, within the 12-month period preceding the date of such request, already effected a registration on Form S-3 for the Holders pursuant to this Section 1.4; (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (vi) during the period ending 180 days after the effective date of a registration statement subject to Section 1.3.

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(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively.

1.5 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 180 days, or until the distribution described in such registration statement is completed, if earlier.

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for up to 180 days, or until the distribution described in such registration statement is completed, if earlier.

(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, such obligation to continue for 180 days.

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(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.

(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CU.S.IP number for all such Registrable Securities, in each case not later than the effective date of such registration.

(i) Use its reasonable best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters.

1.6 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(ii), whichever is applicable.

1.7 Expenses of Registration.

(a) Demand Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders selected by them with the approval of the Company (not to exceed U.S.$75,000, without the prior written consent of the Company, not to be unreasonably withheld), which approval shall not be unreasonably withheld, shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the

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time of such withdrawal, the Holders (i) have learned of a material adverse change in the condition, business, or prospects of the Company that was not known to the Holders at the time of their request and (ii) have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall not forfeit their rights pursuant to Section 1.2.

(b) Company Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications of Registrable Securities pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.12), including (without limitation) all registration, filing, and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company.

(c) Registration on Form S-3. All expenses incurred in connection with a registration requested pursuant to Section 1.4, including (without limitation) all registration, filing, qualification, printers’ and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, and counsel for the Company, and any underwriters’ discounts or commissions associated with Registrable Securities, shall be borne pro rata by the Holder or Holders participating in the Form S-3 Registration.

1.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling shareholders) but in no event shall the amount of securities of the selling Holders included in the offering be reduced below 30% of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities in the United States, in which case, the selling shareholders may be excluded if the underwriters make the determination described above and no other stockholder’s securities are included. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and shareholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the

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benefit of any of the foregoing persons shall be deemed to be a single “selling stockholder,” and any pro-rata reduction with respect to such “selling stockholder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling stockholder,” as defined in this sentence.

1.9 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

1.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable to any Holder, underwriter or controlling person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with the “Selling Shareholders” section of such registration by any such Holder, underwriter or controlling person.

(b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon

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any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with the “Selling Shareholders” section of such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10.

(d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Holder under this Subsection 1.10(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

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(e) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

1.11 Reports Under the Exchange Act . With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities 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 90 days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

(b) take such action, including the voluntary registration of its Common Shares 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 end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;

(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 90 days after the effective date of the first registration statement filed by the Company), 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.

1.12 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee (i) of at least 100,000 shares of such securities (subject to adjustment for stock splits, stock dividends, reclassification or the like) (or if the transferring Holder owns less than 100,000 shares of such securities, then all Registrable Securities held by the transferring Holder), (ii) that is a subsidiary, parent, partner, limited partner, retired partner, member, retired member or stockholder of a Holder, (iii) that is an affiliated fund or entity of the Holder, which means with respect to a limited liability company or a limited liability partnership, a fund or entity managed by the same manager or managing member or general partner or management company or by an entity controlling, controlled by, or under common control with such manager or managing member or general partner or management company (such a fund or entity, an “Affiliated Fund”), (iv) who is a Holder’s child,

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stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (such a relation, a Holder’s “Immediate Family Member”, which term shall include adoptive relationships), or (v) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if the transferee agrees to be bound by this Agreement and immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of (x) a partnership who are partners or retired partners of such partnership or (y) a limited liability company who are members or retired members of such limited liability company (including Immediate Family Members of such partners or members who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership or limited liability company; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1.

1.13 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within 120 days of the effective date of any registration effected pursuant to Section 1.2.

1.14 Lock-Up Agreement.

(a) Lock-Up Period; Agreement. In connection with the initial public offering of the Company’s securities in the United States, the public offering price of which is not less than U.S.$2.04 per share (appropriately adjusted for stock splits, stock dividends, reclassification and the like) for gross cash proceeds to the Company of not less than U.S.$25,000,000, and upon request of the Company or the underwriters managing such offering of the Company’s securities, each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of such initial public offering.

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(b) Limitations. The obligations described in Section 1.14(a) shall apply only if all officers and directors of the Company enter into similar agreements, and shall not apply to a registration relating solely to employee benefit plans, or to a registration relating solely to a transaction pursuant to Rule 145 under the Securities Act.

(c) Stop-Transfer Instructions. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of each Holder (and the securities of every other person subject to the restrictions in Section 1.14(a)).

1.15 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (i) three (3) years following the consummation of Qualified Public Offering, or (ii) during such time as Rule 144, or another similar exemption under the Securities Act, is available for the sale of all such Holder’s Shares during a three (3) month period without registration.

2. Covenants of the Company.

The Company shall, at its sole cost and expense:

2.1 Delivery of Financial Statements. The Company shall deliver to each Holder of Registrable Securities:

(a) as soon as practicable, but in any event within 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 stockholder’s equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with United States and Canadian generally accepted accounting principles (“GAAP”), and audited by an independent public accounting firm of nationally recognized standing selected by the Company; and

(b) as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter.

(c) with respect to the financial statements called for in subsection (b) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials 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, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors determines that it is in the best interest of the Company to do so.

2.2 Inspection. The Company shall permit each Holder of Registrable Securities, at such Holder’s expense, to visit and inspect the Company’s properties, to examine

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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 Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information.

2.3 Right of First Offer. Subject to the terms and conditions specified in this Section 2.3, the Company hereby grants to each Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.3, “Investor” includes any general partners, managing members and affiliates of an Investor, including Affiliated Funds. An Investor who chooses to exercise the right of first offer may designate as purchasers under such right itself or its partners, general partner, managing members or affiliates, including Affiliated Funds in such proportions as it deems appropriate.

Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock (“Shares”), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions:

(a) The Company shall deliver a notice (the “RFO Notice”) to the Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.

(b) Within 14 calendar days after delivery of the RFO Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares which equals the proportion that the number of Common Shares issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Investor bears to the sum of (A) the total number of Common Shares then outstanding (assuming full conversion and exercise of all convertible or exercisable securities) and (B) Common Shares issuable to employees, consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Board of Directors. Such purchase shall be completed at the same closing as that of any third party purchasers or at an additional closing thereunder.

(c) The Company may, during the 45-day period following the expiration of the period provided in subsection 2.3(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons which may include at the Company’s sole discretion, each Investor that purchased all of the Shares available to it under Section 2.3(b) above, at a price not less than, and upon terms no more favorable to the offeree than those specified in the RFO Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith.

(d) The right of first offer in this Section 2.3 shall not be applicable to (i) the issuance of securities in connection with stock dividends, stock splits or similar transactions; (ii) the issuance or sale of up to 1,000,000 Common Shares in any twelve month period (or such

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greater number as is approved by a majority of the Board of Directors, provided that such majority approval must also include the unanimous approval of any Investors’ representative(s) then on the Board of Directors) of Common Shares (or options therefor) to employees, consultants and directors of the Company, directly or pursuant to a stock option plan, restricted stock purchase plans or other stock plan approved by the Board of Directors; (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities outstanding as of the date of this Agreement, (iv) securities issued in connection with acquisitions of companies, where the acquisition was approved by a majority of the Board of Directors, (v) the issue of up to 1,000,000 Common Shares in any 12 month period to strategic partners as approved by a majority of the Board of Directors, (vi) any public equity offerings, or (vii) any securities not convertible into equity of the Company.

2.4 Use of Proceeds. From the period following the Closing Date and for the first calendar year thereafter, the Company will use the net proceeds from the sale of the Series A Preferred Shares solely to (i) continue ongoing operations; (ii) increase sales and marketing efforts of the Company; (iii) retire approximately $1,600,000 of notes payable; and (iv) such other purposes as approved by the Investors’ representatives on the Board of Directors; following which time, any net proceeds remaining will be used as determined by the Board of Directors of the Company in their discretion.

2.5 Listing. The Company shall promptly use its best efforts to secure the listing of all of the Registrable Securities upon each securities exchange and automated quotation system, if any, upon which Common Shares are then listed (subject to official notice of issuance) and, shall maintain, so long as any other Common Shares shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of this Agreement. So long as any Securities are outstanding, the Company shall maintain the Common Shares’ authorization for quotation or listing on the Toronto Stock Exchange; provided, however, that if the Common Shares are at such time listed on NASDAQ, the New York Stock Exchange, the American Stock Exchange or other recognized U.S. securities exchange, the Company may, at its sole election effect the delisting of the Common Shares from the Toronto Stock Exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 2.5.

2.6 Filing With SEC. On the Business Day following the Closing Date, the Company shall file a report with the SEC describing the terms of the transactions contemplated by the Purchase Agreement and including as exhibits to such report (i) this Agreement, and (ii) the Purchase Agreement, each in the form required by the Exchange Act. “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are required by law to remain closed.

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2.7 Canadian Law Filing. On the Business Day following the Closing Date, the Company shall file a report with each of the securities commissions where it is a reporting issuer describing the terms of the transaction as contemplated by the Purchase Agreement, in the form required by such securities commissions, and shall effect all post-closing requirements set out in the conditional listing approval of the Toronto Stock Exchange to the transactions contemplated hereby.

2.8 Board of Directors. In connection with the Closing, the Company shall use its best efforts to nominate, recommend and support for the election to the Board of Directors of the Company two representatives designated by a majority-in-interest of the Investors.

2.9 Directors’ Liability Insurance. The Company will purchase and maintain, for the period that the Investors have one or more representatives on the Board of Directors of the Company, a directors’ liability insurance policy in form and substance reasonably acceptable to the Investors’ representatives on the Board of Directors, covering the directors of the Company in the amount of at least $10 million.

2.10 Violation of Laws. The business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

2.11 Financing. The Company shall promptly, fully and in detail, inform the Board of Directors of any discussions, offers or contracts relating to possible financing of any material nature for the Company, whether initiated by the Company or any other person or entity.

2.12 New Developments. The Company shall cause all new technological developments, patentable or unpatentable inventions, discoveries or improvements by the Company’s or any of its subsidiary’s employees or consultants to be documented in a reasonable manner and, where prudent and appropriate, to file and prosecute United States and foreign patent, copyright, trademark, mask work or other Intellectual Property Right applications relating to and protecting the Company’s inventions, discoveries or developments on behalf of the Company or any of its subsidiaries.

2.13 Agreements of Officers and Employees. The Company shall cause each employee of the Company or any of its subsidiaries as now or hereafter employed and all consultants of the Company or any of its subsidiary involved in the design, review, evaluation or development of products or Intellectual Property Rights to execute and deliver a Confidentiality and Invention Assignment Agreement in form and substance reasonably satisfactory to the Board of Directors of the Company, and the Company shall not amend or waive any of the provisions of any such Confidentiality and Invention Assignment Agreement in any material respect without the approval of the Board of Directors.

2.14 Directors’ Compensation. The Company shall promptly reimburse in full each Director of the Company representing the Investors for all reasonable out-of-pocket expenses incurred in attending each meeting of the Board of Directors of the Company or any

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committee thereof. The Directors designated by the Investors shall be compensated (fees, options, etc.) in a manner at least as favorable as any other Director of the Company going forward. For clarity, Directors are presently entitled to receive $10,000 as an annual retainer, payable quarterly in arrears, $1,000 per meeting attended in person, $500 per meeting attended by teleconference, $2,000 per annum to the Chair of each Committee of the Board and $750 for each Committee meeting. Current “base” option compensation for new directors is options to acquire 150,000 common shares, with any increases to be reviewed on an annual basis by the Compensation Committee of the Board of Directors and the Board of Directors.

2.15 Keeping of Records and Books of Account. The Company shall keep, and cause each of its subsidiaries to keep, adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and such of its subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

2.16 Certain Undertakings. Neither the Company nor any of its subsidiaries shall take any action which would cause the Company or any such subsidiary of the Company to be in violation of the Foreign Corrupt Practices Act or the Sarbanes-Oxley Act of 2002.

2.17 Controls. The Company currently maintains and will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

2.18 Exchange Listing. In the event the Company lists any of its shares on NASDAQ, the New York Stock Exchange, the American Stock Exchange, or other U.S. securities exchanges, the Company shall ensure that the Common Shares obtainable upon conversion of the Series A Preferred Shares are registered under the Securities Exchange Act of 1934, as amended.

2.19 Termination of Covenants.

(a) The covenants set forth in Sections 2.1 through Section 2.4 shall terminate as to each Holder and be of no further force or effect (i) immediately prior to the consummation of a Qualified Public Offering, or (ii) upon termination of the Agreement, as provided in Section 4.1.

3. Covenants of the Investors.

3.1 Directors. For a period of 12 months after the date hereof, the Investors shall not vote their Series A Preferred Shares against two of the directors designated by a majority of the Board of Directors of the Company. This shall not affect the rights of the Series A Preferred holder to elect its two directors guaranteed by the Articles of Amendment.

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4. Miscellaneous.

4.1 Termination. This Agreement shall terminate, and have no further force and effect, on the earlier of that date (i) when the Company shall consummate a transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Company pursuant to the Company’s Articles of Amendment; and (ii) when the voting rights attaching to the Series A Preferred Shares represent less than 10% of the voting rights attached to all outstanding Common Shares and Series A Preferred Shares of the Company.

4.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled.

4.3 Successors and Assigns. Except as otherwise provided in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties (including transferees of any of the Series A Preferred Shares or any Common Shares issued upon conversion thereof, provided that such transferee agree to be bound by the terms of this Agreement). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

4.4 Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each party to the Agreement, whether or not such party has signed such amendment or waiver, each future holder of all such Registrable Securities, and the Company.

4.5 Notices. Unless otherwise provided, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by facsimile, or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address or facsimile number as set forth on Exhibit A hereto or as subsequently modified by written notice.

4.6 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms.

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4.7 Governing Law. This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of laws.

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

4.9 Aggregation of Stock. All Series A Preferred Shares held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

4.10 Construction. The titles and subtitles of this Agreement are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. All dollar amounts referenced in the Agreement are to United States dollars, unless otherwise indicated. This Agreement and its provisions contained therein and the exhibits hereto shall not be construed or interpreted for or against any party to this Agreement because said party drafted or caused the party’s legal representative to draft any of its provisions. The Company has been represented by legal counsel in connection with the drafting and negotiation of this Agreement. The language of this Agreement shall be construed as to its fair meaning.

4.11 Dispute Resolution. In the event of any dispute arising out of or relating to this Agreement or the Agreements, as defined in the Purchase Agreement, then such dispute shall be resolved solely and exclusively by confidential binding arbitration (as defined under the California Arbitration Act) with the San Francisco branch of JAMS (“JAMS”) to be governed by JAMS’ Commercial Rules of Arbitration (the “JAMS Rules”) and heard before one arbitrator. The parties shall attempt to mutually select the arbitrator. In the event they are unable to mutually agree, the arbitrator shall be selected by the procedures prescribed by the JAMS Rules. Each party shall bear its own attorneys’ fees, expert witness fees, and costs incurred in connection with any arbitration.

[Signature Page Follows]

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The parties have executed this Investors’ Rights Agreement as of the date first above written.

COMPANY:	INVESTORS:
Bakbone Software Incorporated	VantagePoint Venture Partners IV (Q), L.P. by VantagePoint Venture Associates IV L.L.C., Its General Partner
By:  /s/ Keith Rickard         Keith Rickard, President and CEO	By:      /s/ Alan E. Salzman
	Name: Alan E. Salzman
Address:  10145 Pacific Heights Boulevard                  Suite 500                  San Diego, California 92121	Title: Managing Partner
Fax:          (858) 450-9929	VantagePoint Venture Partners IV, L.P. by VantagePoint Venture Associates IV, L.L.C., Its General Partner
	By:      /s/ Alan E. Salzman
	Name: Alan E. Salzman
	Title: Managing Member
	VantagePoint Venture Partners IV Principals Fund, L.P. by VantagePoint Venture Associates IV, L.L.C., Its General Partner
	By:      /s/ Alan E. Salzman
	Name: Alan E. Salzman
	Title:    Managing Member

EXHIBIT A

INVESTORS

Name/Address/Fax No.	No. of Series A Preferred Shares
VantagePoint Venture Partners IV (Q), L.P.	19,929,800
VantagePoint Venture Partners IV, L.P.	1,997,600
VantagePoint Venture Partners IV Principals Fund, L.P.	72,600

EX-10.18

Exhibit 10.18

BAKBONE SOFTWARE INCORPORATED

10145 Pacific Heights Boulevard

Suite 500

San Diego, CA 92121

November 18, 2003

VantagePoint Venture Partners IV (Q), L.P.

VantagePoint Venture Partners IV, L.P.

VantagePoint Venture Partners IV Principals Fund, L.P.

1001 Bayhill Drive

Suite 300

San Bruno, CA 94066

Dear Sirs:

BakBone Software Incorporated –

Series A Preferred Shares

The parties hereto are parties to a Series A preferred share purchase agreement (the “Share Purchase Agreement”) dated June 18, 2003, pursuant to which BakBone Software Incorporated (the “Company”) issued 22,000,000 Series A preferred shares (the “Stock” or the “Securities”) to VantagePoint Venture Partners IV (Q), L.P., VantagePoint Venture Partners IV, L.P. and VantagePoint Venture Partners IV Principals Fund, L.P. (each a “Purchaser” and together, the “Purchasers”), in the allocations set forth in the Share Purchase Agreement, of which 18,000,000 of such Securities are presently held by the Purchasers. Capitalized terms not otherwise defined herein have the meanings ascribed to such terms in the Share Purchase Agreement.

In consideration of the covenants and obligations set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto have agreed to vary or forego certain of the rights, terms and conditions attaching to the Securities, as set out in the Share Provisions, on the following terms and conditions:

1. Share Transfer Restriction

(a) Subject to paragraph (b) below, and provided that the Company is in material compliance with the terms of the Share Purchase Agreement and its Exhibits, except as varied hereby, each of the Purchasers’ covenants and agrees that, without the Company’s prior written consent, such consent not to be unreasonably withheld or delayed, the Purchaser will not sell, transfer, assign, encumber, pledge or dispose of (any such event being referred to in this Section as a “transfer”) all or any right, title or interest held by it in the 18,000,000 Securities (or the common shares (“Common Shares”) issuable upon exercise of the Securities), held by the Purchasers on the date hereof, except as set forth below:

(i) the above transfer restriction shall cease and have no further force or effect with respect to 6,000,000 of the Securities and underlying Common

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Shares, in each case pro rata to the respective interests of the Purchasers in such shares, 90 days after the date hereof;

(ii) the above transfer restriction shall cease and have no further force and effect with respect to an additional 6,000,000 of the Securities and the underlying Common Shares, in each case pro rata to the respective interests of the Purchasers in such shares, 180 days after the date hereof; and

(iii) the above transfer restriction shall cease and have no further force and effect with respect to the remaining 6,000,000 Securities and the underlying Common Shares, in each case pro rata to the respective interests of the Purchasers in the Securities, 270 days after the date hereof.

(b) The restrictions on transfer in paragraph (a) shall terminate and have no further effect, and for greater certainty, subject to any restrictions under securities laws, each Purchaser shall be entitled to transfer any or all of the Securities at any time after the date hereof, if the Company proposes to merge or amalgamate with any other entity, other than as part of an internal restructuring with no change of control of the Company, or if an offer or take-over bid is made for the shares of the Company. The restrictions on transfer in paragraph (a) shall be deemed to terminate under this paragraph (b) on the earlier of (i) the date that such merger, amalgamation, offer or take-over bid is announced, and (ii) the date on which such restrictions would be required to be terminated in order to permit a Purchaser to participate in such merger or amalgamation or to tender the shares to such offer or take-over bid.

2. Waiver of Automatic Conversion Feature

In consideration for the Purchasers agreeing to the transfer restrictions on their 18,000,000 Securities and underlying Common Shares set forth in Section 1(a) above, and provided that the Purchasers are not otherwise in material breach of this Agreement, the Company agrees that it shall not, at any time on or prior to that date which is 270 days after the date hereof effect the automatic conversion of the Preferred Shares in accordance with section 4(b)(iii) of the Share Provisions, should the Common Shares of the Company have had a closing price, for 45 consecutive trading days, on the Toronto Stock Exchange, of at least CDN. $5.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization).

3. Waiver of Liquidation Preference

If, between the date hereof and that date which is 270 days after the date hereof, the Common Shares of the Corporation have had a closing price, for 45 consecutive trading days, on the Toronto Stock Exchange, of at least CDN. $5.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization), and the Company has not effected the conversion of the Securities as a result of the operation of Section 2 of this Agreement, and the Company subsequently becomes insolvent or bankrupt (an “Insolvency Event”), either (i) voluntarily, (ii) by the entry by a court of competent jurisdiction in a case under bankruptcy laws, or the issue of any similar order adjudicating the Company as bankrupt or insolvent under

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any other applicable bankruptcy, insolvency or liquidation law, (iii) the entry by a court of competent jurisdiction of a decree or order appointing a receiver, custodian, assignee, trustee, liquidator or other similar official of the Company or of any substantial part of the property of the Company, or ordering a winding-up or liquidation of its affairs, or (iv) the making by the Company of an assignment for the benefit of its creditors, or the failure of the Company generally to pay its debts as they become due, then, in each such case, the Purchasers hereby irrevocably agree to the waiver of their liquidation preference set out in section 2(a) of the Share Provisions and, for all purposes, in the event of any such Insolvency Event, shall be treated equally and rateably with the holders of the Common Shares of the Corporation, as if the Purchasers were holders of Common Shares.

4. Representations and Warranties; Indemnities

(a) The Company represents and warrants to the Purchasers that each of the representations and warranties made by the Company in Schedule A hereto is true and correct.

(b) Each Purchaser represents and warrants to the Company that each of the representations and warranties made by the Purchaser in Schedule B hereto is true and correct.

(c) All representations and warranties of the parties set forth in the Schedules hereto shall survive until the date that is 12 months following the date hereof and any claim made in respect of any breach or alleged breach of any representation and warranty must be made during that period.

(d) Each party hereby agrees to indemnify and save the other party harmless of and from any loss, liability, claim, damage, cost or expense of any nature whatsoever (including, without limitation) reasonable legal fees and disbursements) suffered or incurred as a result of any breach of any representations, warranties or covenant of such party set forth herein.

5. Notices

Any notice or other document which is required or permitted to be given hereunder shall be in writing and shall be sufficiently given if delivered personally (including by courier service) or if sent by telecopier at the following addresses:

(a) to the Purchasers at:

VantagePoint Venture Partners

1001 Bayhill Drive, Suite 300

San Bruno, California, 94066, USA

Attention:             General Counsel

Fax:                       (650) 869-6078

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(b) to the Company at:

10145 Pacific Heights Boulevard, Suite 500

San Diego, California, 92121

Attention:              President

Fax:                       (858) 450-9929

or at such other address as either party may from time to time advise the other by notice in writing. Any notice so given shall be deemed to have been given and received on the date of delivery if a business day and, if not a business day, then on the next succeeding business day.

6. Assignment and Termination

This letter agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns, including, in respect of each Purchaser, in respect of any beneficial owners or partners of each Purchaser to whom the Securities or underlying Common Shares may be distributed during the term of this Agreement. Notwithstanding any other provision hereof, any termination of this letter agreement as contemplated herein shall not affect the indemnification obligations of the parties under Section 4(b) above, which shall survive indefinitely, or the agreement of the Purchaser set forth in Section 3 hereof, which shall survive until the conversion of all outstanding Securities.

7. Further Assurances

Each Purchaser and the Company agree to do all such acts and things and to execute and deliver all such documents, instruments and agreements as may be necessary or advisable in the reasonable opinion of the other party to give effect to the provisions and the purpose and intent of this letter agreement.

8. Interpretation

Unless otherwise indicated, all dollar amounts referred to in this letter agreement are in Canadian currency. As used herein, the term “business day” means any day other than a Saturday or Sunday upon which banks are open for business in San Diego, California and San Francisco, California and the term “day” means a calendar day. The terms “hereof”, “herein”, “in this letter agreement” and similar expressions refer to this letter agreement in its entirety, including all Schedules hereto, which form an integral part hereof. The term “person” means and includes any individual, partnership, limited partnership, joint venture, sole proprietorship, company or corporation, unincorporated association, trust, trustee, administrator or other legal personal representative, government or governmental agency, authority or entity however designated or constituted.

9. Governing Law, etc.

This letter agreement shall be construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. Time shall be of the essence of this letter agreement.

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10. Dispute Resolution

In the event of any dispute arising out of or relating to this Agreement, then such dispute shall be resolved solely and exclusively by confidential binding arbitration with the San Francisco branch of JAMS (“JAMS”) to be governed by JAMS’ Commercial Rules of Arbitration (the “JAMS Rules”) and heard before one arbitrator. The parties shall attempt to mutually select the arbitrator. In the event they are unable to mutually agree, the arbitrator shall be selected by the procedures prescribed by the JAMS Rules. Each party shall bear its own attorneys’ fees, expert witness fees and costs incurred in connection with any arbitration.

11. Entire Agreement

This letter agreement (together with its Schedules) constitutes the entire understanding, contract and agreement between the parties hereto pertaining to the subject matter hereof and supersedes all other prior oral and written understandings, agreements or contracts, formal or informal, between the parties hereto or their representatives or affiliates with respect thereto.

If this letter accurately reflects the terms of the arrangement between us and if such definitive terms are agreed to by you, please communicate acceptance by executing a copy of this letter where indicated below and delivering the same to the Purchasers at the address indicated above, whereupon this letter shall constitute a valid and binding agreement between us. If acceptance has not been so communicated at or prior to that time on that date, this agreement shall be null and void and of no further force or effect of any nature whatsoever.

Yours very truly, BAKBONE SOFTWARE INCORPORATED
by	/s/    KEITH RICKARD
	Keith Rickard President
by	/s/    JOHN FITZGERALD
	John Fitzgerald Chief Financial Officer

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The foregoing accurately reflects the terms of the arrangement between us and such terms are hereby agreed to by us.

DATED as of the              day of November, 2003.

VANTAGEPOINT VENTURE PARTNERS IV (Q), L.P., by VANTAGEPOINT VENTURE ASSOCIATES IV L.L.C., its General Partner
by	/s/    ALAN SALZMAN
	Managing Member
VANTAGEPOINT VENTURE PARTNERS IV, L.P., by VANTAGEPOINT VENTURE ASSOCIATES IV L.L.C., its General Partner
by	/s/    ALAN SALZMAN
	Managing Member
VANTAGEPOINT VENTURE PARTNERS IV PRINCIPALS FUND, L.P., by VANTAGEPOINT VENTURE ASSOCIATES IV L.L.C., its General Partner
by	/s/    ALAN SALZMAN
	Managing Member

Schedule A

Representations and Warranties of the Company

The Company hereby represents and warrants to each Purchaser as follows:

(a) the execution and delivery by the Company of the letter agreement and the performance by it of its obligations thereunder:

(i) are within its corporate power and have been duly authorized by all necessary corporate action on its part and no other corporate proceedings on the part of the Company are necessary to authorize the entering into by the Company of the letter agreement, the performance by the Company of its obligations thereunder or the completion of the matters contemplated therein; and

(ii) are not in violation of, and will not result in a violation or breach of or a default under, the terms or provisions of any law, regulation, license, permit, lease, authorization, order, agreement, covenant, undertaking or other document or instrument to which it or any of its subsidiaries is a party or by which it or any of its subsidiaries or any of their respective properties or assets is bound;

(b) the letter agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms; and

(c) the Company is not presently aware of any material adverse change or effect to the Company’s business and operations other than as set forth in the Company’s public disclosure documents, as filed on SEDAR and with the Securities and Exchange Commission.

Schedule B

Representations and Warranties of the Purchasers

Each of the Purchasers severally (and not jointly and severally) hereby represents and warrants to the Company as follows:

(a) The execution and delivery by the Purchaser of the letter agreement and the performance by it of its obligations thereunder:

(i) are within its partnership power and have been duly authorized by all partnership action on its part and no other proceedings on the part of the Purchaser are necessary to authorize the entering into by the Purchaser of the letter agreement, the performance by the Purchaser of its obligations thereunder or the completion of the matters contemplated therein; and

(ii) are not in violation of, and will not result in a violation or breach of or a default under, the terms or provisions of any law, regulation, license, permit, lease, authorization, order, agreement, covenant, undertaking or other document or instrument to which it is a party or by which it or any of its properties or assets is bound; and

(b) the letter agreement has been duly executed and delivered by the Purchaser and constitutes a legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.

EX-10.19

Exhibit 10.19

STANDARD MODIFIED GROSS OFFICE LEASE

BETWEEN

PACIFIC SORRENTO MESA HOLDINGS, L.P.,

a California limited partnership,

and

PACIFIC STONECREST HOLDINGS, L.P.,

a California limited partnership,

as tenants in common

AS LANDLORD

AND

NET RESOURCES, INC.

a Canadian based Corporation,

d/b/a BakBone Software, Inc.

AS TENANT

¨ Landlord’s Original

¨ Tenant’s Original

¨ Tenant’s file copy (Discard upon full execution of Tenant’s original)

TABLE OF CONTENTS

	Page
1. Agreement to Let	1
2. Principal Lease Provisions	1
2.1. “Project”	1
2.2. “Building”	1
2.3. “Premises”	1
2.4. Rentable Area of the Premises	1
2.5. “Initial Lease Term”	1
2.5.1. “Lease Commencement Date”	1
2.5.2. “Initial Expiration Date”	1
2.5.3. Extension Rights	1
2.6. “Rentable Area,” “Rentable Square Feet,” “Rentable Square Footage,” “Usable Area,” “Usable Square Feet,” and “Usable Square Footage”	1
2.7. “Basic Monthly Rent”	1
2.7.1. “Rent Commencement Date”	1
2.8. “Security Deposit”	1
2.9. “Base Year”	1
2.10. Guarantor	1
2.11. Address for Landlord	1
2.12. Addresses for Tenant	2
2.13. Permitted Uses By Tenant	2
2.14. Building Standard Operating Hours	2
2.15. Permitted Trade Name	2
2.16. Participating Brokers	2
2.17. Amounts Payable upon Lease Execution	2
3. Term	2
4. Delivery of Possession	2
5. Use of Premises and Common Areas	2
5.1. Permitted Use of Premises	2
5.2. Compliance with Laws	2
5.3. Condition During Periods of Non-Use; Recapture	3
5.4. Use of Common Areas	3
5.5. General Covenants and Limitations on Use	3
6. Security Deposit	3
7. Rent	4
8. Additional Rent	4
8.1. Additional Rent; Rent	4
8.2. Definitions	4
8.2.1. Base Year	4
8.2.2. Direct Expenses	4
8.2.3. Expense Year	4
8.2.4. Operating Expenses	4
8.2.5. Tenant’s Share	5
8.3. Adjustment of Operating Expenses	5
8.3.1. Gross Up Adjustment When a Project is Less Than Fully Occupied	5
8.3.2. Adjustment When Landlord Adds Additional Buildings to the Project	5
8.3.3. Adjustment When Landlord Does Not Furnish a Service to All Tenants	5
8.3.4. Common Areas	5
8.4. Tax Expenses	5
8.5. Calculation and Payment of Additional Rent	5
8.5.1. Calculation of Excess	5
8.5.2. Statement/Payment of Direct Expenses	5
8.6. Landlord’s Books and Records	6
9. Utilities and Services	6
9.1. Heating and Air Conditioning	6
9.2. Electricity	6
9.3. Water	6
9.4. Janitorial Service	6
9.5. Over-Standard Tenant Use	6
9.6. Conduit and Wiring	6
9.7. Utilities Generally	7
10. Maintenance	7
10.1. Tenant’s Duties	7
10.2. Landlord’s Duties	7
11. Parking	7
12. Signs	7
12.1. General Signage Conditions	7
12.2. Tenant’s Signage Rights	8

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12.2.1. Directory/Suite Signage	8
12.2.2. Single Tenant Floor	8
13. Rules, Regulations and Covenants	8
14. Early Access Insurance	8
15. Plate-Glass Insurance	8
16. Public Liability and Property Damage Insurance	8
17. Fire and Extended Coverage Insurance	8
18. Business Interruption Insurance	9
19. Insurance Generally	9
20. Waiver of Subrogation	9
21. Landlord’s Insurance	9
22. Personal Property Taxes	9
23. Alterations	9
24. Surrender of Premises and Holding Over	10
25. Default	10
26. Landlord’s Remedies	10
26.1. Continuation of Lease	11
26.2. Rent from Reletting	11
26.3. Termination of Tenant’s Right to Possession	11
26.4. Landlord’s Right to Cure Default	11
26.5. Enforcement of Costs	11
26.6. Interest and Late Charges	11
27. Payment of Rent by Cashier’s Check	11
28. Destruction	12
29. Condemnation	12
30. Assignment and Other Transfers	12
30.1. Restrictions on Transfer	12
30.2. Transfer Provisions Generally	12
30.3. Excess Rent and Recapture	13
31. Continued Development of Project	13
32. Intentionally Omitted	13
33. Access by Landlord	13
34. Landlord's Reserved Rights	14
35. Indemnity and Exemption of Landlord from Liability	14
36. Hazardous Substances	14
37. Prohibition Against Asbestos-Containing Materials	15
38. Security Measures	15
39. Subordination and Attornment	15
40. Estoppel Certificate	16
41. Waiver	16
42. Brokers	16
43. Easements	16
44. Limitations on Landlord’s Liability	16
45. Sale or Transfer of Premises	17
46. Quitclaim Deed	17
47. No Merger	17
48. Confidentiality	17
49. Miscellaneous	17

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STANDARD FORM

MODIFIED GROSS OFFICE LEASE

This Standard Form Modified Gross Office Lease (“Lease”) is entered into effective as of February 22, 2000, between AMERICAN ASSETS, INC., as Agent for PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common (“Landlord”), and NET RESOURCES INC., a Canadian based corporation, d/b/a BakBone Software, Inc. (“Tenant”), who agree as follows:

1. Agreement to Let. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the terms, provisions, and conditions contained in this Lease, those certain demised premises described in Paragraph 2.3, below (the “Premises”), consisting of a portion of that certain building described in Paragraph 2.2 below (the “Building”), which is a part of the Project (as defined in Paragraph 2.1, below), along with the non-exclusive right to use, in common with Landlord, Landlord’s invitees and licensees, and the other tenants and users of space within the Project, those portions of the Project intended for use by the tenants of the Project in common including, without limitation, the landscaped areas, passageways, walkways, hallways, parking areas, and driveways (the “Common Areas”). This Lease confers no rights, however, to the roof, exterior walls, or utility raceways of the Building nor rights to any other building which may now or in the future be located in the Project, nor with regard to either the subsurface of the land below the ground level of the Project or with regard to the air space above the ceiling of the Premises; provided, however, that Tenant shall have the limited right to access systems and equipment exclusively serving the Premises (for which Tenant has maintenance and repair responsibilities pursuant to Paragraph 10.1 below) that may be located on the roof, in exterior or demising walls, in utility raceways, in the airspaces above the ceiling of the Premises, or in any other portion of the Building or the Project, for the sole purpose of maintaining, repairing, and replacing such systems and equipment.

2. Principal Lease Provisions. The following are the Principal Lease Provisions of this Lease. Other portions of this Lease explain and define these Principal Lease Provisions in more detail and should be read in conjunction with this Paragraph. In the event of any conflict between the Principal Lease Provisions and the other portions of this Lease, the Principal Lease Provisions will control. (Terms shown in quotations are defined terms used elsewhere in this Lease)

2.1. “Project”: That certain office project sometimes referred to as Pacific Tower, located near the intersection of Pacific Heights Boulevard and Pacific Mesa Boulevard (see Exhibit “A”). At present, the Project includes only the Building and Common Areas; however, it is anticipated that in the future Landlord may develop additional buildings and improvements within the boundaries of the Project pursuant to Paragraph 2.1 of the attached Addendum, in which event, all references herein to the Project will include such additional buildings and improvements as well.

2.2. “Building”: That certain building whose mailing address is 10145 Pacific Heights Boulevard, San Diego, California 92121 (see Exhibit “A”). Currently, the Building is the only building in the Project.

2.3. “Premises”: Approximately 12,703 Rentable Square Feet of space on the west side of the 9^th floor of the Building (see Exhibit “B”)

2.4. Rentable Area of the Premises: Approximately 12,703 Rentable Square Feet of space.

2.5. “Initial Lease Term”: 5 years (estimated, subject to Exhibit “C”) (beginning as of the Lease Commencement Date)

2.5.1. “Lease Commencement Date”: May 1, 2000 (estimated date; see Exhibit “C”)

2.5.2. “Initial Expiration Date”: April 30, 2005 (estimated date; see Exhibit “C”) (the Initial Expiration Date stated herein, even if adjusted pursuant to Exhibit “C”, must always be the last day of a calendar month)

2.5.3. Extension Rights: Yes x No ¨ (subject to the terms and conditions of the attached Addendum No. 1)

2.6. “Rentable Area,” “Rentable Square Feet,” “Rentable Square Footage,” “Usable Area,” “Usable Square Feet,” and “Usable Square Footage” will be calculated under the American National Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1C1996 (revised and adopted June 7, 1996) or successor standard(s), adopted by the Building Owners and Managers Association International (BOMA).

2.7. “Basic Monthly Rent”: $2.15 per Rentable Square Foot (subject to adjustment as provided in attached Addendum No. 1). Basic Monthly Rent shall always be due on or before the first day of the applicable month.

2.7.1. “Rent Commencement Date”: May 1, 2000; (estimated date; see Exhibit “C” and Addendum No. 1)

2.8. “Security Deposit”: $27,311.45 (an amount equal to first month’s Basic Monthly Rent). Tenant’s Security Deposit does not constitute last month’s rent. Last month’s rent must be separately paid by Tenant on or before the first day of the last month of the Lease Term.

2.9. “Base Year” The calendar year of 2000.

2.10. Guarantor: N/A (subject to the terms and conditions of the attached Addendum No. 2, if so provided).

2.11. Address for Landlord:	American Assets, Inc.
	11455 El Camino Real, Suite 200
	San Diego, CA 92130

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2.12. Addresses for Tenant.	Legal Notice Address (following occupancy) : The Premises
	Legal Notice Address (prior to occupancy):
	Net Resources, Inc.
	6046 Cornerstone Court, Suite 108
	San Diego, CA 92121
	cc:
	Jeff Lawson, Esq.
	350 7th Avenue SW
	Suite 1400
	Calgary, Alberta, Canada
	T2P3N9

2.13. Permitted Uses By Tenant: General office use, research and development, and related uses, all of which uses must be consistent with the operation of a first class office building in the Sorrento Mesa area, and otherwise in compliance with the terms, provisions, and conditions of this Lease (the “Permitted Use”).

2.14. Building Standard Operating Hours:	Monday through Friday: 7:00 AM-7:00 PM
	Saturday:                 7:00 AM-1:00 PM
	(excluding local, state, and federal holidays)
2.15. Permitted Trade Name: NET RESOURCES, d/b/a BakBone Software, Inc.
2.16. Participating Brokers:	Landlord’s Broker: Warren J. Arnett and Lynn LaChapelle                                     John Burnham & Company
	Tenant’s Broker: Bill Bacon and Michael Jordon                                     CB Richard Ellis

2.17. Amounts Payable upon Lease Execution: $54,622.90 representing Security Deposit and first month’s Basic Monthly Rent.

3. Term. The term of this Lease (“Term”) shall commence on the “Lease Commencement Date”, as defined in the Principal Lease Provisions, and shall expire on the “Initial Expiration Date”, as defined in the Principal Lease Provisions, subject to (i) any modifications to such dates described in Exhibit ”C” to this Lease, (ii) any extension rights described in the Addendum to this Lease, and (iii) earlier termination, as provided in this Lease. The term “Expiration Date”, as used in this Lease shall mean the Initial Expiration Date, any earlier date upon which this Lease is terminated by Landlord, as provided below, or if the Term is extended, then any extended Term expiration date.

4. Delivery of Possession. On or before the Lease Commencement Date, Landlord, at its cost, shall have substantially completed the work, if any, required to be completed by Landlord prior to the delivery of the Premises to Tenant, as described in Exhibit ”C” to this Lease (the “Landlord’s Work”). For purposes of this Paragraph, the term “substantially complete” shall mean completed to such an extent that Tenant can commence its work, if any, to be undertaken by Tenant, as described in Exhibit ”C” to this Lease (the “Tenant’s Work”), without material delay or interference due to the completion of Landlord’s Work or if no such Tenant’s Work is to be undertaken, then such term shall mean completed to such an extent that the Landlord’s Work can be finally completed within 30 days and without material interference to Tenant’s occupancy and use of the Premises. If possession of the Premises (including, without limitation, substantial completion of the Landlord’s Work, if any) is not delivered to Tenant on or before the Lease Commencement Date stated in the Principal Lease Provisions, then Landlord shall not be liable for any damage caused by such delay, and such delay shall neither affect the validity of this Lease, affect Tenant’s obligations under this Lease, nor extend the Term. Tenant’s acceptance of possession of the Premises shall constitute Tenant’s acknowledgment that it has inspected the Premises, that Tenant accepts the Premises in its then “as is” condition, that the Premises comply with all applicable laws and ordinances, and that the Premises are in first-class condition and repair. Except for any items set forth on a written “punch-list” of excepted items delivered to Landlord upon the Lease Commencement Date, Tenant shall be deemed to have (i) acknowledged that Landlord’s Work has been substantially completed, (ii) accepted the Premises in its then as-is condition with no right to require Landlord to perform any additional work therein, except as set forth on the punch list, and (iii) waived any express or implied warranties regarding the condition of the Premises, including any implied warranties of fitness for a particular purpose or merchantability.

5. Use of Premises and Common Areas.

5.1. Permitted Use of Premises. Tenant may use the Premises for the Permitted Use specified in the Principal Lease Provisions and for no other use. Any change in the Permitted Use (or any change in Tenant’s trade name from the Permitted Trade Name identified in the Principal Lease Provisions) will require Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s reasonable discretion.

5.2. Compliance with Laws. Tenant shall comply with all laws concerning the Premises and/or Tenant’s use of the Premises, including without limitation the obligation at Tenant’s sole cost to alter, maintain, or restore the Premises in compliance with all applicable laws, even if such laws are enacted after the date of this Lease, even if compliance entails costs to Tenant of a substantial nature and even if compliance requires structural alterations. Such obligation to comply with laws shall include without limitation compliance with Title III of the Americans With Disabilities Act of 1990 (42 U.S.C. 12181 et seq.) (the “ADA”). If Tenant’s use of the Premises results in the need for

2

modifications or alterations to any portion of the Common Areas or the Project in order to comply with the ADA, then Tenant shall additionally be responsible for the cost of such modifications and alterations.

5.3. Condition During Periods of Non-Use; Recapture. During any period of time in which Tenant is not continuously using and occupying the Premises, Tenant shall take such measures as may be necessary or desirable, in Landlord’s reasonable opinion, to secure the Premises from break-ins and use by unauthorized persons, to minimize the appearance of non-use, and to otherwise maintain the interior and exterior portions of Tenant’s Premises, including all windows and doors, in first class condition and consistent with the manner in which the Premises were maintained during Tenant’s occupancy. During any period of time in which Tenant is not continuously using and occupying the Premises, Landlord may, at its election, by giving written notice (the “Non-Use Recapture Notice”) to Tenant, to recapture the Premises and terminate this Lease. If Landlord elects to exercise such right and delivers a Non-Use Recapture Notice to Tenant, this Lease shall automatically be deemed terminated as of the effective date stated in the Non-Use Recapture Notice, and Tenant shall surrender possession of the Premises as of such date (and any failure to do so shall constitute a default hereunder).

5.4. Use of Common Areas. Tenant’s use of the Common Areas shall at all times comply with the provisions of all rules and regulations regarding such use as Landlord may from time to time adopt. In no event shall the rights granted to Tenant to use the Common Areas include the right to store any property in the Common Areas, whether temporarily or permanently. Any property stored in the Common Areas may be removed by Landlord and disposed of, and the cost of such removal and disposal shall be payable by Tenant upon demand. Additionally, in no event may Tenant use any portion of the Common Areas for loading, unloading, or parking, except in those areas specifically designated by Landlord for such purposes, nor for any sidewalk sale or similar commercial purpose.

5.5. General Covenants and Limitations on Use. Tenant shall not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurance covering the Premises. If the rate of any insurance carried by Landlord is increased as a result of Tenant’s use or Tenant’s failure to continuously use and occupy the Premises, Tenant shall pay to Landlord, within ten days after Landlord delivers to Tenant a notice of such increase, the amount of such increase. Furthermore, Tenant covenants and agrees that no noxious or unreasonably offensive activity shall be carried on, in or upon the Premises by Tenant or Tenant’s Invitees (as defined below), nor shall anything be done or kept in the Premises which may be or become a public nuisance or which may cause unreasonable embarrassment, disturbance, or annoyance to others in the Building, on the Project, or on adjacent or nearby property. To that end, Tenant additionally covenants and agrees that no light shall be emitted from the Premises which is unreasonably bright or causes unreasonable glare; no sounds shall be emitted from the Premises which are unreasonably loud or annoying; and no odor shall be emitted from the Premises which is or might be noxious or offensive to others in the Building, on the Project, or on adjacent or near-by property. Tenant shall not conduct or permit any “fire sale”, public auction, sidewalk sale, going out of business sale, employment fair, or other such event in or about the Premises or the Project. In addition, Tenant covenants and agrees that no unsightliness shall be permitted in the Premises which is visible from the Common Areas. Without limiting the generality of the foregoing, all equipment, objects, and conditions shall be kept enclosed within the Premises and screened from view; no refuse, scraps, debris, garbage, trash, bulk materials, or waste shall be kept, stored, or allowed to accumulate except as may be properly enclosed within appropriate containers in the Premises and promptly and properly disposed of; the Premises shall not be used for sleeping or washing clothes, nor shall the Premises be used for cooking (other than use of a microwave oven or toaster oven for uses typically used in office settings) or the preparation, manufacture, or mixing of anything that might emit any offensive odor or objectionable noises or lights onto the Project or nearby properties; and all pipes, wires, poles, antennas, and other facilities for utilities or the transmission or reception of audio or visual signals shall be kept and maintained enclosed within the Premises. Tenant shall be solely responsible for the timely removal of all refuse, scraps, debris, garbage, trash, bulk materials, or waste from the Premises and the deposit thereof in the trash containers or dumpsters located adjacent to the Building. Further, Tenant shall not keep or permit to be kept any bicycle, motorcycle, or other vehicle, nor any animal (excluding seeing-eye dogs), bird, reptile, or other exotic creature in the Premises. Neither Tenant nor Tenant’s Invitees shall do anything that will cause damage or waste to the Project. Neither the floor nor any other portion of the Premises shall be overloaded. No machinery, equipment, apparatus, or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate, or shake all or any part of the Project or be allowed to interfere with the equipment of any other tenant within the Project (or other property owned by Landlord or its affiliates), including, without limitation, interference with transmission and reception of telephone, television, radio, or similar signals. In the event of any breach of this Paragraph 5 by Tenant or Tenant’s Invitees, Landlord, at its election, may pay the cost of correcting such breach and Tenant shall immediately, upon demand, pay the reasonable cost thereof, plus a supervisory fee in the amount of ten percent (10%) of such cost.

6. Security Deposit. Upon the execution of this Lease, Tenant shall deposit with Landlord cash in the amount of the Security Deposit set forth in the Principal Lease Provisions (the “Security Deposit”), to secure the performance by Tenant of its obligations under this Lease, including without limitation Tenant’s obligations (i) to pay Basic Monthly Rent, Additional Rent, and (if applicable) Percentage Rent, (ii) to repair damages to the Premises and/or the Project caused by Tenant or Tenant’s agents, employees, contractors, licensees, and invitees (collectively, “Tenant’s Invitees”), (iii) to surrender the Premises in the condition required by Paragraph 24, and (iv) to remedy any other defaults by Tenant in the performance of any of its obligations under this Lease. If Tenant commits any default under this Lease, Landlord may, at its election, use the Security Deposit to cure such defaults, and to compensate Landlord for all damage suffered by Landlord from such defaults, including, without limitation, attorneys’ fees and costs incurred by Landlord. Upon demand by Landlord, Tenant shall promptly pay to Landlord a sum equal to any portion of the Security Deposit so used by Landlord, in order to maintain the Security Deposit in the amount set forth in the Principal Lease Provisions (subject to increase as set forth below). If the Basic Monthly Rent shall, from time to time, increase during the Term, then, upon demand by Landlord, Tenant shall deposit with Landlord cash in an amount necessary to increase the Security Deposit such that it shall at all times bear the same proportion to the then-current Basic Monthly Rent as the initial Security Deposit bears to the initial Basic Monthly Rent. Following the Expiration Date and within the time frame required by applicable law, Landlord shall deliver to Tenant, at Tenant’s last known address, any portion of the Security Deposit not used by Landlord, as provided in this Paragraph. Landlord may commingle the Security Deposit with Landlord’s other funds and Landlord shall not pay interest on such Security Deposit to Tenant.

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7. Rent. Tenant shall pay to Landlord as minimum monthly rent, without deduction, setoff, prior notice, or demand, the Basic Monthly Rent described in the Principal Lease Provisions (subject to adjustment as provided in the attached Addendum), in advance, on or before the first day of each calendar month, beginning on the Rent Commencement Date and thereafter throughout the Term. If the Rent Commencement Date is other than the first day of a calendar month, then the Basic Monthly Rent payable by Tenant for the first month of the Term following the Rent Commencement Date (which first month’s rent shall be payable upon execution of this Lease) shall be prorated on the basis of the actual number of days during the Term occurring during the relevant month. Notwithstanding the foregoing, if Landlord is delayed in completion of Landlord’s Work due to any act or omission by Tenant or its agents, employees, contractors, or representatives, then in addition to the Basic Monthly Rent payable for the first month of the Term following the Rent Commencement Date, Tenant shall additionally pay to Landlord, upon the Rent Commencement Date, additional rent (at the rate of one-thirtieth of the Basic Monthly Rent per day) for the number of days of such delay. All “Rent” (which includes Basic Monthly Rent, and any items designated as “Additional Rent” hereunder) shall be paid to Landlord at the same address specified for notices to Landlord pursuant to the Principal Lease Provisions, as Landlord may change such address from time to time pursuant to the terms of this Lease. The Rentable Area of the Premises and the Building is, at Landlord’s election, subject to verification by Landlord’s space planner or architect. That verification shall be made in accordance with this Paragraph. Tenant’s space planner or architect may consult with Landlord’s space planner or architect regarding that verification. Verification of the Rentable Area of the Premises shall be done, if at all, within 90 days of the Lease Commencement Date. Verification of the Rentable Area of the Building may be accomplished within such 90-day period or at any time thereafter that there is a change to the Building necessitating such verification. If Landlord’s space planner or architect determines that the Rentable Area of the Premises or the Building is different from that stated in this Lease, all Rent that is based on that incorrect amount shall be modified in accordance with that determination. If that determination is made, it shall be confirmed in writing by Landlord to Tenant.

8. Additional Rent.

8.1. Additional Rent; Rent. In addition to paying the Basic Monthly Rent pursuant to Paragraphs 2.6 and 7 above, Tenant shall, commencing on the first day of the calendar year following the Base Year, pay as additional rent Tenant’s Share of the annual Direct Expenses (as defined below) that are in excess of the amount of Direct Expenses applicable to the Base Year (as defined below). That additional rent, together with other amounts of any kind (other than Basic Monthly Rent) payable by Tenant to Landlord under the terms of this Lease, shall be collectively referred to in this Lease as “Additional Rent.” Basic Monthly Rent and Additional Rent are collectively referred to in this Lease as “Rent.” Without limitation on other obligations of Tenant that survive the expiration of the Lease Term, Tenant’s obligations to pay the Additional Rent provided for in this Paragraph will survive the expiration of the Lease Term.

8.2. Definitions. The following definitions apply in this Paragraph (and elsewhere in this Lease):

8.2.1. Base Year. “Base Year” means the period defined as such in the Principal Lease Provisions.

8.2.2. Direct Expenses. “Direct Expenses” means the sum of Operating Expenses plus Tax Expenses (as such terms are defined below).

8.2.3. Expense Year. “Expense Year” means each calendar year in which any portion of the Lease Term falls, beginning with calendar year 2000 (which first Expense Year is also the Base Year), through and including the calendar year in which the Lease Term expires.

8.2.4. Operating Expenses. The term “Operating Expenses” means and refers to all expenses, costs, and amounts of every kind or nature that Landlord actually pays or incurs because of or in connection with the ownership, operation, management, maintenance, or repair of the Building and the Project. By way of illustration, Operating Expenses include, without limitation, the following amounts paid or incurred relative to the Project (a) the cost of providing and supplying utilities, (b) the cost of operating, managing, maintaining, and repairing the Project and all building systems, including without limitation utility, mechanical, HVAC, sanitary, storm drainage, and elevator systems, and the cost of Parking Area (as defined below) maintenance, repair, and restoration, including, without limitation, resurfacing, repainting, restriping, and cleaning, (c) the cost of supplies and tools and of equipment, maintenance, and service contracts in connection with the Project and the systems referenced in the preceding clause, (d) the cost of licenses, certificates, permits, and inspections required in connection with the operation of the Building (for example elevator permits and inspections), (e) the cost of contesting the validity or applicability of any government enactments that may affect the Operating Expenses, (f) costs incurred in connection with the implementation and operation of a parking or transportation management program or similar program, (g) Insurance Expenses (as defined below), (h) fees, charges, and other costs including management fees (or amounts in lieu of such fees), consulting fees, legal fees, and accounting fees of all persons engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the operation, management, maintenance, and repair of the Project, (i) the cost of providing janitorial services, whether provided by Landlord’s personnel or by third parties, (j) wages, salaries, and other compensation and benefits of all persons engaged in the operation, maintenance, or security of the Project plus employer’s Social Security taxes, unemployment taxes, insurance, and any other taxes or payroll burden imposed on Landlord that may be levied on those wages, salaries, and other compensation and benefits, (k) amortization (including interest at a rate equal to the floating commercial loan rate announced from time to time by Bank of America as its reference rate plus four percentage points per annum) of the cost of acquiring or renting personal property used in the maintenance, repair, and operation of the Project, (l) any costs or expenses payable pursuant to the provisions of any reciprocal easement and maintenance agreement (or similar agreement) recorded against the Project either now or in the future including any owner’s association or similar fees, assessments, or dues presently or hereafter established for the Project, and (m) the cost of capital improvements or other similar expenses (other than those excluded below) which (1) are intended as a labor saving device or to effect other economies in the maintenance or operation of all or part of the Project, or (2) are required under any government law or regulation but that were not required as of the Commencement Date. All capital expenditures shall be amortized (including interest on the unamortized cost at the rate stated in clause (k), above) over

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their useful life, as reasonably determined by Landlord. With respect to clause (j) above, if any of Landlord’s employees provide services for more than one project, only the prorated portion of those employees’ wages, salaries, other compensation and benefits, and taxes reflecting the percentage of their working time devoted to the Project shall be included in Operating Expenses.

8.2.5. Tenant’s Share. “Tenant’s Share” means a percentage which is calculated by multiplying the number of Rentable Square Feet of the Premises by 100 and dividing the product by the total Rentable Square Feet in the Project. If either the Premises, the Building, or the Project are expanded or reduced, Tenant’s Share shall be appropriately adjusted. Tenant’s Share for the Expense Year in which that change occurs shall be determined on the basis of the number of days during the Expense Year in which each such Tenant’s Share was in effect.

8.3. Adjustment of Operating Expenses. Operating Expenses shall be adjusted as follows:

8.3.1. Gross Up Adjustment When a Project is Less Than Fully Occupied. If the occupancy of the total Rentable Square Footage of completed buildings within the Project during any part of any Expense Year (including the Base Year) is less than 95%, Landlord shall make an appropriate adjustment of the variable components of Operating Expenses for that Expense Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred had the Project been 95% occupied. This amount shall be considered to have been the amount of Operating Expenses for that Expense Year. For purposes of this Paragraph 8.3, “variable components” include only those component expenses that are affected by variations in occupancy levels.

8.3.2. Adjustment When Landlord Adds Additional Buildings to the Project. If Landlord constructs additional buildings within the Project, Landlord shall make an appropriate adjustment to the Operating Expenses for the Base Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred for the Base Year if such building had been complete and 95% occupied (unless the actual percentage of occupancy is higher than 95%, in which case such higher percentage will be used) during the Base Year.

8.3.3. Adjustment When Landlord Does Not Furnish a Service to All Tenants. If, during any part of any Expense Year (including the Base Year), Landlord is not furnishing a particular service or work (the cost of which, if furnished by Landlord, would be included in Operating Expenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, Operating Expenses for that Expense Year shall be considered to be increased by an amount equal to the additional Operating Expenses that Landlord would reasonably have incurred during such period if Landlord had furnished such service or work to that tenant.

8.3.4. Common Areas. Landlord may elect to partition/separate the Common Areas of the Project such that the Operating Costs associated with such partitioned Common Areas are allocated to particular buildings or parcels within the Project; provided, however, that such election does not increase Operating Costs associated with the Premises.

8.4. Tax Expenses.

8.4.1. Definition of Taxes and Tax Expenses. “Taxes” means the all federal, state, county, or local government or municipal taxes, fees, charges, or other impositions of every kind or nature, whether general, special, ordinary, or extraordinary. Taxes include taxes, fees, and charges such as real property taxes, general and special assessments, transit taxes, leasehold taxes, and taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant); personal property taxes imposed on the fixtures, machinery, equipment, apparatus, systems, and equipment; appurtenances; furniture; and other personal property used in connection with the Project. Notwithstanding the foregoing, the following shall be excluded from Taxes: (a) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal, state, and local income taxes, and other taxes applied or measured by Landlord’s general or net income (as opposed to rents, receipts, or income attributable to operations at the Building), (b) any items included as Operating Expenses, (c) personal property taxes attributable to property owned or installed by or for other tenants of the Project. “Tax Expenses” means the sum of all Taxes that are paid or incurred by Landlord because of or in connection with the ownership, leasing, and operation of the Project, (d) any environmental assessments, charges, or liens arising in connection with the remediation of Hazardous Materials (as defined below) from the Project, the causation of which arose prior to the Lease Commencement Date, or to the extent caused by Landlord or Landlord’s Invitees (as defined below), and (e) costs or fees (other than real estate taxes) payable in connection the right to further develop the Project.

8.4.2. Adjustment of Taxes. For purposes of this Lease, Tax Expenses for the Base Year shall be adjusted upon a reassessment of the Project resulting from the construction of a new building within the Project to increase the Base Year Tax Expenses amount by the amount of Tax Expenses attributable to such new building’s assessed value. Landlord specifically agrees that any gross receipts component of Tax Expenses for the Base Year and each subsequent year shall be calculated as if the buildings in the Project were one hundred percent (100%) occupied with rent paying tenants. Accordingly, during the portion of any Expense Year occurring after the Base Year, Tax Expenses shall be considered to be increased appropriately.

8.5. Calculation and Payment of Additional Rent. Tenant’s Share of any Direct Expenses for any Expense Year shall be calculated and paid as follows:

8.5.1. Calculation of Excess. If Tenant’s Share of Direct Expenses for any Expense Year ending or beginning within the Lease Term exceeds Tenant’s Share of the amount of Direct Expenses applicable to the Base Year, Tenant shall pay as Additional Rent to Landlord an amount equal to that excess, in the manner stated below.

8.5.2. Statement/Payment of Direct Expenses. Tenant shall pay to Landlord, on the first day of each calendar month during the Lease Term, commencing on the first day of the calendar year immediately

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following the Base Year, as Additional Rent, an amount (“Tenant’s Monthly Payment”) equal to one-twelfth of Tenant’s Share of the amount by which the Direct Expenses for such calendar year exceed the Base Year Direct Expenses (“Increased Direct Expenses”), as estimated by Landlord in the most recently delivered Estimated Statement (as defined below). Landlord intends to deliver to Tenant, prior to the commencement of each Expense Year during the Lease Term, a written statement (“Estimated Statement”) setting forth Landlord’s estimate of the Direct Expenses and Increased Direct Expenses allocable to the ensuing Expense Year, and Tenant’s Share of such Increased Direct Expenses. Landlord may, at its option, during any Expense Year, deliver to Tenant a revised Estimated Statement, revising Landlord’s estimate of the Direct Expenses and Increased Direct Expenses, in accordance with Landlord’s most current estimate. Within ninety (90) days after the end of each Expense Year during the Lease Term, Landlord intends to deliver to Tenant a written statement (“Actual Statement”) setting forth the actual Direct Expenses allocable to the preceding Expense Year. Tenant’s failure to object to Landlord regarding the contents of an Actual Statement, in writing, within 90 days after delivery to Tenant of such Actual Statement, shall constitute Tenant’s absolute and final acceptance and approval of the Actual Statement. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any Expense Year exceeds Tenant’s Share of the actual Increased Direct Expenses allocable to such Expense Year, then such excess will be credited against future Tenant’s Monthly Payments, unless such Expense Year was the calendar year during which the Lease Expiration Date occurs (the “Last Calendar Year”), in which event either (i) such excess shall be credited against any monetary default of Tenant under this Lease, or (ii) if Tenant is not in default under this Lease, then Landlord shall (within the time frame for returning Tenant’s Security Deposit) pay to Tenant such excess. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any Expense Year is less than Tenant’s Share of the actual Increased Direct Expenses allocable to such Expense Year, then Tenant shall, within ten days of delivery of the Actual Statement, pay to Landlord the amount of such deficiency. Landlord’s delay in delivering any Estimated Statement or Actual Statement will not release Tenant from its obligation to pay any Tenant’s Monthly Payment or any such excess upon receipt of the Estimated Statement or the Actual Statement, as the case may be. The references in this Paragraph to the actual Increased Direct Expenses allocable to a Expense Year, shall include, if such Expense Year is the Last Calendar Year, the actual Increased Direct Expenses allocable to the portion of such year prior to the Lease Expiration Date, calculated on a pro rata basis, without regard to the date of a particular expenditure.

8.6. Landlord’s Books and Records. If Tenant timely disputes the amount of Additional Rent stated in an Actual Statement, Tenant may, upon at least five business days notice to Landlord, request an opportunity to inspect Landlord’s records and supporting documentation regarding Additional Rent. Such inspection shall be at Tenant’s sole cost and expense and Landlord shall, at its election, either provide copies of such records and supporting documentation to Tenant or make such records and supporting documentation available to Tenant for its inspection at Landlord’s business office during normal business hours.

9. Utilities and Services. Subject to applicable government rules, regulations, and guidelines and the rules or actions of the public utility furnishing the service, Landlord shall provide (as an Operating Cost and part of the Direct Expenses) the following utilities and services:

9.1. Heating and Air Conditioning. Landlord shall provide heating and air conditioning when necessary for normal comfort for normal office use in the Premises and the Common Areas of the Building, as reasonably determined by Landlord, during Building Standard Operating Hours.

9.2. Electricity. Landlord shall provide wiring, outlets, and systems sufficient to provide electrical current to the Premises for ordinary and customary office uses. In addition to the foregoing, Landlord shall replace lamps, starters, and ballasts for Building-standard lighting fixtures within the Premises upon Tenant’s request and at Landlord’s expense. Tenant shall replace lamps, starters, and ballasts for non Project-standard lighting fixtures within the Premises at Tenant’s sole expense.

9.3. Water. Landlord shall provide city water from the regular Building outlets for ordinary and customary drinking, lavatory, and toilet purposes.

9.4. Janitorial Service. Landlord shall provide five (5) day per week ordinary and customary, basic janitorial services in and about the Premises consistent with other first class office buildings in the vicinity of the Building. Landlord shall not be required to provide janitorial services to above Project-standard improvements installed in the Premises including but not limited to metallic trim, wood floor covering, glass panels, interior windows, kitchens, executive washrooms, or shower facilities. Any janitorial services required by Tenant and provided by Landlord in excess of such ordinary and customary, basic janitorial services shall be separately paid for by Tenant, as Additional Rent, within ten days of written demand.

9.5. Over-Standard Tenant Use. Tenant shall not exceed the rated capacity of the Building’s electrical and other utility systems. In the event of any damage or overloading to any of the Project’s systems caused by Tenant’s use thereof in excess of ordinary and customary usage for an office, Tenant shall be responsible for all costs and expenses incurred by Landlord as a result of such over-use. In addition, if Tenant requires any utilities or services described in this Paragraph in excess of the standard levels being provided by Landlord, or during hours other than Building Standard Operating Hours, Landlord shall have the right to impose reasonable restrictions on such usage and/or commercially reasonable charges therefor. The cost for after hours heating and air conditioning is estimated to be Twenty Five Dollars ($25.00) per hour, subject to increase over the Lease Term, including the Extension Term, if any.

9.6. Conduit and Wiring. Installation of all types of conduit and wiring exclusively serving the Premises, including but not limited to communications wiring, shall be subject to the requirements of Paragraph 23, below, Exhibit “C”, and the Landlord’s approval of the location, manner of installation, and the installing contractor. All such conduit and wiring shall, at Landlord’s option, become Landlord’s property upon the expiration of the Term. Upon the expiration of the Term, Landlord may elect to require Tenant to remove such conduit and wiring at Tenant’s expense and return the Premises and the Common Areas to their pre-existing condition. If Landlord constructs new or additional utility facilities, including without limitation wiring, plumbing, conduits, and/or mains, resulting from Tenant’s

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changed or increased utility requirements, Tenant shall on demand promptly pay to Landlord the total cost of such items.

9.7. Utilities Generally. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services) or for diminution in the quality or quantity of any service when the failure, delay, or diminution is entirely or partially caused by: (a) breakage, repairs, replacements, or improvements which is corrected within two (2) business days; (b) strike, lockout, or other labor trouble; (c) inability to secure electricity, gas, water, or other fuel at the Building despite reasonable efforts to do so; (d) accident or casualty; (e) act or default of Tenant or other parties other than Landlord; or (f) any other cause beyond Landlord’s reasonable control. Such failure, delay, or diminution shall not be considered to constitute an eviction or a disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except that Tenant shall be entitled to an equitable abatement of Rent for the period of such failure, delay, or diminution to the extent such failure, delay, or diminution is directly attributable to Landlord’s gross negligence or intentional misconduct and continues for more than two (2) business days after delivery of written notice of such failure, delay or diminution from Tenant to Landlord. Landlord shall not be liable under any circumstances for a loss of or injury to property or for injury to or interference with Tenant’s business, including loss of profits through, in connection with, or incidental to a failure to furnish any of the utilities or services under this Paragraph. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to promptly correct any such interruption of utilities or services. If any governmental authority having jurisdiction over the Project imposes mandatory controls, or suggests voluntary guidelines applicable to the Project, relating to the use or conservation of water, gas, electricity, power, or the reduction of automobile emissions, Landlord, at its sole discretion, may comply with such mandatory controls or voluntary guidelines and, accordingly, require Tenant to so comply. Landlord shall not be liable for damages to persons or property for any such reduction, nor shall such reduction in any way be construed as a partial eviction of Tenant, cause an abatement of rent, or operate to release Tenant from any of Tenant’s obligations under this Lease except that Tenant shall be entitled to an equitable abatement of Rent for the period of such failure, delay, or diminution to the extent such failure, delay, or diminution is directly attributable to Landlord’s gross negligence or intentional misconduct and continues for more than two (2) business days after delivery of written notice of such failure, delay or diminution from Tenant to Landlord.

10. Maintenance.

10.1. Tenant’s Duties. Tenant shall at its sole cost maintain, repair, replace, and repaint, all in first class condition, the interior of the Premises and any damage to the Premises or the Project resulting from the acts or omissions of Tenant or Tenant’s Invitees, including, without limitation, any damage to doors, windows, or the roof or damage relating to a roof penetration caused by Tenant or Tenant’s Invitees. Tenant shall maintain all communications conduit and wiring exclusively serving the Premises, whether in the Premises or not, regardless of the ownership of said conduit or wiring, subject to Landlord’s approval of Tenant’s maintenance/repair contractor. If Tenant fails to maintain, repair, replace, or repaint any portion of the Premises or the Project as provided above then Landlord may, at its election, maintain, repair, replace, or repaint any such portion of the Premises or the Project and Tenant shall promptly reimburse Landlord for Landlord’s actual cost thereof, plus a supervisory fee in the amount of ten percent (10%) of Landlord’s actual cost.

10.2. Landlord’s Duties. Landlord shall, as a part of the Direct Expenses, maintain, repair, replace, and repaint, all in good order and condition, consistent with first-class office buildings in the vicinity of the Building, the Common Areas and all portions of the interior and exterior of the Building, except to the extent of Tenant’s obligations as set forth in Paragraph 10.1, above. Landlord’s failure to perform its obligations set forth in the preceding sentence will not release Tenant of its obligations under this Lease, including without limitation Tenant’s obligation to pay Rent. Tenant waives the provisions of California Civil Code Section 1942 (or any successor statute), and any similar principals of law with respect to Landlord’s obligations for tenantability of the Premises and Tenant’s right to make repairs and deduct the expense of such repairs from rent.

11. Parking. Subject to the remaining provisions of this Paragraph, as long as Tenant is not in default under this Lease, Landlord grants to Tenant (for the benefit of Tenant and Tenant’s Invitees) the right to the non-exclusive use of the parking area within the boundaries of and serving the Project (the “Parking Area”). Tenant’s use of the Parking Area shall be subject to such rules as Landlord may, in its sole discretion, adopt from time to time with respect to the Parking Area, including without limitation (i) rules providing for the payment of charges or fees by users of the Parking Area (including without limitation Tenant) in order to reimburse Landlord for the expense of a parking attendant and/or an automated parking system or to comply with local taxes or fees and in such event the charges or fees shall be deemed Additional Rent, (ii) rules limiting tenants of the Project (including, without limitation, Tenant) to the use of, or excluding the use of, certain parking spaces or certain portions of the Parking Area, in order to maintain the availability of accessible parking spaces for clients, guests, and invitees of tenants of the Project, and (iii) rules limiting tenants of the Project (including without limitation Tenant) to the use of a restricted number of parking spaces or a restricted area. Notwithstanding anything to the contrary in this Paragraph, Landlord may, at its election, construct improvements upon or otherwise alter in any manner the Parking Area provided that Landlord makes reasonable amounts of parking available (or reasonable amounts of parking will remain available) to Tenant elsewhere on the Project, or within a reasonable distance from the Project. Landlord reserves the right to grant certain tenants in the Project the exclusive right to park in specified areas of the Parking Area, to the exclusion of all other tenants. Tenant acknowledges that the exercise of the rights reserved to Landlord under this Paragraph may result in a decrease in the number of parking spaces available to Tenant and Tenant’s Invitees, and no such decrease shall affect Tenant’s obligations under this Paragraph or entitle Tenant to any abatement of Rent.

12. Signs.

12.1. General Signage Conditions. Subject to Tenant’s signage rights under this paragraph, Landlord may at any time change the name of either or both of the Building and/or the Project and install, affix, and maintain all signs on the exterior and interior of the Building and other buildings within the Project as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not have or acquire any property right or interest in the name of the Building or

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Project. Tenant may use the name of the Building or Project or pictures or illustrations of the Building or Project in advertising or other publicity during the Lease Term. Tenant may not place, construct, or maintain any sign, advertisement, awning, banner, or other exterior decoration (collectively, “sign”) in the Premises which is visible from the exterior of the Premises, or on the Building or any other portion of the Project without Landlord’s prior written consent. Any sign that Tenant is permitted by Landlord to place, construct, or maintain in the Premises or on the Building or the Project (including, specifically, those installed pursuant to Paragraph 12.2 below) must comply with Landlord’s sign criteria applicable to the Project, including, without limitation, criteria relating to size, color, shape, graphics, and location (collectively, the “Sign Criteria”), and shall comply with all applicable laws, ordinances, CC&R’s (or similar recorded instruments), rules, or regulations, and Tenant shall obtain any approvals required by such laws, ordinances, CC&R’s (or similar recorded instruments), rules, and regulations. Landlord makes no representation or warranty with respect to Tenant’s ability to obtain any such approval. Tenant shall, at Tenant’s sole cost, make any changes to any sign, in the Premises or on the Building as required by any new or revised applicable laws, ordinances, rules, or regulations. Tenant shall, additionally, maintain, repair, and replace all of Tenant’s signs (including, specifically, those installed pursuant to Paragraph 12.2 below) in first class condition (excluding any multi-tenant sign within the Project maintained by the Landlord).

12.2. Tenant’s Signage Rights. Subject to compliance with the requirements of Paragraph 12.1, above, Tenant is hereby granted the following signage rights in/on the Building and at the Project.

12.2.1. Directory/Suite Signage. Tenant shall be provided, at Landlord’s expense, with Project-standard lobby directory and suite signage identifying Tenant.

12.2.2. Single Tenant Floor. If at any time during the Term the Premises comprise or include an entire floor of the Building, Tenant may, at Tenant’s sole expense, install identification signs (including its logo) in the elevator lobby of the Premises, subject to the following requirements: (i) Tenant must obtain Landlord’s prior written approval for such signs, which Landlord may, in Landlord’s reasonable discretion, grant or deny; (ii) all signs must be in keeping with the quality, design, and style of the Building; and (iii) no such sign may be visible from the exterior of the Building.

13. Rules, Regulations and Covenants. Tenant shall (and shall cause Tenant’s Invitees to) observe faithfully and comply strictly with any reasonable, non-discriminatory rules and regulations which Landlord may from time to time adopt for the Project as well as any recorded CC&Rs (or like instruments) affecting the Premises or the Project, whether now existing or hereafter adopted or amended from time to time (all of the foregoing, collectively, “rules”). Landlord has no duty or obligation to enforce such rules against any other tenant, and Landlord will not be liable to Tenant for violation of any rule by any other tenant, or any other tenant’s agents, employees, officers, independent contractors, customers, invitees, visitors, or licensees. Tenant acknowledges that Landlord reserves the right, from time to time, to enter into leases or other agreements by which Landlord agrees to restrict the use of all or any portion of the Project (including the Premises) from certain uses. All such leases and other agreements, whether now existing or entered into in the future, shall be binding upon Tenant and in no event shall Tenant utilize the Premises for any use so prohibited.

14. Early Access Insurance. If prior to the Lease Commencement Date Tenant is planning to (and permitted by Landlord to) make any Alterations (as defined below) to the Premises, perform any of the Tenant’s Work, or enter into the Premises for purposes of installing furniture, fixtures, and equipment, then in addition to complying with the provisions of attached Exhibit “C”, (i) Tenant shall, at Tenant’s sole cost, prior to first entering onto the Project, obtain and thereafter at all times maintain (a) “Builder’s Risk” or “Course of Construction” insurance with respect to such work and the Premises, reasonably satisfactory to Landlord, and (b) all of the insurance to be maintained by Tenant during the Term, (ii) the provisions of the Paragraph in this Lease entitled “Indemnity and Exemption of Landlord from Liability” shall be operative, and (iii) the provisions of the Paragraph in this Lease entitled “Utilities and Services” shall be operative. Any Alterations pursuant to this Paragraph shall be subject to all the provisions of the Paragraph in this Lease entitled “Alterations”. Nothing in this Paragraph shall be construed as granting permission to Tenant to enter the Premises, or to make any Alterations, prior to the Lease Commencement Date and no such right shall exist unless specified in Exhibit “C” or agreed to by Landlord in its sole discretion.

15. Plate-Glass Insurance. Tenant shall at its sole cost maintain full coverage plate-glass insurance on the Premises, under which Landlord and any lender holding a security interest in the Project (“Lender”) shall be named as additional insureds.

16. Public Liability and Property Damage Insurance. Throughout the Lease Term, Tenant shall, at Tenant’s sole cost, maintain commercial general liability and property damage insurance (i) with a combined single limit of liability of not less than $2,000,000.00, (ii) insuring (a) against all liability of Tenant and Tenant’s Invitees arising out of or in connection with Tenant’s use or occupancy of the Premises, including, without limitation, Tenant’s use, maintenance, repair, and replacement of systems and equipment either contained within the Premises or in air spaces, walls, roof areas, or other portions of the Building or the Project and which exclusively serve the Premises, and (b) performance by Tenant of the indemnity provisions set forth in this Lease, (iii) naming Landlord, its agent, and any Lender as additional insureds, (iv) containing cross-liability endorsements, and (vi) which includes products liability insurance (if Tenant is to sell merchandise or other products derived, assembled, or produced from the Premises). Not more frequently than once every year, if, in the commercially reasonable opinion of Landlord, the amount of such insurance at that time is not adequate, then Tenant shall increase such insurance as reasonably required by Landlord.

17. Fire and Extended Coverage Insurance. Tenant shall, at Tenant’s sole cost, maintain on Tenant’s Alterations and Tenant’s Personal Property (as defined below) a policy of standard fire and extended coverage and special form insurance, with vandalism and malicious mischief endorsements, coverage with respect to increased costs due to building ordinances, demolition coverage, boiler and machinery insurance, and sprinkler leakage coverage, in each case to the extent of at least 100 percent of full replacement value, and issued in the name of Tenant with Landlord, Landlord’s Lender and Landlord’s designated agent as additional insureds. Such “full replacement value” shall be determined by the company issuing such policy at the time the policy is initially obtained. Not more frequently than once every two years, either Landlord or Tenant may, at its election, notify the other that it elects to have the

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replacement value redetermined by an insurance company. Such redetermination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and Landlord and Tenant shall be promptly notified of the results by the insurance company. Such policy shall be promptly adjusted according to such redetermination.

18. Business Interruption Insurance. Tenant shall obtain business interruption insurance in amounts sufficient to reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Project as a result of such perils.

19. Insurance Generally. If Tenant fails during the Term to maintain any insurance required to be maintained by Tenant under this Lease, then Landlord may, at its election and after providing Tenant with 5 days notice and an opportunity to cure, arrange for any such insurance, and Tenant shall reimburse Landlord, as Additional Rent, for any premiums for any such insurance within five days after Tenant receives a copy of the premium notice. Insurance required to be maintained by Tenant under this Lease shall be in form and content reasonably satisfactory to Landlord and its Lender and (i) shall be issued as a primary policy, by insurance companies authorized to do business in the State of California, with a Best’s Rating of at least “A” and a Best’s Financial Size Category rating of at least “VIII,” as set forth in the most current edition of “Best’s Insurance Reports” (unless otherwise approved by Landlord), or such higher rating as may be required by any Lender, (ii) shall name Landlord, Landlord’s agent(s), and any Lender as additional insureds, (iii) shall consist of “occurrence” based coverage, without provision for subsequent conversion to “claims” based coverage, (iv) shall not be cancelable or subject to reduction of coverage or other modification except after 30-days’ prior written notice to Landlord and any Lender, and (v) shall not provide for a deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at least 30 days prior to the expiration of each such policy, furnish Landlord with a renewal of or “binder” extending such policy. Tenant shall promptly, upon request, deliver to Landlord copies of such policy or policies or certificates evidencing the existence and amounts of such insurance together with evidence of payment of premiums.

20. Waiver of Subrogation. Tenant releases Landlord and Landlord’s guests, invitees, customers and licensees (collectively, “Landlord’s Invitees”) from all claims for damage, loss, or injury to Tenant’s Personal Property and to the systems, equipment, fixtures and Alterations of Tenant in or on the Premises and the Project to the extent such damage, loss or injury is covered by any insurance policies carried by Tenant and in force at the time of such damage. Tenant shall cause all insurance policies obtained by it pursuant to this Lease to provide (if such provision is generally commercially available) that the insurance company waives all right of recovery by way of subrogation against Landlord in connection with any damage, loss, or injury covered by such policy.

21. Landlord’s Insurance. Landlord may, at its election, maintain any of the following insurance, in such amounts and with such limits as Landlord shall determine in its reasonable discretion: (i) public liability and property damage insurance, and products liability insurance; (ii) fire and extended coverage and special form insurance, coverage with respect to increased costs due to building ordinances, demolition coverage, and sprinkler leakage coverage; (iii) boiler and machinery insurance; (iv) fidelity insurance; (v) plate-glass insurance; and (vi) rental interruption insurance. The premiums, costs, expenses, co-insurance payments, and deductibles (or similar costs or charges) of and/or with respect to any insurance maintained from time to time by Landlord (all of the preceding, collectively, “Insurance Expenses”) shall constitute Operating Expenses.

22. Personal Property Taxes. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied or assessed against, or based upon the value of, Tenant’s personal property installed or located in or on the Premises including without limitation trade fixtures, furnishings, equipment, and inventory (collectively, “Tenant’s Personal Property”). On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of such payments. If any such taxes, assessments, license fees, and/or other charges are levied against Landlord or Landlord’s property, or if the assessed value of the Premises is increased by the inclusion of a value placed on Tenant’s Personal Property, and if Landlord pays such taxes, assessments, license fees, and/or other charges or any taxes based on the increased assessments caused by Tenant’s Personal Property, then Tenant, on demand, shall immediately reimburse Landlord, as Additional Rent, for the sum of such taxes, assessments, license fees, and/or other charges so levied against Landlord, or the proportion of taxes resulting from such increase in Landlord’s assessment. Landlord may, at its election, pay such taxes, assessments, license fees, and/or other charges or such proportion, and receive such reimbursement, regardless of the validity of the levy.

23. Alterations. Tenant shall not make any alterations, improvements, additions, installations, or changes of any nature in or to the Premises (any of the preceding, “Alterations”) unless (i) Tenant first obtains Landlord’s written consent, (ii) Tenant complies with all conditions which may be imposed by Landlord, including but not limited to Landlord’s selection of specific contractors or construction techniques and the requirements of the attached Exhibit “C”, and (iii) Tenant pays to Landlord the reasonable costs and expenses of Landlord for architectural, engineering, or other consultants which reasonably may be incurred by Landlord in determining whether to approve any such Alterations. At least 30 days prior to making any Alterations, Tenant shall submit to Landlord, in written form, proposed detailed plans of such Alterations. Tenant shall, prior to the commencement of any Alterations, at Tenant’s sole cost, (i) acquire (and deliver to Landlord a copy of) all required permits from the appropriate governmental agencies to make such Alterations (any conditions of which permit Tenant shall comply with, at Tenant’s sole cost, in a prompt and expeditious manner), (ii) provide Landlord with ten days’ prior written notice of the date the installation of the Alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility, and (iii) obtain (and deliver to Landlord proof of) reasonably adequate workers compensation insurance with respect to any of Tenant’s employees installing or involved with such Alterations and cause any contractors so involved to additionally carry such statutorily required coverage (which insurance shall be maintained on an occurrence basis, and in force until completion of the Alterations). All Alterations (other than personal property which is not attached to the Premises) shall upon installation become the property of Landlord and shall remain on and be surrendered with the Premises on the Expiration Date, except that Landlord may, at its election, require Tenant to remove any or all of the Alterations, by so notifying Tenant in writing on or about the Expiration Date, in which event, Tenant shall, at its sole cost, on or before the Expiration Date, repair and restore the Premises to the condition of the Premises prior to the installation of the Alterations which are to be removed. Tenant shall pay all costs for Alterations and other construction done or caused to

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be done by Tenant and Tenant shall keep the Premises free and clear of all mechanics’ and materialmen’s liens resulting from or relating to any Alterations or other construction. Tenant may, at its election, contest the correctness or validity of any such lien provided that (a) immediately on demand by Landlord, Tenant procures and records a lien release bond, issued by a corporation satisfactory to Landlord and authorized to issue surety bonds in California, in an amount equal to 150 percent of the amount of the claim of lien, which bond meets the requirements of California Civil Code Section 3143 or any successor statute, and (b) Landlord may, at its election, require Tenant to pay Landlord’s attorneys’ fees and costs incurred in participating in such an action.

24. Surrender of Premises and Holding Over. On the Expiration Date, Tenant shall surrender to Landlord the Premises and all Alterations (except for Alterations that Tenant is obligated to remove as expressly set forth above) in a first class and clean condition, reasonable wear and tear excepted, free of trash and debris including cleaning of all flooring; all walls shall be patched and painted; all signage installed by Tenant on any portion of the Building or Project shall be removed and the surfaces repaired, including restoration of the signage mounting surfaces to their pre-existing condition; all sign circuits, electrical circuits, and lighting fixtures shall be in good operating condition; all HVAC units exclusively serving the Premises shall be in a well maintained and operable condition; all roof penetrations arising from Tenant’s occupancy of the Premises shall be in a watertight condition; and all doors, windows, locks, and hardware shall be in operable and undamaged condition, reasonable wear and tear excepted. Tenant shall additionally, as of the Expiration Date, remove all of Tenant’s Personal Property and perform all repairs and restoration required by the removal of any Alterations or Tenant’s Personal Property, and Tenant shall surrender to Landlord all keys to the Premises (including without limitation any keys to any exterior and interior doors). Landlord may elect to retain or dispose of in any manner any Alterations or Tenant’s Personal Property that Tenant does not remove from the Premises on the Expiration Date as required by this Lease by giving written notice to Tenant. Any such Alterations or Tenant’s Personal Property that Landlord elects to retain or dispose of shall immediately upon notice to Tenant vest in Landlord. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlord’s retention or disposition of any such Alterations or Tenant’s Personal Property. Tenant shall be liable to Landlord for Landlord’s costs for storing, removing, or disposing of any such Alterations or Tenant’s Personal Property required to be removed by Tenant under this Lease. If Tenant fails to surrender the Premises to Landlord on the Expiration Date in the condition required by this Paragraph, Tenant shall indemnify Landlord against all liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims resulting from such failure, including without limitation any claim for damages made by a succeeding tenant. If Tenant, with Landlord’s consent, remains in possession of the Premises after the Expiration Date, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on 30-days’ written notice given at any time by Landlord or Tenant. During any such month-to-month tenancy, Tenant shall pay, as Basic Monthly Rent, 150 percent of the Basic Monthly Rent in effect immediately prior to the Expiration Date, as the case may be; which rental amount Tenant acknowledges is fair and reasonable under all of the facts and circumstances existing as of the date of this Lease. All provisions of this Lease except for those pertaining to Term shall apply to such month-to-month tenancy.

25. Default. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant:

25.1. The vacating or abandoning of the Premises by Tenant.

25.2. Tenant’s failure to make any payment of Rent or late charges as and when due. No grace period prior to the imposition of a late charge pursuant to Paragraph 26 below, shall extend the date when such Rent is due and payable, and Tenant shall be in default under this Lease if such payment is not timely made.

25.3. Tenant’s failure to observe or perform any of the provisions of this Lease to be observed or performed by Tenant, other than described in the preceding two paragraphs, where such failure shall continue for a period of ten days after written notice of such failure from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under applicable unlawful detainer statutes; and provided further, however, that if the nature of Tenant’s default is such that more than ten days are required for its cure, then Tenant shall not be deemed to be in default if Tenant commenced such cure within such ten-day period and thereafter diligently prosecutes such cure to completion within 30 days after Landlord’s written notice.

25.4. Tenant’s failure to deliver to Landlord, within 10 days after Landlord’s written request, any financial statement of Tenant (including without limitation a current annual balance sheet and profit/loss statement of Tenant) reasonably requested by Landlord, or if any financial statement given to Landlord by Tenant, or by any assignee, subtenant, or guarantor of Tenant, is materially false or evidences that Tenant’s net worth is negative, and Tenant fails to furnish to Landlord, within 10 days after written notice from Landlord to Tenant, with cash as an additional security deposit in an amount equal to the aggregate Rent payable under this Lease for the six full calendar months immediately following such notice.

25.5. The making by Tenant of any general arrangement or assignment for the benefit of creditors; Tenant’s becoming bankrupt, insolvent or a “debtor” as defined in 11 U.S.C. Section 101, or any successor statute (unless, in the case of a petition filed against Tenant, such petition is dismissed within 30 days after its original filing); the institution of proceedings under the bankruptcy or similar laws in which Tenant is the debtor or bankrupt; the appointing of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease (unless possession is restored to Tenant within 30 days after such taking); the attachment, execution, or judicial seizure of substantially all of Tenant’s assets located at the Premises or Tenant’s interest in this Lease (unless such attachment, execution, or judicial seizure is discharged within 30 days after such attachment, execution, or judicial seizure); or, if Tenant is a partnership or consists of more than one person or entity, any partners of the partnership or any such other person or entity becoming bankrupt or insolvent or making a general arrangement or assignment for the benefit of creditors.

26. Landlord’s Remedies. Landlord shall have the following remedies if Tenant commits a default and/or breach under this Lease. These remedies are not exclusive, but are cumulative and in addition to any remedies provided elsewhere in this Lease, or now or later allowed by law.

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26.1. Continuation of Lease. No act by Landlord shall terminate Tenant’s right to possession unless Landlord notifies Tenant in writing that Landlord elects to terminate Tenant’s right to possession. As long as Landlord does not terminate Tenant’s right to possession, Landlord may (i) continue this Lease in effect, (ii) continue to collect Rent when due and enforce all the other provisions of this Lease, and (iii) enter the Premises and relet them, or any part of them, to third parties for Tenant’s account, for a period shorter or longer than the remaining Term of this Lease. Tenant shall immediately pay to Landlord all reasonable costs Landlord incurs in such reletting, including, without limitation, brokers’ commissions, attorneys’ fees, advertising costs, and expenses of remodeling the Premises for such reletting.

26.2. Rent from Reletting. If Landlord elects to relet all or any portion of the Premises as permitted above, rent that Landlord receives from such reletting shall be applied to the payment of, in the following order and priority, (i) any indebtedness from Tenant to Landlord other than Rent due from Tenant, (ii) all costs incurred by Landlord in such reletting, and (iii) Rent due and unpaid under this Lease. After applying such payments as referred to above, any sum remaining from the rent Landlord receives from such reletting shall be held by Landlord and applied in payment of future Rent as it becomes due under this Lease. In no event shall Tenant be entitled to any excess rent received by Landlord unless and until all obligations of Tenant under this Lease, including all future obligations, are satisfied in full.

26.3. Termination of Tenant’s Right to Possession. Landlord may terminate Tenant’s right to possession of the Premises at any time, by notifying Tenant in writing that Landlord elects to terminate Tenant’s right to possession. On termination of this Lease, Landlord has the right to recover from Tenant (i) the worth at the time of the award of the unpaid Rent which had been earned at the time of such termination, (ii) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after such termination until the time of award exceeds the amount of such loss of Rent that Tenant proves could have been reasonably avoided, (iii) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award (had there been no such termination) exceeds the amount of such loss of Rent that Tenant proves could be reasonably avoided, and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease or in the ordinary course of things would be likely to result therefrom. The “worth at the time of the award” of the amounts referred to in clauses (i) and (ii) above is to be computed by allowing interest at the Default Rate, as set forth below. The “worth at the time of the award” of the amount referred to in clause (iii) above is to be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent.

26.4. Landlord’s Right to Cure Default. Landlord, at any time after Tenant commits a default or breach under this Lease, which continues beyond the expiration of any applicable cure period provided for herein, may cure such default or breach at Tenant’s sole cost. If Landlord at any time, by reason of Tenant’s default or breach, pays any sum or does any act that requires the payment of any sum, such sum shall be due immediately from Tenant to Landlord at the time such sum is paid, along with a supervisory fee in the amount of ten percent(10%) of such amount so expended by Landlord, and shall be deemed Additional Rent under this Lease. If Tenant fails to timely pay any amount due under this Paragraph within five business days of receipt of Landlord’s invoice for such costs, then (without curing such default) interest at the Default Rate shall accrue (and be immediately payable) on such overdue amount until it is paid.

26.5. Enforcement of Costs. All costs and expenses incurred by Landlord in connection with collecting any amounts and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, including reasonable attorneys’ fees, whether or not any action is commenced by Landlord, shall be paid by Tenant to Landlord upon demand. If Tenant fails to timely pay any amount due under this Paragraph, then (without curing such default) interest at the Default Rate shall accrue (and be immediately payable) on such overdue amounts until it is paid.

26.6. Interest and Late Charges. Late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which would be impracticable or extremely difficult to fix. Such costs include, without limitation, processing, collection and accounting charges, and late charges that may be imposed on Landlord by the terms of any deed of trust covering the Premises. Therefore, if any Rent (in the form of good funds) is not received by Landlord within ten days of its due date, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord an additional sum of ten percent (10%) of such overdue amount as a late charge. Such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any late payment by Tenant, and therefore this Paragraph is reasonable under the circumstances existing at the time this Lease is made. Acceptance of such late charge by Landlord shall not constitute a waiver or cure of Tenant’s default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease. In addition to the late charge payable by Tenant, as provided above, if any such Rent is not paid within 30 days of the date such Rent was due, then Tenant shall pay to Landlord interest on such overdue Rent at the rate of four percent (4%) above the “reference rate” announced from time to time by Bank of America, NT&SA (the “Default Rate”). If such reference rate ceases to be announced, then a comparable “prime rate” shall be utilized, as selected by Landlord.

27. Payment of Rent by Cashier’s Check. If a late charge is payable under this Lease, whether or not collected, for two installments of Basic Monthly Rent or other Rent due under this Lease during any one calendar year during the Term, or if any two payments made by Tenant in the form of a personal or business check is returned by the bank it was drawn upon for whatever reason, including but not limited to insufficient funds, then Landlord, at Landlord’s option, may require Tenant to submit future payments to Landlord in the form of a certified cashier’s check, money order, or by wire transfer. Tenant’s obligation to provide payment in the aforementioned manner shall continue in full force and effect until Landlord, in its sole discretion, determines otherwise. Tenant further agrees to reimburse Landlord, as Additional Rent, Landlord’s actual costs imposed by Landlord’s bank or financial institution arising from Tenant’s returned check(s). These costs shall be in addition to any late charges payable by Tenant pursuant to Paragraph 26 of this Lease.

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28. Destruction. If the Project is totally or partially destroyed during the Term, rendering the Premises totally or partially inaccessible or unusable, then, subject to the remainder of this Paragraph, (i) Landlord shall restore the Project to substantially the same condition as it was in immediately before such destruction, (ii) Landlord shall not be required to restore Tenant’s Alterations or Tenant’s Personal Property, unless they are specifically covered by insurance proceeds received by Landlord, such excluded items being the sole responsibility of Tenant to restore, (iii) such destruction shall not terminate this Lease, and (iv) all obligations of Tenant under this Lease shall remain in effect, except that the Basic Monthly Rent shall be abated or reduced, between the date of such destruction and the date of completion of restoration, by the ratio of (a) the Rentable Area of the Premises rendered unusable or inaccessible by the destruction, to (b) the Rentable Area of the Premises prior to such destruction. Notwithstanding anything to the contrary in this Lease, Landlord may, at its election, terminate this Lease by so notifying Tenant in writing on or before the later of 120 days after such destruction or 60 days after Landlord’s receipt of the proceeds from insurance maintained by Landlord, if (A) then-existing laws do not permit such restoration, (B) such destruction occurs during the last year of the Term, (C) such destruction exceeds 25 percent (25%) of the then-replacement value of the Premises, the Building, or the Project or (D) Landlord determines that the cost of such restoration exceeds the amount of insurance proceeds relating to such destruction actually received by Landlord from insurance maintained by Landlord. If Landlord so terminates this Lease, then (1) Landlord shall have no obligation to restore the Project, (2) Landlord shall retain all insurance proceeds relating to such destruction, and (3) this Lease shall terminate as of 30 days after such notice of termination from Landlord to Tenant. Tenant waives the provisions of California Civil Code Sections 1932(2) and 1933(4) or any successor statute with respect to any destruction of the Premises. In the event Landlord restores the Premises following any such destruction, Tenant shall immediately refixturize, re-equip, and restock the Premises and shall re-open the Premises for business as soon thereafter as is reasonably practicable.

29. Condemnation. If during the Term, or during the period of time between the execution of this Lease and the Lease Commencement Date, there is any taking of all or any part of the Premises or any interest in this Lease by the exercise of any governmental power, whether by legal proceedings or otherwise, by any public or quasi-public authority, or private corporation or individual, having the power of condemnation (any of the preceding a “Condemnor”), or a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending (any of the preceding, a “Condemnation”), the rights and obligations of Landlord and Tenant shall be determined pursuant to this Paragraph. If such Condemnation is of the entire Premises, then this Lease shall terminate on the date the Condemnor takes possession of the Premises (the “Date of Condemnation”). If such Condemnation is of any portion, but not all, of the Premises (or of portions of the Parking Area), then this Lease shall remain in effect, except that, if the remaining portion of the Premises (or the amount of parking available within the Project) is unsuitable for Tenant’s continued use of the Premises, then Tenant may elect to terminate this Lease, by so notifying Landlord in writing (the “Termination Notice”) within 30 days after the date that the nature and extent of the Condemnation have been determined. Such termination shall be effective on the earlier of (i) the date that is 30 days after the giving of the Termination Notice, or (ii) the Date of Condemnation. If Tenant does not give to Landlord the Termination Notice within such 30-day period, then all obligations of Tenant under this Lease shall remain in effect, except that (unless the Premises are restored as set forth below) Basic Monthly Rent shall be reduced by the ratio of (a) the Rentable Area of the Premises taken, to (b) the Rentable Area of the Premises immediately prior to the Date of Condemnation. Notwithstanding anything to the contrary in this Paragraph, if, within 20 days after Landlord’s receipt of the Termination Notice, Landlord notifies Tenant that Landlord at its cost will add to the remaining Premises (or substitute for the Premises other comparable space in the Project) so that the area of the Premises will be substantially the same after the Condemnation as they were before the Condemnation, and Landlord commences the restoration promptly and completes it within 150 days after Landlord so notifies Tenant, then all obligations of Tenant under this Lease shall remain in effect, except that Basic Monthly Rent shall be abated or reduced during the period from the Date of Condemnation until the completion of such restoration by the ratio of (A) the Rentable Area of the Premises taken, to (B) the Rentable Area of the Premises immediately prior to the Date of Condemnation. Unless Landlord restores the Premises pursuant to the preceding sentence, or unless Tenant gives to Landlord the Termination Notice within the relevant 30-day period, Tenant at its sole cost shall accomplish any restoration required by Tenant to use the Premises. A temporary Condemnation of the Premises, or any part of the Premises, for less than 180 days, shall not constitute a Condemnation under this Paragraph; but the Basic Monthly Rent shall abate as to the portion of the Premises affected during such temporary Condemnation. All compensation, sums, or anything of value awarded, paid, or received on a total or partial Condemnation (the “Award”) shall belong to and be paid to Landlord. Tenant shall have no right to any part of the Award, and Tenant hereby assigns to Landlord all of Tenant’s right, title, and interest in and to any part of the Award, except that Tenant shall receive from the Award any sum paid expressly to Tenant from the Condemnor for Tenant’s loss of goodwill. Landlord and Tenant waive the provisions of any statute (including without limitation California Code of Civil Procedure Section 1265.130 or any successor statute) that allows Landlord or Tenant to petition the superior court (or any other court) to terminate this Lease in the event of a partial Condemnation of the Premises.

30. Assignment and Other Transfers.

30.1. Restrictions on Transfer. Without Landlord’s prior written consent, which shall not be unreasonably withheld, none of the following shall occur (nor be permitted by Tenant to occur), voluntarily, involuntarily, by operation of law, or otherwise (any of the following, a “Transfer”): (i) any assignment, sublease, disposition, sale, concession, license, license agreement for the use of any portion of the Premises, mortgage, encumbrance, hypothecation, pledge, collateral assignment, or other transfer, by Tenant of this Lease, any interest in this Lease, or all or any portion of the Premises; or (ii) any assignment, disposition, sale, transfer, acquisition, or issuance of equitable interests (whether stock, partnership or otherwise) in Tenant, to or by any person, entity, or group of related persons or affiliated entities, whether in a single transaction or in a series of related or unrelated transactions, which results in such person, entity, or group holding (or assigning, transferring, disposing of, or selling) fifty percent (50%) or more of the aggregate issued and outstanding equitable interests in Tenant.

30.2. Transfer Provisions Generally. Landlord shall not be liable in damages to Tenant or to any proposed subtenant, assignee or other proposed party to a Transfer (any of the preceding a “Proposed Transferee”) if such consent is adjudicated to have been unreasonably withheld. In such event, Tenant’s sole remedy shall be to have the proposed Transfer declared as valid as if Landlord’s consent had been given, although Tenant shall be entitled to

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reasonable attorney’s fees if Tenant is the prevailing party in such litigation. At least 30 days prior to entering into any proposed Transfer, Tenant shall submit to Landlord the sum of $400.00 (as payment toward Landlord’s and Landlord’s attorneys’ cost of reviewing, consenting to, rejecting and/or consummating any proposed Transfer), and a written notice (“Tenant’s Notice”) which includes or sets forth in reasonable detail (a) the form of the proposed Transfer, including without limitation all related agreements, documents, instruments, exhibits, and escrow instructions, (b) the name and address of the Proposed Transferee, (c) the terms and conditions of the proposed Transfer, including without limitation the commencement or effective date of the proposed Transfer, which shall be at least 30 days after Tenant’s Notice is given, and (d) the nature, character, and current banking, financial, and other credit information and references with respect to the Proposed Transferee and the business of the Proposed Transferee, in reasonably sufficient detail to enable Landlord to determine the Proposed Transferee’s financial responsibility. Within 30 days after Landlord’s receipt from Tenant of such sum and Tenant’s Notice, and all documentation requested of Tenant by Landlord, Landlord shall notify Tenant whether Landlord has consented to the proposed Transfer. Any consent by Landlord to any proposed Transfer shall not constitute a consent with respect to any other Transfer. If Landlord consents to any proposed Transfer, and Tenant fails to consummate such Transfer on or before the commencement or effective date of the proposed Transfer (as set forth in Tenant’s Notice), then such consent shall be deemed withdrawn and Tenant shall be required again to comply with this Paragraph before making a Transfer. Landlord shall not have unreasonably withheld its consent with respect to any Transfer if Landlord shall not have received such sum or Tenant’s Notice, if the nature or character of the Proposed Transferee, or the proposed occupancy of the Premises by the Proposed Transferee, if the Proposed Transferee’s proposed use is not in keeping with the dignity and character of the Building and the surrounding area, if the Proposed Transferee’s proposed use is materially different than the Permitted Use, if the proposed Transfer will result in the diminution of the value or marketability of the Premises or the Project, if Landlord is not satisfied that the Proposed Transferee is creditworthy, or if the proposed Transfer will conflict with or result in a breach of any of the provisions of, or constitute a default under, any agreement, instrument, or document to which Landlord is a party or by which the Project may be bound. No Transfer shall release or discharge Tenant from any liability, whether past, present, or future, under this Lease and Tenant shall continue to remain primarily liable under this Lease. Unless otherwise agreed to by all parties, the Tenant’s security deposit, if any, shall be retained by Landlord and returned to the lawful tenant in possession at the time of the Lease termination, subject to the terms and conditions of Paragraph 6 of this Lease. Any Transfer must contain the following provisions, which provisions whether contained in such Transfer or not, shall apply to such Transfer: (A) Such Transfer shall be subject and subordinate to, and bound by, all provisions of this Lease; (B) No Proposed Transferee shall be permitted to enter into any Transfer without Landlord’s prior written consent; and (C) At Landlord’s option, in the event of cancellation or termination of this Lease for any reason or the surrender of this Lease, whether voluntarily, involuntarily, by operation of law or otherwise, prior to the expiration of such Transfer, the Proposed Transferee shall make full and complete attornment to Landlord for the balance of the term of such Transfer. Such attornment shall be evidenced by an agreement in form and substance satisfactory to Landlord which the Proposed Transferee shall execute and deliver to Landlord within five days after request by Landlord. Tenant shall promptly reimburse Landlord for Landlord’s reasonable cost (less any payment made by Tenant with Landlord as set forth above) of reviewing, consenting to, rejecting and/or consummating any proposed Transfer, including without limitation reasonable attorneys’ fees. If Tenant fails to pay such amount within ten business days of written demand, Tenant shall be in default hereunder and Landlord shall have the right, in addition to its other rights and remedies, to deduct the amount so owing from Tenant’s Security Deposit.

30.3. Excess Rent and Recapture. Tenant shall promptly pay to Landlord fifty percent (50%) of all rents and other consideration, of whatever nature, after deducting legal fees, tenant improvement costs, free rent and brokerage expenses incurred by Tenant in procuring such Proposed Transferee, payable by the Proposed Transferee (or receivable by Tenant) pursuant to any Transfer, which exceed (1) if a sublease of a portion of the Premises, the portion of the Basic Monthly Rent that is allocable to the portion of the Premises subleased (such allocation based on the area of the portion subleased), or (2) if any other Transfer, the Basic Monthly Rent. If Tenant is not the Tenant originally named in this Lease, Landlord additionally has the right, at its election, by giving written notice (the “Recapture Notice”) to Tenant within 15 days after receipt of Tenant’s Notice, to recapture the Premises and terminate this Lease. If Landlord elects to exercise such right and delivers a Recapture Notice to Tenant, Tenant has 5 business days from the date of the Recapture Notice to rescind Tenant’s Notice and withdraw such proposed Transfer by notifying Landlord in writing. If Tenant fails to rescind Tenant’s Notice within such 5-day period, this Lease shall automatically be deemed terminated as of the commencement or effective date stated in Tenant’s Notice for the proposed Transfer, and Tenant shall surrender possession of the Premises as of such date (and any failure to do so shall constitute a default hereunder). Landlord’s giving of a Recapture Notice shall not constitute Landlord’s consent to Tenant’s proposed Transfer.

31. Continued Development of Project. Tenant acknowledges that, as more particularly provided in the Addendum to this Lease, the development of the Project is continuing and may, at Landlord’s election, include the construction of additional buildings and improvements within the Project, including in areas which currently constitute Common Areas.

32. Intentionally Omitted.

33. Access by Landlord. Landlord and any of Landlord’s Invitees shall have the right to enter the Premises at all reasonable times, during normal business hours if feasible under the circumstances, and upon 24 hours’ notice, if feasible under the circumstances, (i) to determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease, (ii) to do any necessary maintenance or make any restoration to the Premises that Landlord has the right or obligation to perform, (iii) to serve, post, or keep posted any notices required or allowed under this Lease, (iv) to post “for sale” or “for rent” or “for lease” signs during the final nine months of the Term, (v) to show the Premises to brokers, lenders, agents, prospective buyers, prospective tenants, or other persons interested in a listing of, financing, purchasing, or occupying the Project, the Premises or any portion of the Project or the Premises, and (vi) to shore the foundations, footings, and walls of the Project, and to erect scaffolding and protective barricades around and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety or preservation of the Premises if any excavation or other construction is undertaken or is about to be undertaken on any adjacent property or nearby street. In the event of an emergency Landlord shall have the right to enter the Premises at any time, without prior notice to Tenant. Landlord’s rights under this paragraph extend, with Landlord’s consent, to the owner of adjacent property on which excavation or construction is to take place and the

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adjacent property owner’s agents, employees, officers, and contractors. Landlord shall not be liable for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of any entry on the Premises as provided in this paragraph except damage resulting directly from the grossly negligent acts or willful misconduct of Landlord or Landlord’s Invitees. Tenant shall not be entitled to any abatement or reduction of Basic Monthly Rent or other Rent because of the exercise by Landlord of any rights under this paragraph.

34. Landlord’s Reserved Rights. Landlord, as owner of the Project, in addition to Landlord’s other rights hereunder, reserves the right from time to time: (i) to temporarily utilize portions of the Common Areas for, among other things, entertainment, outdoor shows, displays, automobile and other product shows, the leasing of kiosks, or such other uses which, in Landlord’s judgment, tend to attract the public; (ii) to utilize the lighting standards and other areas or improvements in the Common Areas for advertising or notice purposes; (iii) to close any of the Common Areas to the extent required in the opinion of Landlord’s legal counsel to prevent a dedication of any of the Common Areas or the accrual of any rights to any person or to the public in and to any portion of the Common Areas; (iv) to close, temporarily, any of the Common Areas for maintenance purposes; (v) to designate other property outside the boundaries of the Project to become part of the Common Areas; (vi) to close off or otherwise utilize portions of the Common Areas while constructing improvements or making repairs or alterations to any portion of the Project; (vii) to utilize portions of the Common Areas, on a temporary basis, as a staging area for any construction work by Landlord or its affiliates, agents, or contractors; and (viii) to make any changes to the Common Areas, or any part of the Project, including without limitation changes to buildings or other improvements, the addition of new buildings or other improvements, and/or changes in the location of driveways, entrances, exits, vehicular parking spaces, or the direction of the flow of traffic. In exercising such rights, Landlord agrees to use commercially reasonable efforts to minimize any interference with Tenant’s use of the Premises.

35. Indemnity and Exemption of Landlord from Liability. Tenant hereby agrees to indemnify, protect, and hold harmless Landlord and its shareholders, officers, directors, agents, property managers, employees, contractors, and the partners comprising Landlord (if any) from and against all Claims (as defined below) and all costs, expenses, and attorneys’ fees incurred in the defense or handling of any such Claims or any action or proceeding brought on any of such Claims. For purposes of this Lease, the term “Claims” shall mean all liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims (except to the extent they result from Landlord’s grossly negligent acts or willful misconduct) arising from or which seek to impose liability under or because of (i) Tenant’s or Tenant’s Invitees’ use of the Premises, (ii) the conduct of Tenant’s business, (iii) any activity, work, or things done, permitted, or suffered by Tenant or any of Tenant’s Invitees in or about the Premises or elsewhere, (iv) any breach or default in the performance of any obligation to be performed by Tenant under this Lease, and/or (v) any negligence of Tenant or any of Tenant’s Invitees. If any action or proceeding is brought against Landlord or its shareholders, officers, directors, agents, property managers, employees, contractors, or the partners comprising Landlord (if any) by reason of any such Claims, Tenant upon notice from Landlord shall defend such action or proceeding at Tenant’s sole cost by legal counsel satisfactory to Landlord. Except to the extent caused by Landlord’s grossly negligent acts or willful misconduct, Tenant assumes all risk of, Tenant waives all claims against Landlord in respect of, and Landlord shall not be liable for, any of the matters set forth above in this Paragraph or any of the following: injury to Tenant’s business, loss of income from such business, or damage or injury to the goods, wares, merchandise, or other property or the person of Tenant, Tenant’s Invitees, or any other persons in, upon, or about the Premises, whether such damage, loss, or injury is caused by or results from criminal acts, fire, steam, electricity, gas, water, rain, the breakage, leakage, obstruction or other defects of pipes, sewer lines, sprinklers, wires, appliances, plumbing, air-conditioning or lighting fixtures, or any other cause, conditions arising upon the Premises, or other sources or places, and regardless of whether the cause of such damage, loss, or injury or the means of repairing such damage, loss, or injury is inaccessible to Tenant. This Lease shall not be affected or impaired by any change to any part of the Project or any sidewalks, streets or improvements nearby the Project. Landlord may, at its election, at any time and without liability to Tenant, change the name of the Project.

36. Hazardous Substances. Landlord hereby notifies Tenant, and Tenant hereby acknowledges that, prior to the leasing of the Premises pursuant to this Lease, Tenant has been notified, pursuant to California Health and Safety Code Section 25359.7 (or any successor statue), that Landlord knows, or has reasonable cause to believe, that certain hazardous substances (as such term is used in such Section 25359.7), such as common cleaning supplies, office supplies, spillage of petroleum products from motor vehicles, and other consumer products, may have come to be located on or beneath the Premises and/or the Project. Tenant hereby agrees to indemnify Landlord against all actions, liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims (except to the extent they arise as a result of Landlord’s grossly negligent acts or willful misconduct), arising from or relating to: (i) any discharges, releases, or threatened releases of any Hazardous Material (as defined below) into ambient air, water, or land by Tenant or Tenant’s Invitee’s, or otherwise from, on, under, or above the Premises, (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or hazardous or toxic wastes, substances, or materials by Tenant or Tenant’s Invitees, or otherwise from, on, or under, the Premises, or (iii) a violation of any environmental law on, under, or above the Premises (for purposes hereof, “environmental laws” shall mean any Federal, State, or local law, statute, regulation, ordinance, guideline, or common law principle relating to public health or safety or the use or control of the environment, including without limitation the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Carpenter-Presley-Tanner Hazardous Substance Account Act, the California Hazardous Waste Control Law, the Federal Clean Air Act, the California Air Resources Act, the Federal Clean Water Act, the California Porter-Cologne Water Quality Control Act, the Federal Resource Conservation and Recovery Act, the California Nejedly-Z’berg-Dills Solid Waste Management and Recovery Act, and California Health and Safety Code Section 25359.7). Tenant agrees to promptly reimburse Landlord for all of Landlord’s costs arising from periodic monitoring of Tenant’s use, handling, or storage of Hazardous Substances at or surrounding the Premises. Tenant shall not cause or permit any Hazardous Material to be generated, brought onto, used, stored, or disposed of in or about the Premises, the Building, or the Project by Tenant or its agents, employees, contractors, subtenants, or invitees, except for limited quantities of standard office and janitorial supplies. Tenant shall: (a) use, store, and dispose of all such permitted Hazardous Material in strict compliance with all applicable statutes, ordinances, and regulations in effect during the Lease Term that govern and/or relate to Hazardous Material, public health and safety and protection of the environment, and (b) comply at all times during the Lease Term with all environmental laws. If the Premises are contaminated (or, due to the acts or omissions of Tenant or Tenant’s Invitees, the Project is contaminated) by any Hazardous Material during the Term, then (1) Tenant shall promptly notify Landlord in writing of such contamination,

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and (2) Landlord may elect to either (A) demand that Tenant perform all remediation required by Landlord (to Landlord’s satisfaction and at Tenant’s sole cost, necessary to return the Premises (and/or the Project) to at least as good a condition as the Premises (or the Project) are in as of the date of this Lease, which Tenant shall immediately do upon receipt of notice from Landlord, or (B) proceed to cause such investigation, clean-up, and remediation work which Landlord deems necessary or desirable to be undertaken, whereupon the entire cost thereof (plus a supervisory fee equal to ten percent (10%) of such cost) will be payable by Tenant to Landlord upon demand as Additional Rent. If Tenant does not promptly commence and diligently pursue such remediation, then Landlord may, at Landlord’s election, perform or cause to be performed such remediation and Tenant shall immediately, upon demand, pay the cost thereof, plus a supervisory fee in the amount of ten percent (10%) of such cost. Tenant’s obligations and liability under this Paragraph shall survive the termination of Tenant’s tenancy and the Term of this Lease, except that nothing contained in this Paragraph shall be deemed to impose liability on Tenant for any problem arising after the Term of this Lease provided neither Tenant nor Tenant’s Invitees contributed to such problem during the Term of the Lease. As used in this Lease, the term “Hazardous Material” shall mean any hazardous or toxic substance, material, or waste that is or becomes regulated by the United States, the State of California, or any local government authority having jurisdiction over the Building. Hazardous Material includes, without limitation: (a) any “hazardous substance”, as that term is defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections 9601-9675); (b) “Hazardous waste”, as that term is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections 6901-6992k); (c) any pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning any hazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect); (d) petroleum products; (e) radioactive material, including any source, special nuclear, or byproduct material as defined in 42 United States Code Sections 2011-2297; (f) Asbestos in any form or condition; and (g) polychlorinated biphenyls (PCBs) and substances or compounds containing PCBs.

37. Prohibition Against Asbestos-Containing Materials. Tenant shall not allow or permit any materials which contain asbestos in any form or concentration (“Asbestos-Containing Materials”) to be used or stored in the Premises or used in the construction of any improvements or alterations to the Premises, including, without limitation, building or construction materials and supplies. Such prohibition against Asbestos-Containing Materials shall apply regardless of whether the Asbestos-Containing Materials may be considered safe or approved for use by a manufacturer, supplier, or governmental authority, or by common use or practice. Landlord shall have the right, upon reasonable notice, to enter upon and conduct inspections of the Premises to determine Tenant’s compliance with this Paragraph. If Tenant allows or permits Asbestos-Containing Materials to be used or stored in the Premises or used in the construction of any improvements or alterations to the Premises, (a) Tenant shall, upon notice from Landlord, immediately remove such Asbestos-Containing Materials at Tenant’s sole cost, (b) such removal shall comply with all applicable laws, regulations, and requirements concerning asbestos and the removal and disposal of Asbestos-Containing Materials, (c) Tenant shall reimburse Landlord for all expenses incurred in connection with any inspection of the Premises conducted by Landlord, and (d) unless Tenant completes such removal within 30 days after notice from Landlord, Landlord may, at its election, do either or both of the following: (i) declare Tenant in breach of this Lease and terminate this Lease upon 10 days prior written notice to Tenant, and (ii) remove and dispose of the Asbestos-Containing Materials and obtain reimbursement from Tenant for the cost of such removal and disposal, including a supervisory fee payable to Landlord in the amount of ten percent of said removal and disposal. Tenant shall indemnify Landlord and Landlord’s directors, officers, employees, and agents against all costs, liability, expenses, penalties, and claims for damages, including, without limitation, litigation costs and attorneys’ fees, arising from (A) the presence of Asbestos-Containing Materials upon the Premises, to the extent that such Asbestos-Containing Materials are used or stored in the Premises or used in the construction of any improvements or alterations in the Project, Building, or to the Premises by Tenant or Tenant’s agents, employees, representatives, or independent contractors, (B) any lawsuit, settlement, governmental order, or decree relating to the presence, handling, removal, or disposal of Asbestos-Containing Materials upon or from the Premises, to the extent that such Asbestos-Containing Materials are used or stored in the Premises or used in the construction of any improvements or Alterations to the Premises by Tenant or Tenant’s agents, employees, representatives or independent contractors, or (C) Tenant’s failure to perform its obligations to remove such Asbestos-Containing Materials under this Paragraph.

38. Security Measures. Tenant acknowledges (i) that the Basic Monthly Rent does not include the cost of any security measures for any portion of the Project (ii) that Landlord shall have no obligation to provide any such security measures, (iii) that Landlord has made no representation to Tenant regarding the safety or security of the Project, and (iv) that Tenant will be solely responsible for providing any security it deems necessary to protect itself, its property, and Tenant’s Invitees in, on, or about the Project. If Landlord provides any security measures at any time, then the cost thereof shall be included as part of the Operating Expenses, but Landlord will not be obligated to continue providing such security measures for any period of time, Landlord may discontinue such security measures without notice and without liability to Tenant, and Landlord will not be obligated to provide such security measures with any particular standard of care. Tenant assumes all responsibility for the security and safety of Tenant, Tenant’s property, and Tenant’s Invitees. Tenant releases Landlord from all claims for damage, loss, or injury to Tenant, Tenant’s Invitees, and/or to the personal property of Tenant and/or of Tenant’s Invitees, even if such damage, loss, or injury is caused by or results from the criminal, reckless, or negligent acts of third parties. Landlord shall have no duty to warn Tenant of any criminal acts or dangerous conduct that has occurred in or near the Project, regardless of Landlord’s knowledge of such crimes or conduct, and Tenant hereby undertakes to remain informed regarding such issues.

39. Subordination and Attornment. This Lease and Tenant’s rights under this Lease are subject and subordinate to any mortgage, deed of trust, ground lease, or underlying lease (and to all renewals, modifications, consolidations, replacements, or extensions thereof), now or hereafter affecting the Premises. The provisions of this Paragraph shall be self-operative, and no further instrument of subordination shall be required. In confirmation of such subordination, however, Tenant shall promptly execute and deliver any instruments that Landlord, any Lender, or the lessor under any ground or underlying lease, may request to evidence such subordination. Tenant hereby irrevocably constitutes and appoints Landlord as Tenant’s special attorney-in-fact to execute and deliver such instruments. Notwithstanding the preceding provisions of this Paragraph, if any ground lessor or Lender elects to have this Lease prior to the lien of its ground lease, deed of trust, or mortgage, and gives written notice thereof to Tenant that this Lease

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shall be deemed prior to such ground lease, deed of trust, or mortgage, whether this Lease is dated prior or subsequent to the date of such ground lease, deed of trust, or mortgage, then this Lease shall be deemed to be prior to the lien of such ground lease or mortgage and such ground lease, deed of trust, or mortgage shall be deemed to be subordinate to this Lease. If any Lender, or the lessor of any ground or underlying lease affecting the Premises, shall hereafter succeed to the rights of Landlord under this Lease, whether by foreclosure, deed in lieu of foreclosure or otherwise, then (i) such successor landlord shall not be subject to any offsets or defenses which Tenant might have against Landlord, (ii) such successor landlord shall not be bound by any prepayment by Tenant of more than one month’s installment of Basic Monthly Rent or any other Rent, (iii) such successor landlord shall not be subject to any liability or obligation of Landlord except those arising after such succession, (iv) Tenant shall attorn to and recognize such successor landlord as Tenant’s landlord under this Lease, (v) Tenant shall promptly execute and deliver any instruments that may be necessary to evidence such attornment, (vi) Tenant hereby irrevocably appoints Landlord (and such successor landlord) as Tenant’s special attorney-in-fact to execute and deliver such instruments on behalf of Tenant, and (vii) upon such attornment, this Lease shall continue in effect as a direct lease between such successor landlord and Tenant upon and subject to all of the provisions of this Lease. If any Lender requests reasonable amendment(s) to this Lease at any time during the Term, then Tenant shall not unreasonably withhold or delay its written consent to such amendment(s). Promptly following the execution of this Lease, Landlord and Tenant shall work together to negotiate a mutually satisfactory subordination, non-disturbance, and attornment agreement among Landlord, Tenant, and any lenders or ground lessors having interests or security interests on the Project.

40. Estoppel Certificate. Within ten days after written request from Landlord, Tenant shall execute and deliver to Landlord, in recordable form, a certificate stating (i) that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and stating all modifications, (ii) the then-current Basic Monthly Rent, (iii) the dates to which Basic Monthly Rent has been paid in advance, (iv) the amount of any security deposit, prepaid rent, or other payment constituting Rent which has been paid, (v) whether or not Tenant or Landlord is in default under this Lease and whether there currently exist any defenses or rights of offset under the Lease in favor of Tenant, (vi) that all Landlord’s Work required by this Lease is complete (or stating any exceptions) and (vii) such other matters as Landlord shall reasonably request. Tenant’s failure to deliver such certificate within such ten day period shall be conclusive upon Tenant for the benefit of Landlord, and any successor in interest to Landlord, any lender or proposed lender, and any purchaser or proposed purchaser of the Project that, except as may be represented by Landlord, this Lease is unmodified and in full force and effect, no Rent has been paid more than 30 days in advance, neither Tenant nor Landlord is in default under this Lease, no defenses or rights of offset under the Lease exist in favor of Tenant, and that all Landlord’s Work required by this Lease is complete.

41. Waiver. No delay or omission in the exercise of any right or remedy of Landlord in the event of any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any default other than the particular Rent payment accepted. Landlord’s receipt and acceptance from Tenant, on any date (the “Receipt Date”), of an amount less than Rent due on such Receipt Date, or to become due at a later date but applicable to a period prior to such Receipt Date, shall not release Tenant of its obligation (i) to pay the full amount of such Rent due on such Receipt Date or (ii) to pay when due the full amount of such Rent to become due at a later date but applicable to a period prior to such Receipt Date. No act or conduct of Landlord, including without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance by Landlord of the surrender of the Premises by Tenant before the Expiration Date. Only a written notice from Landlord to Tenant stating Landlord’s election to terminate Tenant’s right to possession of the Premises shall constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease. Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any other or subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease. Tenant hereby waives any rights granted to Tenant under California Code of Civil Procedure Section 1179, California Civil Code Section 3275, and/or any successor statute(s). Tenant represents and warrants that if Tenant breaches this Lease and, as a result, this Lease is terminated, Tenant will not suffer any undue hardship as a result of such termination and, during the Term, will make such alternative or other contingency plans to provide for its vacation of the Premises and relocation in the event of such termination. Tenant acknowledges that Tenant’s waivers set forth in this Paragraph are a material part of the consideration for Landlord’s entering into this Lease and that Landlord would not have entered into this Lease in the absence of such waivers.

42. Brokers. Tenant represents that, except as disclosed in writing to Landlord prior to the execution of this Lease, no real estate broker, agent, finder, or other person is responsible for bringing about or negotiating this Lease other than Tenant’s broker listed in the Principal Lease Provisions as Tenant’s broker, if any, and Tenant has not dealt with any real estate broker, agent, finder, or other person, relative to this Lease in any manner. Tenant hereby indemnifies Landlord against all liabilities, damages, losses, costs, expenses, attorneys’ fees and claims arising from any claims that may be made against Landlord by any real estate broker, agent, finder, or other person (other than as set forth above), alleging to have acted on behalf of or to have dealt with Tenant.

43. Easements. Landlord may, at its election, from time to time, grant such easements, rights and dedications, and cause the recordation of parcel maps, easement and operating agreements, and restrictions affecting the Premises and the Project. Tenant shall promptly sign any documents or instruments to accomplish the foregoing upon request by Landlord. Tenant irrevocably appoints Landlord as Tenant’s special attorney-in-fact to execute and deliver such documents or instruments on behalf of Tenant if Tenant refuses or fails to do so. Notwithstanding the foregoing, Landlord shall not take any action that materially adversely affects (a) Tenant’s use or occupancy of the Premises, the Building or the Project, (b) Tenant’s rights under this Lease, or (c) the conduct of Tenant’s business.

44. Limitations on Landlord’s Liability. If Landlord is in default of this Lease, and as a consequence Tenant recovers a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levy against the right, title, and interest of Landlord in the Project, and out of rent or other income from the Project receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord’s right, title, and interest in the Project. Neither Landlord nor

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Landlord’s shareholders, members, officers, directors, agents, property managers, employees, contractors, or the partners comprising Landlord (if any) shall be personally liable for any deficiency.

45. Sale or Transfer of Premises. If Landlord sells or transfers the Project, Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord may transfer the security deposit and/or prepaid rent to Landlord’s successor-in-interest and on such transfer Landlord shall be discharged from any further liability arising from the security deposit or prepaid rent.

46. Quitclaim Deed. Tenant shall execute and deliver to Landlord on the Expiration Date, promptly on Landlord’s request, a quitclaim deed to the Premises, in recordable form, designating Landlord as transferee.

47. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation of this Lease, or a termination by Landlord, shall not work a merger, and shall, at the option of Landlord, terminate any existing subleases or may, at the option of Landlord, operate as an assignment to Landlord of any such subleases.

48. Confidentiality. Except as essential to the consummation of the transaction contemplated by this Lease (together with all amendments and addenda hereto):

48.1. Tenant shall keep and maintain the terms of this Lease and the transactions contemplated by this Lease in strict confidence. Nothing provided herein, however, shall prevent Tenant from disclosing to its legal counsel and/or certified public accountants, prospective purchasers, or lenders the existence and terms of this Lease or any transaction under this Lease, or any aspect of this lease, or from complying with any governmental or court order or similar legal requirement which requires such party to disclose this Lease, the terms of this Lease, the transaction contemplated by this Lease and/or any aspect of this Lease; provided that such party uses reasonable and diligent good faith efforts to disclose no more than is absolutely required to be disclosed by such legal requirement;

48.2. Tenant may not make or allow any notices, statements, disclosures, communication, or news releases concerning this Lease, the terms of this Lease or the transactions contemplated by this Lease or any aspect of this Lease; and

48.3. If Tenant violates this confidentiality provision, in addition to all other remedies to which Landlord may be entitled under law or in equity, Landlord shall be entitled to receive immediately the entire value of any rent relief, rent abatement, free rent, reimbursement, or other concession which Landlord has previously granted to Tenant.

49. Miscellaneous.

49.1. Tenant covenants and agrees not to protest or in any way oppose any application for a license to serve or sell liquor filed by tenants or other users of space within the Project.

49.2. Upon Landlord’s written request, Tenant shall promptly furnish to Landlord, from time to time, financial statements certified by Tenant to be true and correct, reflecting Tenant’s then current financial condition. Such financial statements shall include a current balance sheet and a profit and loss statement covering the most recent 12-month period available. In addition, upon Landlord’s written request, Tenant shall allow Landlord, or a certified public accountant of Landlord’s choosing, to determine Tenant’s current financial condition by reviewing Tenant’s current financial books, records, and accounts.

49.3. Notwithstanding any other provision in this Lease to the contrary, Tenant shall refrain from selling or otherwise distributing any alcoholic beverages and such sales are expressly forbidden under this Lease notwithstanding that Tenant may hold the appropriate license as issued and/or approved by the California Alcoholic Beverage Control Agency.

49.4. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises are located. If the Premises are located outside of California, then the references in this Lease to California statutes shall be deemed to include any relevant statute of the jurisdiction in which the Premises are located that is comparable to such California statutes.

49.5. For purposes of venue and jurisdiction, this Lease shall be deemed made and to be performed in the City of San Diego, California (whether or not the Premises are located in San Diego, California) and Landlord and Tenant hereby consent to the jurisdiction of the Courts of the County of San Diego.

49.6. This Lease may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one document.

49.7. Whenever the context so requires, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other genders, and the word “person” shall be construed to include a natural person, a corporation, a limited liability company, a firm, a partnership, a joint venture, a trust, an estate or any other entity.

49.8. Each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Lease or the application of such provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by such invalidity or unenforceability, unless such provision or such application of such provision is essential to this Lease.

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49.9. In the event any litigation, arbitration, mediation, or other proceeding (“Proceeding”) is initiated by any party against any other party to enforce, interpret or otherwise obtain judicial or quasi-judicial relief in connection with this Lease the prevailing party in such Proceeding shall be entitled to recover from the unsuccessful party all costs, expenses, and actual attorney’s fees and expert witness fees relating to or arising out of such Proceeding (whether or not such Proceeding proceeds to judgment), and any post-judgment or post-award proceeding including without limitation one to enforce any judgment or award resulting from any such Proceeding. Any such judgment or award shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees and expert witness fees.

49.10. This Lease shall become effective and binding upon the parties when it has been executed by each of Landlord and Tenant; notwithstanding the fact that the Term of this Lease (i.e. Tenant’s rights of occupancy hereunder) will not commence until the Lease Commencement Date.

49.11. Subject to any restriction on transferability contained in this Lease, this Lease shall be binding upon and shall inure to the benefit of the successors-in-interest and assigns of each party to this Lease. Nothing in this Paragraph shall create any rights enforceable by any person not a party to this Lease, except for the rights of the successors-in-interest and assigns of each party to this Lease, unless such rights are expressly granted in this Lease to other specifically identified persons.

49.12. The headings of the Paragraphs of this Lease have been included only for convenience, and shall not be deemed in any manner to modify or limit any of the provisions of this Lease, or be used in any manner in the interpretation of this Lease.

49.13. Time and strict and punctual performance are of the essence with respect to each provision of this Lease.

49.14. Each party to this Lease and its legal counsel have had an opportunity to review and revise this Lease. The rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any Addendum or Exhibit to this Lease, and such rule of construction is hereby waived by Tenant.

49.15. All notices required or permitted to be given by Tenant to Landlord shall be in writing and shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by a nationally recognized overnight express courier service that provides written confirmation of delivery to Landlord at the address set forth for Landlord in the Principal Lease Provisions. Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this Paragraph. Landlord or Tenant must give a notice of a change of its address to the other, if such address changes. All notices required or permitted to be given to Tenant by Landlord shall, except as otherwise provided in this Lease, be in writing, and such notice shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by a nationally recognized overnight express courier service that provides written confirmation of delivery, to Tenant at the address for Tenant set forth in the Principal Lease Provisions. Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this Paragraph. Notwithstanding the foregoing, routine correspondence between Landlord and Tenant shall be deliverable by regular U.S. mail, by fax, or by other such means of delivery as may become customary.

49.16. If more than one person is Tenant, then the obligations of Tenant under this Lease shall be the joint and several obligations of each of such persons; provided, however, that any act or signature of one or more of any of such persons and any notice or refund given to or served on any one of such persons shall be fully binding on each of such persons.

49.17. All provisions, whether covenants or conditions, to be performed or observed by Tenant shall be deemed to be both covenants and conditions.

49.18. All payments to be made by Tenant to Landlord under this Lease shall be in United States currency.

49.19. The Exhibits and Addendum attached to this Lease are incorporated herein by this reference.

49.20. Any claim, demand, rights, or defense by Tenant that arises out of this Lease or the negotiations that preceded this Lease shall be barred unless Tenant commences an action thereon, or interposes a defense by reason thereof, within twelve (12) months after the date of the inaction, omission, event, or action that gave rise to such claim, demand, right, or defense. Tenant acknowledges and understands, after having consulted with its legal counsel, that the purpose of this Paragraph is to shorten the period within which Tenant would otherwise have to raise such claims, demands, rights, or defenses under applicable laws.

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49.21. Landlord and Tenant waive their respective rights to trial by jury of any contract or tort claim, counterclaim, cross complaint, or cause of action in any action, proceeding, or hearing brought by either party against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant’s use or occupancy of the Premises, including any claim of injury or damage or the enforcement of any remedy under any current or future law, statute, regulation, code, or ordinance.

Landlord’s Initials Tenant’s Initials

49.22. This Lease, the Exhibits and Addenda, if any, attached hereto (which are incorporated herein by this reference), constitute all of the covenants, promises, assurances, representations, warranties, statements, agreements, conditions and understandings between Landlord and Tenant concerning the Premises and the Project, and there are no other covenants, promises, assurances, representations, warranties, statements, conditions, or understandings, either oral or written, between them. Except as herein otherwise provided, no subsequent alteration, change, modification, or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each of them. Notwithstanding the foregoing, the Landlord may, from time to time, establish and amend such rules, regulations, and signage criteria, in a written form, for the benefit of the Project and Building, as it deems appropriate. Violations of such rules, regulations, and signage criteria by Tenant or Tenant’s Invitees shall constitute a material default of this Lease. If any Lender requests reasonable amendment(s) to this Lease at any time during the Term, so long as such changes do not materially impact Tenant’s use of the Premises, result in a reduction in the size of the Premises, or result in any increase in Rent or Additional Rent, then Tenant shall not unreasonably withhold or delay its written consent to such amendment(s).

49.23. This Lease, upon full execution, supersedes and revokes any and all previous leases governing the Premises, lease negotiations, arrangements, letters of intents, offers to lease, lease proposals or drafts, brochures, representations, and information conveyed, whether oral or written, between parties hereto or their respective representations or any other person purported to represent Landlord or Tenant. The Tenant

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acknowledges it has not been induced to enter into this Lease by any representations not set forth in the Leases, nor has it relied on any such representations. No such representations should be used in the interpretation or construction of this Lease and the Landlord shall have no liability for any consequences arising as a result of any such representations.

LANDLORD:
PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common
By:	AMERICAN ASSETS, INC., as Agent
	By:	/s/    JOHN W. CHAMBERLAIN
		John W. Chamberlain
		Chief Executive Officer
Date:	February 22, 2000
TENANT:
NET RESOURCES, INC. a Canadian based corporation, d/b/a BakBone Software, Inc.
By:	/s/    Illegible
Its:	President and CEO
Date:	February 21, 2000
By:
Its:
Date:

20

ADDENDUM NO. 1 TO

STANDARD FORM MODIFIED GROSS OFFICE LEASE

(NET RESOURCES)

This Addendum No. 1 is attached to and incorporated within that certain Standard Full Service Gross Office Lease between AMERICAN ASSETS, INC., As Agent For PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common (“Landlord”), and NET RESOURCES, Inc., a Canadian based corporation, d/b/a BakBone Software, Inc. (“Tenant”), who agree as follows:

1. Adjustments to Basic Monthly Rent. Basic Monthly Rent shall be increased on the first day of the second Lease Year and the first day of each succeeding Lease Year by three and one-half percent (3.5%) over the previous Lease Year. The term “Lease Year” shall mean (i) as to the first Lease Year, that 12 month period commencing on the Rent Commencement Date (provided; however, if the Commencement Date falls on a day other than the first day of a calendar month, then the first Lease Year will be extended through the final day of the calendar month in which the first anniversary of the Rent Commencement Date occurs), (ii) as to every subsequent Lease Year other than the final Lease Year of the Term, the 12 month period following the prior Lease Year, and (iii) as to the final Lease Year of the Term, the period commencing on that day immediately following the final day of the penultimate Lease Year of the Term and ending on the Expiration Date.

2. Delivery of Possession. Landlord shall use its best efforts to provide Tenant with access to the Premises at least 15 days prior to Substantial Completion of Landlord’s Work to permit Tenant to commence installation of its furniture, fixtures, and equipment. Tenant shall be entitled to use the elevators and consume reasonable amounts of utilities during such 15-day move-in period at no charge, subject to such reasonable terms and conditions as Landlord may impose. All terms and conditions of this Lease, including but not limited to Paragraph 14 “Early Access Insurance,” shall be in full force and effect during such early access period.

3. Parking. Tenant acknowledges that the Project currently includes parking equivalent to three and one-third (3.3) spaces per one thousand (1,000) Useable Square Feet. Landlord currently intends to eventually add additional parking facilities to the Project to make available to Tenant a ratio of four (4) spaces per one thousand (1,000) Useable Square Feet. Attached as Exhibit “D” to this lease is a Parking Diagram illustrating the current location and amount of visitor parking. Tenant acknowledges that the process of developing parking facilities may require the relocation of Tenant’s parking from time to time to temporary parking areas. Tenant shall be entitled to use its allocated parking free of charge during the Initial Lease Term and, subject to temporary closure pursuant to the terms of this Lease, such parking shall be available 24 hours per day, 7 days per week.

4. Option to Extend. Tenant shall have the option to extend the Lease Term (the “Option to Extend”) for one additional term of five (5) years (the “Extension Term”), provided that Tenant has not assigned or subleased more than twenty-five percent (25%) of the Premises at the time of exercise of the Option to Extend, and Tenant gives Landlord written notice of its election to exercise the Option to Extend no less than nine (9) months prior to the expiration of the Lease Term. Time is of the essence with respect to such obligation to give notice to Landlord.

4.1. Restrictions in Transferability of Option. The Option to Extend is personal to the Tenant originally named in this Lease or any corporation of which Tenant owns at least fifty-one percent (51%) (“Affiliate”) and may not be exercised by any transferee (as defined below) other than an Affiliate.

4.2. Conditions Terminating Tenant’s Rights to Exercise Option. Tenant shall not have the right to exercise the Option to Extend, notwithstanding anything set forth above to the contrary: (a) during any period of time commencing from the date Landlord gives to Tenant a written notice that Tenant is in default under any provision of this Lease and continuing until the default alleged in said notice is cured; (b) during the period of time commencing on the day after a monetary obligation to Landlord is due from Tenant and unpaid (without any necessity for notice thereof to Tenant) and continuing until the obligation is paid; or (c) in the event that Landlord has given to Tenant two or more notices of default or a late charge has become payable under this Lease during the 12-month period prior to the time that Tenant intends to exercise the Option to Extend. The period of time within which the Option to Extend may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Option to Extend because of the foregoing provisions of this Paragraph, even if the effect thereof is to eliminate Tenant’s right to exercise the Option to Extend.

4.3. Conditions Terminating Tenant’s Option Rights. All rights with respect to the Option to Extend shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Option to Extend, if, after such exercise, but prior to the commencement of the Extension Term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of ten (10) days after such obligation become due (without any necessity of Landlord to give notice thereof to Tenant); (b) Tenant fails to cure a non-monetary default within thirty (30) days after the date the Landlord gives notice to Tenant of such default; or (c) Landlord gives to Tenant two or more notices of default or a late charge becomes payable for any such default, whether or not such defaults are cured.

4.4. Terms and Conditions of Extension of Term. If Tenant exercises the Option to Extend for the Extension Term, then the Base Rent for the first year of the Extension Term shall adjust to an amount equal to the prevailing base rental rate for new leases (including new leases with existing tenants, but excluding leases pursuant to options) of comparable office space in the Project, including annual rent increases pursuant to the terms of such new leases. If there have been fewer than two new leases (including new leases with existing tenants, but excluding leases pursuant to options) for comparable office space accepted by Landlord at the Project during the period commencing 6 months prior to Tenant’s notice of exercise of its option, then the “fair rental value” of the Premises shall be determined in the following manner.

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(a) Not later than 120 days prior to the commencement of the Extension Term, Landlord and Tenant shall meet in an effort to negotiate, in good faith, the fair rental value of the Premises for the Extension Term. If Landlord and Tenant have not agreed upon the fair rental value of the Premises at least 90 days prior to the commencement of the Extension Term, then the fair rental value shall be determined by appraisal as described below.

(b) If Landlord and Tenant are not able to agree upon the fair rental value of the Premises within the time period described above, then Landlord and Tenant shall attempt to agree in good faith upon a single appraiser not later than 75 days prior to the commencement of the Extension Term. If Landlord and Tenant are unable to agree upon a single appraiser within such time period, then Landlord and Tenant shall each appoint an appraiser not later than 65 days prior to the commencement of the Extension Term. If Landlord and Tenant agrees upon a single appraiser, or if either Landlord or Tenant fails to appoint its appraiser within the prescribed time period, the single appraiser appointed shall determine the fair rental value of the Premises pursuant to this Addendum Paragraph 4.4. If both parties fail to appoint appraisers within the prescribed time periods, then the first appraiser thereafter selected by a party shall determine the fair rental value of the Premises pursuant to this Addendum Paragraph 4.4. Each party shall bear the cost of its own appraiser and the parties shall share equally the cost of the single appraiser if applicable. Each such appraiser must have at least five years experience in the appraisal of commercial/industrial real property in the area in which the Project is located and shall be members of a professional organization such as MAI or equivalent.

(c) For the purposes of such appraisal, the term “fair rental value” shall mean the price that a ready and willing tenant would pay, as of the commencement of the Extension Term, as monthly rent to a ready and willing Landlord of property comparable to the Premises in the Sorrento Mesa area if such property were marketed for lease on the open market for a reasonable period of time and taking into account all of the purposes for which such property may be used. Unless Tenant and Landlord are able to agree on a determination of fair rental value, the fair rental value of the Premises shall be determined by each of Landlord and Tenant submitting to the arbitrator(s) its own determination of fair rental value for the Premises. The arbitrator(s) shall choose whether Tenant’s or Landlord’s determination of fair rental value most closely approximates such arbitrator(s) own determination of fair rental value. If there are two arbitrators and they each choose a different determination of fair rental value and cannot agree as to which of the two determinations is fair rental value, then the arbitrators shall appoint a third arbitrator who shall determine fair rental value by choosing whether Tenant’s or Landlord’s determination of fair rental value most closely approximates such arbitrator’s own determination of fair rental value. In no event, however, shall the Basic Monthly Rent be reduced by reason of such computation or the operation of this Addendum.

(d) Landlord and Tenant shall submit their respective determinations of fair rental value to the appraiser(s) no later than 45 days prior to the commencement of the Extension Term. Landlord and Tenant shall instruct the appraiser(s) to complete their determinations of fair rental value no later than 30 days prior to the commencement of the Extension Term. If, notwithstanding such instruction, the fair rental value is not determined before the first day of the Extension Term, then Tenant shall continue to pay to Landlord the Basic Monthly Rent applicable to the Premises immediately prior to such extension term, until the fair rental value of the Premises is determined. When the fair rental value of the Premises is determined, Landlord shall deliver notice thereof to Tenant, and Tenant shall pay to Landlord, within ten days after receipt of such notice, the difference between the Basic Monthly Rent actually paid by Tenant to Landlord and the new Basic Monthly Rent determined hereunder.

(e) The determination of fair rental value shall include annual rental increases during the Extension Term equal to the greater of three and one-half percent per Lease Year and the percentage increase each year in the Consumer Price Index for all Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor for — Los Angeles-Anaheim-Riverside, CA — All Items (1982-84 = 100).

5. Assignment and Transfers. Notwithstanding anything to the contrary in Paragraph 30 of this Lease and subject to the conditions set forth below, Landlord’s consent shall not be required for any Transfer to (a) a transferee resulting from a merger or consolidation with the original Tenant under this Lease, (b) any entity that succeeds to all of the assets of the original Tenant under this Lease, or (c) a partnership, corporation, or limited liability company controlled by the original Tenant under this Lease and as to which the original Tenant under this Lease holds at least 51 percent of the outstanding equity interests. The foregoing provision is subject to the following restrictions and conditions: (i) this Addendum Paragraph 5 is personal to the Tenant originally named in this Lease and shall be inapplicable to any transferee, (ii) such transferee must have a net worth immediately following such Transfer at least equal to the net worth of the original Tenant under this Lease as of the execution of this Lease and as of the date of such Transfer, (iii) the original Tenant under this Lease shall remain fully liable under this Lease, (iv) the Premises shall continue to be used in a manner consistent with the Permitted Use, (v) such Transfer shall not cause Landlord to violate any other Lease or agreement regarding the Building or Project, (vi) such Transfer shall otherwise comply with all provisions of this Lease, including Paragraph 30, and (vii) Tenant shall provide Landlord with prior written notice of such Transfer, and adequate information regarding the proposed Transfer (including detailed financial information regarding the transferee) at least fifteen (15) days before the effective date of such Transfer.

6. Expense Exclusions. For the purpose of this Lease, Operating Expenses shall exclude the following:

(A) costs incurred in connection with leasing of the Project and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for tenants initially occupying space in the Project after the Commencement Date;

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(B) depreciation, interest, amortization, or principal payments on mortgages and other debt costs of any nature, secured or unsecured, and interest related to such debts, unless such debt was incurred in connection with the financing of items comprising Operating Expenses;

(C) costs for which the Landlord is reimbursed by any policy of insurance carried or required under this Lease to be carried by Landlord;

(D) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(E) Landlord’s general corporate overhead and general and administrative expenses;

(F) salaries of officers, executives or other employees of Landlord, any affiliate of Landlord, or partners or affiliates of such partners or affiliates, other than any personnel engaged in the management, operation, maintenance, and repair of the Project or a pro rata share of such expenses for employees of Landlord who do not work exclusively at the Project; provided such individuals do not hold a position which is generally considered to be higher in rank than the position of the manager of the Project and provide further that such salaries shall be excluded from Operating Expenses to the extent such individuals are engaged in leasing or marketing of the Project;

(G) amount paid as ground rental for the Project by the Landlord, if any;

(H) overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent that the cost of such services exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(I) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(J) costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services, including but not limited to penalties, fines, judgments or awards;

(K) costs arising from Landlord’s charitable or political contributions;

(L) any gifts provided to any entity whatsoever, including, but not limited to, Tenant, other tenants, employees, vendors, contractors, prospective tenants and agents;

(M) electric power costs of which Tenant directly contracts with the local public service company or for which Landlord is directly reimbursed by Tenant or any other tenant (other than as part of Operating Expenses);

(N) any entertainment expenses and travel expenses of Landlord, its employees, agents, partners and affiliates;

(O) penalties and costs incurred as a result of Landlord’s violation of laws or regulations or the late payment of taxes or other fees;

(P) the cost of capital repairs, alterations, and improvements, except as otherwise provided;

(Q) costs of environmental impact reports;

(R) expenditures of a type or character not included in Operating Expenses during the Base Year;

(S) the cost of earthquake or flood insurance, unless included within Operating Expenses during the Base Year;

(T) the cost of maintenance of other buildings in the Project which are not Common Area; or

(U) the cost of services not made available to substantially all of the tenants of the Building.

7. Further Development of Project. Tenant acknowledges that Landlord may, from time to time, at its sole election, construct (including, without limitation, additional buildings), reconstruct, improve (including tenant improvements), modify, expand, or otherwise alter the Project (collectively, “Construction Work”), or portions thereof (in no event however will Landlord have any obligation to do so). Tenant acknowledges that any such Construction Work will necessarily involve, among other things, the generation of noise, dust, and vibrations, barricading portions of the Project and the placement of scaffolding within the Project, demolition, structural alterations, storage of materials and equipment within the Project, and the presence of workmen within the Project, all of which may require the rearrangement of the Common Areas, including, without limitation, landscaping, parking areas, roadways, lighting facilities, and the re-direction of vehicular and pedestrian traffic. Except as provided below, Tenant waives any and all claims, defenses, rights of offset, or deductions based upon any inconvenience suffered by Tenant or any interruption of or interference with Tenant’s business including, without limitation, any loss of business, decreased sales, or inconvenience to Tenant or Tenant’s Invitees as a result of or relating to such Construction Work. Landlord hereby reserves for itself and its agents, employees, licensees and contractors, the right to enter the Premises to the extent reasonably necessary to pursue such Construction Work upon 24 hours’ prior notice to Tenant. The exercise of any of Landlord’s rights pursuant to this Paragraph will not entitle Tenant to any abatement of Rent or other claim, right of offset, or defense against Landlord, except that (i) Tenant shall have the right to bring an action against Landlord (as Tenant’s sole remedy) in the event Tenant suffers any damages as a result of Landlord’s gross negligence or intentional misconduct in pursuing such Construction Work, and (ii) if such Construction Work results in Tenant being unable to access the Premises, or portions thereof, for the Permitted Use for a period of greater than ten business days, Tenant shall be entitled to equitable abatement of the Rent for such period of time during which it is unable to access the Premises. Tenant further acknowledges that expansion of the Project may affect the amount of the Lease Expenses and the portion thereof payable by Tenant.

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8. Changes in Use of Common Area. Tenant acknowledges that Landlord currently intends to utilize the small building adjacent to the Building as a daycare center, cafeteria and/or exercise facility. Landlord reserves the right to change the use of such building in Landlord’s sole discretion.

9. Temporary Space. Landlord agrees to provide temporary space for Tenant’s occupancy at a location to be determined in Landlord’s sole discretion (the “Temporary Space”). The terms, provisions, and conditions set forth in this Lease shall govern such Temporary Space, except that (i) paragraphs 4 and 5 of this Addendum No. 1 to the Lease and Exhibit “C” to the Lease are inapplicable to the Temporary Space; (ii) except as provided below, Tenant shall pay no Basic Monthly Rent or Additional Rent for such Temporary Space; (iii) the lease term applicable to the Temporary Space shall commence as of the date this Lease is fully executed and will terminate on the Lease Commencement Date; (iv) Landlord will deliver the Temporary Space to Tenant in its “AS-IS” condition; (v) a default by Tenant under the terms of this Lease which continues beyond 5 days after written notice to Tenant (which notice shall be in lieu of, and not in addition to, any notice required under applicable unlawful detainer statutes or paragraph 25 of this Lease) will entitle Landlord to exercise its rights pursuant to paragraph 26 of this Lease with regard to the Temporary Space as if it was the Premises; and (vi) Tenant shall, within 5 days after demand, pay to Landlord the total cost of utilities serving the Temporary Space, which utilities shall include, but not be limited to, heating, ventilation, and air conditioning, and electricity. In the event of a termination of this Lease, for any reason, Landlord will provide Tenant with 5 days notice to vacate the Temporary Space, during which 5-day period Tenant will surrender the Temporary Space in accordance with Paragraph 24 of this Lease and, in the event Tenant fails to surrender the Temporary Space in such a manner, Tenant agrees to thereafter pay Base Monthly Rent in the amount of $2.00 per Usable Square Foot for the Temporary Space and the Additional Rent provisions of this Lease will apply to Tenant

LANDLORD:
PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common
By:	American Assets, Inc., as Agent
	By:	/s/    JOHN W. CHAMBERLAIN
		John W. Chamberlain
		Chief Executive Officer
Date:

4

TENANT:
NET RESOURCES, INC., a Canadian based corporation, d/b/a BakBone Software, Inc.
By:	/s/    JACK P. COCRAN
Its:	Jack P. Cocran, President/CEO
Date:	February 21, 2000
By:
	,
Date:

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EX-10.20

Exhibit 10.20

STANDARD FORM

MODIFIED GROSS OFFICE LEASE

This Standard Form Modified Gross Office Lease (“Lease”) is entered into effective as of August 14, 2000, between AMERICAN ASSETS, INC., as agent for PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common (“Landlord”), and BAKBONE SOFTWARE, INC., a California corporation, (“Tenant”), who agree as follows:

1. Agreement to Let. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the terms, provisions, and conditions contained in this Lease, (i) those certain premises described in the Principal Lease Provisions, below (the “Premises”), consisting of a portion of that certain building described in the Principal Lease Provisions, below (the “Building”), which is in turn a part of the Project (as described in the Principal Lease Provisions, below), along with (ii) the non-exclusive right to use, in common with Landlord, Landlord’s invitees and licensees, and the other tenants and users of space within the Project, those portions of the Project intended for use by, or benefiting, tenants of the Project in common including, without limitation, the landscaped areas, passageways, walkways, hallways, elevators, parking areas, and driveways of the Building and the Project, but excluding all interior areas of the other buildings which may now or in the future be located in the Project other than the Building (collectively, the “Common Areas”). This Lease confers no rights, however, to the roof, exterior walls, or utility raceways of the Building nor rights to any other building in the Project, nor with regard to either the subsurface of the land below the ground level of the Project or with regard to the air space above the ceiling of the Premises; provided, however, that Tenant shall have the limited right to access systems and equipment exclusively serving the Premises (for which Tenant has maintenance and repair responsibilities pursuant to Paragraph 10.1 below) that may be located on the roof, in exterior or demising walls, in utility raceways, in the airspaces above the ceiling of the Premises, or in any other portion of the Building or the Common Areas for the sole purpose of maintaining, repairing, and replacing such systems and equipment.

2. Principal Lease Provisions. The following are the “Principal Lease Provisions” of this Lease. Other portions of this Lease explain and describe these Principal Lease Provisions in more detail and should be read in conjunction with this Paragraph 2. In the event of any conflict between the Principal Lease Provisions and the other portions of this Lease, the Principal Lease Provisions will control. (Terms shown in quotations are defined terms used elsewhere in this Lease).

2.1. “Project”: That certain office project sometimes referred to as Pacific Corporate Center, located near the intersection of Pacific Heights Boulevard and Pacific Mesa Boulevard, in San Diego, California (see Exhibit “A”). As of the date of this Lease, (i) the Project includes only the Pacific Tower building and certain Common Areas, and (ii) Landlord has only committed to the construction of the Building; however, it is anticipated that in the future Landlord may develop additional buildings and improvements within the boundaries of the Project pursuant to Paragraph 34, below, in which event, all references herein to the Project will include such additional buildings and improvements as well.

2.2. “Building”: That certain building to be constructed by Landlord pursuant to attached Exhibit “C”, which is identified on the attached Exhibit “A” as building B-2.

2.3. “Premises”: Approximately 12,500 Rentable Square Feet of space on the west side of the third floor of the Building (excluding those areas designated on attached Exhibit “B” as Common Areas) (see Exhibit “B”).

2.4. Rentable Area of the Premises: Approximately 12,500 Rentable Square Feet of space. The terms “Rentable Square Footage,” “Usable Square Footage,” and similar terms dealing with Rentable or Usable means of describing measurements of square footages, will have the meanings of such terms adopted by the Building Owners and Managers Association International relative to single tenant, full-floor tenants.

2.5. “Initial Lease Term”: Five years and zero months (plus any period of time between the Lease Commencement Date and the Rent Commencement Date (as defined below) provided that if the Rent Commencement Date is other than the first day of a calendar month, then such additional period will be extended until the first day of the calendar month immediately following the Rent Commencement Date—beginning as of the Lease Commencement Date and ending as of the Initial Expiration Date (as such terms are defined below); subject to any early access rights provided to Tenant pursuant to the Addendum attached hereto.

2.6. “Lease Commencement Date”: That date upon which Landlord turns possession of the Premises over to the Tenant in the condition required pursuant to Paragraph 4.1, below (estimated date: July 1, 2001; see Exhibit “C”).

2.7. “Initial Expiration Date”: That date which is five years after the Rent Commencement Date (estimated date: June 30, 2006; see Exhibit “C”); provided, however, if the Rent Commencement date is other than the first day of a calendar month, then such Initial Expiration Date will instead be that date which is five years after the first day of the first calendar month following the Rent Commencement Date.

2.8. “Rent Commencement Date”: That date upon which Landlord turns possession of the Premises over to the Tenant in the condition required pursuant to Paragraph 4.1, below (estimated date: July 1, 2001; see Exhibit “C”).

2.9. Extension Rights: Yes x    No ¨; one (1) five (5) year extension (subject to the terms and conditions of the attached Addendum No. 1).

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2.10. “Basic Monthly Rent”: The initial Basic Monthly Rent (as of the Rent Commencement Date) will be $2.25 per month, per Rentable Square Foot of space in the Premises. The Basic Monthly Rent will increase annually pursuant to Paragraph 7.2, below. Basic Monthly Rent will always be due and payable in advance, on or before the first day of the applicable month, except that the first month’s Basic Monthly Rent will be due and payable concurrently with Tenant’s execution of this Lease.

2.11. “Security Deposit”: $28,125.00. Tenant’s Security Deposit—which is due and payable on the date Tenant executes this Lease—does not constitute last month’s rent. Last month’s rent must be separately paid by Tenant on or before the first day of the last month of the Lease Term.

2.12. “Base Year”: Calendar year 2002.

2.13. Guarantor: None.

2.14. Address for Landlord:	c/o American Assets, Inc.
	11455 El Camino Real, Suite 200
	San Diego, CA 92130
	Attn: John Chamberlain
	Facsimile No. (858) 350-2620
With a copy to:
	Miguel A. Smith, Esq.
	Solomon Ward Seidenwurm & Smith, LLP
	401 B Street, Suite 1200
	San Diego, CA 92101
	Facsimile No. (619) 231-4755
2.15. Addresses for Tenant:	Legal Notice Address:
	BakBone Software, Inc.
	10145 Pacific Heights Boulevard, Suite 900
	San Diego, CA 92121
	Facsimile No. (858) 450-9929
With a copy to:
	Jeff Lawson, Esq.
	350 7th Avenue SW, Suite 1400
	Calgary, Alberta, Canada
	T2P3N9
	Facsimile No. (403) 260-0337

2.16. Permitted Uses By Tenant: General office use and incidental related uses, all of which uses must be consistent with the operation of a first class office building, and otherwise in compliance with the terms, provisions, and conditions of this Lease (the “Permitted Use”).

2.17. Building Standard Operating Hours :

Monday through Friday: 7:00 AM-6:00 PM

Saturday: 7:00 AM-12:00 PM

(excluding local, state, and federal holidays)

2.18. Participating Brokers: Landlord: John Burnham and Company (Warren J. Arnett and Lynn LaChapelle) Tenant: CB Richard Ellis, Inc. (Michael D. Jordan, Steve Holland, Bill Bacon)

2.19. Initial Payment Amounts: $28,125.00, representing the Security Deposit; and $28,125.00, representing the first month’s Basic Monthly Rent (to be adjusted on the Rent Commencement Date to reflect the actual first month’s Basic Monthly Rent, based upon the actual Rentable Square Footage thereof), all of which is payable concurrently with Tenant’s execution of this Lease.

2.20. Parking Rights: Approximately four spaces per 1,000 Usable Square Feet of space in the Premises (see Paragraph 11, below).

2.21. Permitted Trade Name: BakBone Software, Inc.

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3. Term.

3.1. Description of Term. The term of this Lease (“Term”) shall commence on the “Lease Commencement Date”, as defined in the Principal Lease Provisions, and shall expire on the “Expiration Date”, as defined below.

3.2. Expiration Date. The term “Expiration Date”, as used in this Lease, shall mean the Initial Expiration Date or any earlier date upon which this Lease is terminated by Landlord, as provided below.

4. Delivery of Possession.

4.1. Delivery Requirements. On or before the Lease Commencement Date, Landlord, at its cost, shall have Substantially Completed the work, if any, required to be completed by Landlord prior to the delivery of the Premises to Tenant, as described in Exhibit “C” to this Lease (the “Landlord’s Work”) and shall deliver possession of the Premises to Tenant (subject to Landlord’s reserved rights hereunder and Landlord’s right to continue the completion of Landlord’s Work without material interference by Tenant). If possession of the Premises (including, without limitation, Substantial Completion of the Landlord’s Work, if any) is not delivered to Tenant on or before the estimated Lease Commencement Date stated in the Principal Lease Provisions, then Landlord shall not be liable for any damage caused by such delay, and such delay shall neither affect the validity of this Lease, affect Tenant’s obligations under this Lease, nor extend the Term.

4.2. Definition of Substantial Completion. For purposes of this Lease, the term “Substantially Complete” (and its grammatical variations, such as Substantial Completion) when used with reference to Landlord’s Work, will mean that Landlord’s Work has been completed to such an extent that Tenant can commence its work, if any, to be undertaken by Tenant, as described in Exhibit “C” to this Lease (the “Tenant’s Work”), without material delay or interference due to the completion of Landlord’s Work.

4.3. Final Completion. Except for (i) any items set forth on a written, detailed “punch-list” of excepted items delivered to Landlord upon the date Landlord notifies Tenant that the Landlord’s Work is finally completed (the “Completion Date”), or (ii) any latent defects in Landlord’s Work which Tenant, despite reasonable inspection of the Premises fails to discover as of the Completion Date, Tenant shall, as of the Completion Date, be deemed to have (a) thoroughly inspected the Premises, and determined that, to the best of Tenant’s knowledge, the Premises comply with all applicable laws and ordinances, and that the Premises are in first-class condition and repair, (b) acknowledged that Landlord’s Work has been finally completed, (c) accepted the Premises in its then as-is condition with no right to require Landlord to perform any additional work therein, except as set forth on the punch list or to correct latent defects, and (d) waived any express or implied warranties regarding the condition of the Premises, including any implied warranties of fitness for a particular purpose or merchantability.

5. Use of Premises and Common Areas.

5.1. Permitted Use of Premises. Tenant may use the Premises for the Permitted Use specified in the Principal Lease Provisions and for no other use without Landlord’s consent. Any change in the Permitted Use (or any change in Tenant’s trade name from the Permitted Trade Name identified in the Principal Lease Provisions) will require Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s reasonable discretion.

5.2. Compliance with Laws. Landlord covenants that the Premises will comply with all applicable laws as of the Lease Commencement Date. Thereafter, Tenant shall comply with all laws concerning the Premises and/or Tenant’s use of the Premises, including without limitation the obligation at Tenant’s sole cost to alter, maintain, or restore the Premises in compliance with all applicable laws, even if such laws are enacted after the date of this Lease, and even if compliance entails costs to Tenant of a substantial nature. Such obligation to comply with laws shall include, without limitation, compliance with Title III of the Americans With Disabilities Act of 1990 (42 U.S.C. 12181 et seq.) (the “ADA”). If Tenant’s specific use of the Premises results in the need for modifications or alterations to any portion of the Project in order to comply with the ADA or other applicable laws, then Tenant shall additionally be responsible, upon demand, for the cost of such modifications and alterations plus a supervisory fee of ten percent (10%) of such cost payable to Landlord.

5.3. Condition During Periods of Non-Use. During any period of time in which Tenant is not continuously using and occupying the Premises, Tenant shall take such measures as may be necessary or desirable, in Landlord’s reasonable opinion, to secure the Premises from break-ins and use by unauthorized persons, to minimize the appearance of non-use, and to otherwise maintain the interior and exterior portions of Tenant’s Premises, including all windows and doors, in first class condition.

5.4. Use of Common Areas. Tenant’s use of the Common Areas shall at all times comply with the provisions of all reasonable Rules (as defined below) regarding such use as Landlord may from time to time adopt. In no event shall the rights granted to Tenant to use the Common Areas include the right to store any property in the Common Areas, whether temporarily or permanently. Any property stored in the Common Areas may be removed by Landlord and disposed of, and the cost of such removal and disposal shall be payable by Tenant to Landlord upon demand. Additionally, in no event may Tenant use any portion of the Common Areas for loading, unloading, or parking, except in those areas specifically designated by Landlord for such purposes, nor for any group social event, sidewalk sale, employment fair, or similar unauthorized purpose.

5.5. General Covenants and Limitations on Use. In addition to the Rules, Tenant and Tenant’s Invitees (as defined below) use of the Premises and the Project, will be subject to the following additional general covenants and limitations on use.

5.5.1. Tenant shall not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurance covering the Premises. If the rate of any insurance carried by Landlord is increased

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as a result of Tenant’s use or Tenant’s failure to continuously use and occupy the Premises, Tenant shall pay the amount of such increase to Landlord, within ten days after Landlord delivers to Tenant a notice of such increase.

5.5.2. No noxious or unreasonably offensive activity shall be carried on, in or upon the Premises by Tenant or Tenant’s Invitees, nor shall anything be done or kept in the Premises which may be or become a public nuisance or which may cause unreasonable disturbance, or annoyance to others in the Project, or on adjacent or nearby property. To that end, Tenant additionally covenants and agrees that no light shall be emitted from the Premises which is unreasonably bright or causes unreasonable glare; no sounds shall be emitted from the Premises which are unreasonably loud or annoying; and no odor shall be emitted from the Premises which is or might be noxious or offensive to others in the Building, on the Project, or on adjacent or near-by property.

5.5.3. No unsightliness shall be permitted in the Premises which is visible from the Common Areas. Without limiting the generality of the foregoing, all equipment, objects, and materials shall be kept enclosed within the Premises and in Common Areas trash enclosures and screened from view; no refuse, scraps, debris, garbage, trash, bulk materials, or waste shall be kept, stored, or allowed to accumulate except as may be properly enclosed within appropriate containers in the Premises and promptly and properly disposed of.

5.5.4. The Premises shall not be used for sleeping or washing clothes, nor shall the Premises be used for cooking or the preparation, manufacture, or mixing of anything that might emit any offensive odor or objectionable noises or lights onto the Project or nearby properties.

5.5.5. All pipes, wires, conduit, cabling, poles, antennas, and other equipment/facilities for or relating to utilities, telecommunications, computer equipment, or the transmission or reception of audio or visual signals must be kept and maintained enclosed within the Premises (except to the extent included as part of Landlord’s Work, Tenant’s Work, or otherwise approved by Landlord)

5.5.6. Tenant shall not keep or permit to be kept any motorcycle, or other vehicle, nor any animal (excluding seeing-eye dogs), bird, reptile, or other exotic creature in the Premises.

5.5.7. Neither Tenant nor Tenant’s Invitees shall do anything that will cause damage or waste to the Project. Neither the floor nor any other portion of the Premises shall be overloaded. No machinery, equipment, apparatus, or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate, or shake all or any part of the Project or be allowed to interfere with the equipment of any other tenant within the Project (or other property owned by Landlord or its affiliates), including, without limitation, interference with transmission and reception of telephone, telecommunications, television, radio, or similar signals.

5.6. Access Rights. Tenant will have 24 hour-a-day, seven day-a-week access to the Building and the Premises. Notwithstanding the foregoing, no failure of such access rights will constitute an eviction or a disturbance of Tenants use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease; except that Tenant shall be entitled to equitable abatement of its Rent (as defined below) obligations hereunder to the extent such lack of access is due to Landlord’s gross negligence or intentional misconduct and continues for a period in excess of three business days. Landlord will not be liable, under any circumstances, for a loss of or injury to property or for injury to or interference with Tenants business, including loss of profits through, in connection with, or incidental to a failure to furnish access under this Paragraph. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to promptly correct any such interruption of access.

5.7. Remedies for Breach. In the event of any breach of this Paragraph 5 by Tenant or Tenant’s Invitees, Landlord, at its election and in addition to its other rights and remedies under this Lease, may pay the cost of correcting such breach and Tenant shall immediately, upon demand, pay Landlord the cost thereof, plus a supervisory fee in the amount of ten percent (10%) of such cost.

6. Security Deposit. Upon Tenant’s execution of this Lease, Tenant shall deposit with Landlord, cash in the amount of the Security Deposit set forth in the Principal Lease Provisions, to secure the performance by Tenant of its obligations under this Lease, including without limitation Tenant’s obligations (i) to pay Basic Monthly Rent and Additional Rent (as defined below), (ii) to repair damages to the Premises and/or the Project caused by Tenant or Tenant’s agents, employees, contractors, licensees, and invitees (collectively, “Tenant’s Invitees”), (iii) to surrender the Premises in the condition required by Paragraph 24, below, and (iv) to remedy any other Event of Default by Tenant in the performance of any of its obligations under this Lease. If Tenant commits an Event of Default under this Lease, Landlord may, at its election, use the Security Deposit to cure such Event of Default, and to compensate Landlord for all damage suffered by Landlord which are directly attributable to such Event of Default, including, without limitation, reasonable attorneys’ fees and costs incurred by Landlord. Upon demand by Landlord, Tenant shall promptly pay to Landlord a sum equal to any portion of the Security Deposit so used by Landlord, in order to maintain the Security Deposit in the amount set forth in the Principal Lease Provisions. Following the Expiration Date, and within the earlier of 30 days or the time frame otherwise required by applicable law, Landlord shall deliver to Tenant, at Tenant’s last known address, any portion of the Security Deposit not used by Landlord, as provided in this Paragraph. Landlord may commingle the Security Deposit with Landlord’s other funds and Landlord will not pay interest on such Security Deposit to Tenant.

7. Rent and Rent Adjustments.

7.1. Initial Monthly Rent. Tenant shall pay to Landlord as minimum monthly rent, without deduction, setoff, prior notice, or demand (except as otherwise specifically provided in this Lease), the Basic Monthly Rent described in the Principal Lease Provisions (subject to adjustment as provided in Paragraph 7.2, below), in advance, on or before the first day of each calendar month, beginning on the Rent Commencement Date and thereafter throughout the Term. If the Rent Commencement Date is other than the first day of a calendar month, then the Basic

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Monthly Rent payable by Tenant for the second month of the Term following the Rent Commencement Date (acknowledging that the first month’s rent is payable upon Lease execution) shall be prorated on the basis of the actual number of days during the Term occurring during the first partial calendar month thereof. Notwithstanding the foregoing, if Landlord is delayed in completion of Landlord’s Work due to any Tenant Delays, then in addition to the Basic Monthly Rent payable for the first month of the Term following the Rent Commencement Date, Tenant shall additionally pay to Landlord, upon the Rent Commencement Date, additional rent, at the rate of one-thirtieth of the Basic Monthly Rent per day, for the number of days of such delay.

7.2. Rental Adjustments. On each anniversary of the Rent Commencement Date throughout the Initial Lease Term, the Basic Monthly Rent shall be increased by multiplying the then-existing Basic Monthly Rent amount by 1.035 (i.e. a three and one-half percent (3.5%) increase per year).

7.3. Additional Rent. In addition to paying the Basic Monthly Rent pursuant to this Paragraph 7, Tenant shall pay to Landlord (in accordance with Paragraph 8, below), commencing on January 1, 2002, Tenant’s Share (as defined below) of the annual Direct Expenses that are in excess of the amount of Direct Expenses applicable to the Base Year. The amounts payable pursuant to this Paragraph, together with other amounts of any kind (other than Basic Monthly Rent) payable by Tenant to Landlord under the terms of this Lease, constitute additional rent for the Premises and are collectively and individually referred to in this Lease as “Additional Rent.”

7.4. General Rental Provisions. All “Rent” (which includes Basic Monthly Rent, and any “Additional Rent” hereunder) shall be paid to Landlord at the same address as notices are to be delivered to Landlord pursuant to the Principal Lease Provisions, as Landlord may change such address from time to time pursuant to the terms of this Lease. The Rentable Area of the Premises and the Building are, at Landlord’s election, subject to verification by Landlord’s space planner or architect. That verification shall be made in accordance with this Paragraph. Tenant’s space planner or architect may consult with Landlord’s space planner or architect regarding that verification. Verification of the Rentable Area of the Premises and the Building shall be done, if at all, within sixty (60) days of the Lease Commencement Date. Verification of the Rentable Area of the Building may be accomplished within such 60-day period If Landlord’s space planner or architect determines that the Rentable Area of the Premises or the Building is different from that stated in this Lease, all Rent and other calculations under this Lease that are based on that incorrect amount shall be modified in accordance with that determination. If that determination is made, it shall be confirmed in writing by Landlord to Tenant. In the event Tenant disputes Landlord’s redetermination, and the parties are unable to agree upon the actual size of the Premises (as so re-measured) within 30 days of Landlord’s notice to Tenant, such issue will be arbitrated in the same manner as matters are to be arbitrated pursuant to Paragraph 10.2.

8. Additional Rent.

8.1. Definitions. The following definitions apply in this Paragraph 8 (and elsewhere in this Lease):

8.1.1. Building Operating Costs. Subject to the Excluded Costs (as defined below) relating to the Building, the term “Building Operating Costs” means all expenses, costs, and amounts of every kind or nature that Landlord pays or incurs because of or in connection with the ownership, operation, management, maintenance, or repair of the Building (which includes the land and any parking areas located under the Building). Building Operating Costs include, without limitation, the following amounts paid or incurred relative to the Building (a) the cost of supplying utilities to all portions of the Building, including without limitation water, electricity, heating, ventilation, and air conditioning, (b) Tax Expenses relating to the Building, to the extent the Building is separately assessed by the taxing authority, (c) the cost of providing janitorial services for the Building and of operating, managing, maintaining, and repairing all building systems, including without limitation utility, mechanical, sanitary, storm drainage, and elevator systems, and the cost of supplies, tools, and equipment, as well as maintenance and service contracts in connection with those systems, (d) the cost of licenses, certificates, permits, and inspections relating to the operation of the Building, (e) the cost of contesting the validity or applicability of any government enactments that may affect the Building Operating Costs, (f) the cost of maintenance, repair, and restoration of any parking areas located under the Building (if any), including, without limitation, resurfacing, repainting, restriping, and cleaning costs, (g) fees, charges, and other costs, including administrative, management fees, and accounting costs (or amounts in lieu of such fees), whether paid to Landlord, an affiliate of Landlord’s, or a third party, consulting fees, legal fees, and accounting fees of all persons engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the operation, management, maintenance, and repair of the Building, (h) wages, salaries, and other compensation and benefits of all persons engaged in the operation, maintenance, repair, or security of the Building plus employer’s Social Security taxes, unemployment taxes, insurance, and any other taxes imposed on Landlord that may be levied on those wages, salaries, and other compensation and benefits. If any of Landlord’s employees provide services for more than one project of Landlord, only the prorated portion of those employees’ wages, salaries, other compensation and benefits, and taxes reflecting the percentage of their working time devoted to the Building will be included in the Building Operating Costs, (i) payments under any easement, CC&R’s, license, operating agreement, declaration, restrictive covenant, or other instrument relating to the sharing of costs, (j) amortization (including interest on the unamortized cost at a rate equal to the floating commercial loan rate announced from time to time by Bank of America as its “reference rate” (or a comparable rate selected by Landlord if such reference rate ceases to be published) plus three percentage points per annum) of the cost of acquiring or renting personal property used in the maintenance, repair, and operation of the Building, (k) reasonable reserves (it being acknowledged, that, among other amounts, any amount of reserves required by a Lender, as defined below, will be deemed reasonable) (l) the cost of capital improvements including those which (1) are intended as a labor saving or cost saving device or to effect other economies in the maintenance or operation of the Building, or (2) are required under any government law or regulation. All capital expenditures shall be amortized (including interest on the unamortized cost at the rate stated in subparagraph (j) of this Paragraph) over their useful life, as determined by GAAP.

8.1.2. Building’s Pro Rata Share. “Building’s Pro Rata Share” means a fraction, the numerator of which is the total aggregate Rentable Square Feet in the Building, and the denominator of which is the total aggregate Rentable Square Feet in all of the buildings in the Project. The Building’s Pro Rata Share will be

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calculated as of the first day of each calendar month; which calculation will remain in effect (regardless of changes to the Project) until the following month.

8.1.3. Direct Expenses. “Direct Expenses” means the sum of Operating Expenses plus Insurance Expenses (as such terms are defined below).

8.1.4. Excluded Costs. “ Excluded Costs” means the following expenses, as they relate to the Building Operating Costs and the Project Operating Costs (as defined below): (i) depreciation, interest, and amortization on mortgages or ground lease payments, (ii) legal fees incurred in negotiating and enforcing tenant leases, (iii) real estate brokers’ leasing commissions, (iv) initial improvements or alterations to tenant spaces, (v) the cost of providing any service directly to and paid directly by any individual tenant, if the cost of providing such service would have otherwise been included in Building’s Operating Costs, (vi) any costs expressly excluded from Operating Expenses elsewhere in this Lease, (vii) costs of any items for which Landlord receives reimbursement from insurance proceeds or a third party (such costs shall be excluded from Operating Expenses in the year in which the reimbursement is received), but any deductible amount under any insurance policy shall be included within Operating Expenses, (viii) costs of capital improvements, except as specifically provided herein, (ix) costs incurred for the benefit of a single tenant (for example, tenant improvement costs to build-out a particular suite), (x) costs incurred due to Landlord’s breach of a lease, law, or ordinance, (xi) repairs necessitated by the gross negligence or willful misconduct of Landlord, (xii) the cost of earthquake or flood insurance, unless required by Landlord’s Lender and in such event an amount reasonably estimated by Landlord to approximate the cost of such coverage as if such coverage been carried during the Base Year shall be added to Direct Expenses for the Base Year, (xiii) overhead profit increments paid to Landlord’s subsidiaries or affiliates for management or other services on or to the building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis, (xiv) any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord, (xv) advertising and promotional expenditures, (xvi) costs of repairs and other work occasioned by fire, windstorm, or other casualty covered by insurance, (xvii) management costs to the extent they exceed 5% of all gross rent collected, (xviii) costs for sculpture, paintings, or other objects of art (nor insurance thereon or extraordinary security in connection therewith), (xix) wages, salaries, or other compensation paid to any executive employees above the grade of building manager, (xx) the cost of correcting any building code or other violations which were violations prior to the Lease Commencement Date, and (xxi) the cost of containing, removing, or otherwise remediating any contamination of the Property (including the underlying land and ground water) by any toxic or hazardous materials (including, without limitation, asbestos and “PCB’s”) where such contamination was not caused by Tenant.

8.1.5. Expense Year. “Expense Year” means the Base Year, and each calendar year after the Base Year, in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.

8.1.6. Operating Expenses. “Operating Expenses” means the sum of (i) all Building Operating Costs, and (ii) the Building’s Pro Rata Share of the Project Operating Costs. Notwithstanding any other limitations contained in this Paragraph 8, Landlord shall not be entitled to recover more than 100% of any Operating Expense.

8.1.7. Project Operating Costs. Subject to the Excluded Costs relating to the Project, the term “Project Operating Costs” means all expenses, costs, and amounts of every kind or nature that Landlord pays or incurs because of or in connection with the ownership, operation, management, maintenance, or repair of the Project, including the “Project Common Areas,” which for purposes hereof will include all portions of the Project other than the Building and any other similar office building(s) within the Project from time to time. Project Operating Costs include, without limitation, the following amounts paid or incurred relative to the Project Common Area: (a) the cost of supplying utilities to all portions of the Project Common Area, including without limitation water, electricity, heating, ventilation, and air conditioning, (b) janitorial/cleaning costs and the cost of operating, managing, maintaining, and repairing the Project Common Area and all related systems, including without limitation utility, mechanical, sanitary, storm drainage, and elevator systems, (c) the cost of supplies and tools and of equipment, maintenance, and service contracts in connection with the systems referenced in clause (b), above, (d) the cost of licenses, certificates, permits, and inspections relating to the Project, (e) the cost of contesting the validity or applicability of any government enactments that may affect the Project Operating Costs, (f) costs incurred in connection with the implementation and operation of a parking or transportation management program or similar program, (g) all Tax Expenses, except to the extent such Tax Expenses relate to a separately assessed building in the Project and are separately paid by the tenants of such building (such as pursuant to Paragraph 8.1.1, clause (b), above), (h) fees, charges, and other costs, including administrative, management fees, and accounting costs (or amounts in lieu of such fees), whether paid to Landlord, an affiliate of Landlord’s, or a third party, consulting fees, legal fees, and accounting fees of all persons engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the operation, management, maintenance, and repair of the Project, (i) the cost of parking area and parking structure maintenance, repair, and restoration, including, without limitation, resurfacing, repainting, restriping, and cleaning (excluding costs which are already included as part of the Building Operating Costs relative to any parking areas located under a building, if any), (j) wages, salaries, and other compensation and benefits of all persons engaged in the operation, maintenance, or security of the Project plus employer’s Social Security taxes, unemployment taxes, insurance, and any other taxes imposed on Landlord that may be levied on those wages, salaries, and other compensation and benefits. If any of Landlord’s employees provide services for more than one project of Landlord, only the prorated portion of those employees’ wages, salaries, other compensation and benefits, and taxes reflecting the percentage of their working time devoted to the Project shall be included in Project Operating Costs, (k) any costs or expenses payable pursuant to the provisions of any reciprocal easement and maintenance agreement (or similar instrument or agreement) recorded against the Project either now or in the future including any owner’s association or similar fees, assessments or dues presently or hereafter established for the Project, including payments under any easement, CC&R’s, license, operating agreement, declaration, restrictive covenant, or other instrument relating to the sharing of costs, (l) amortization (including interest on the unamortized cost at a rate

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equal to the floating commercial loan rate announced from time to time by Bank of America as its reference rate plus three percentage points per annum) of the cost of acquiring or renting personal property used in the maintenance, repair, and operation of the Project, (m) reasonable reserves (it being acknowledged, that, among other amounts, and (n) any amount of reserves required by a Lender will be deemed reasonable) the cost of capital improvements or other costs including, without limitation, those which (1) are intended as a labor saving device or to effect other economies in the maintenance or operation of all or part of the Project, or (2) are required under any government law or regulation. All capital expenditures shall be amortized (including interest on the unamortized cost at the rate stated in subparagraph (l), above) over their useful life, as reasonably determined by Landlord’s certified public accountant. Notwithstanding the foregoing, the Project Operating Costs will exclude any Excluded Costs relating to the Project.

8.1.8. Tenant’s Share. “Tenant’s Share” means a means a fraction, the numerator of which is the total aggregate Rentable Square Feet in the Premises, and the denominator of which is the total aggregate Rentable Square Feet in the Building. If either the Premises or the Building are expanded or reduced, Tenant’s Share shall be appropriately adjusted. Tenant’s Share for the Expense Year in which that change occurs shall be determined on the basis of the number of days during the Expense Year in which each such Tenant’s Share was in effect.

8.2. Adjustment of Operating Expenses. Operating Expenses shall be adjusted as follows:

8.2.1. Gross Up Adjustment When a Project Is Less Than Fully Occupied. If the occupancy of the total Rentable Square Footage of completed buildings within the Project (which are included in the calculation of the Building’s Pro Rata Share) which are only partially occupied during any part of any Expense Year (including the Base Year) is less than 95%, Landlord shall make an appropriate adjustment of the variable components of the Operating Expenses for that Expense Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred had the Project been 100% occupied. This amount shall be considered to have been the amount of Operating Expenses for that Expense Year. For purposes of this Paragraph 8.2, “variable components” include only those component expenses that are affected by variations in occupancy levels, such as water usage.

8.2.2. Adjustment When Landlord Adds Additional Buildings to the Project. If Landlord constructs additional buildings within the Project following the Base Year, Landlord shall make an appropriate adjustment to the Operating Expenses for the Base Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred for the Base Year if such building had been complete and 100% occupied during the Base Year.

8.2.3. Adjustment When Landlord Does Not Furnish a Service to All Tenants. If, during any part of any Expense Year (including the Base Year), Landlord is not furnishing a particular service or work (the cost of which, if furnished by Landlord, would be included in Operating Expenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, Operating Expenses for that Expense Year shall be considered to be increased by an amount equal to the additional Operating Expenses that Landlord would reasonably have incurred during such period if Landlord had furnished such service or work to that tenant.

8.2.4. Additional Costs. If due to a change in the types of costs being incurred by Landlord as Direct Expenses (such as, for example, the commencement or cessation of security services—but not a mere change in how a particular cost is handled—such as going from an in-house to an outside landscaping service), the Base Year Direct Expenses need to be adjusted to eliminate the effect of such change, Landlord shall reasonably adjust the Base Year Direct Expenses and notify Tenant of such change in writing.

8.2.5. Common Areas. Landlord may elect to reasonably partition/separate portions of the Common Areas of the Project such that the Operating Costs associated with such partitioned Common Areas are allocated to particular buildings or parcels within the Project.

8.3. Tax Expenses.

8.3.1. Definition of Taxes and Tax Expenses. “Taxes” means and refers to all federal, state, county, or local government or municipal taxes, fees, charges, or other impositions of every kind or nature, whether general, special, ordinary, or extraordinary. Taxes include taxes, fees, and charges such as real property taxes, general and special assessments, transit taxes, leasehold taxes, and taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant), and personal property taxes imposed on Landlord’s fixtures, machinery, equipment, apparatus, systems, appurtenances, and other personal property used in connection with the Project or the Building, as the case may be. Notwithstanding the foregoing, the following shall be excluded from Taxes: (a) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal, state, and local income taxes, and other taxes applied or measured by Landlord’s general or net income (as opposed to rents, receipts, or income attributable to operations at the Building), and (b) personal property taxes attributable to property owned or installed by or for other tenants of the Project. “Tax Expenses” means the sum of all Taxes that are paid or incurred by Landlord because of or in connection with the ownership, leasing, and/or operation of the Project from time to time.

8.3.2. Adjustment of Taxes. For purposes of this Lease, Tax Expenses for the Base Year shall be adjusted upon a reassessment of the Project resulting from the construction of a new building within the Project to increase the Base Year Tax Expenses amount by the amount of Tax Expenses attributable to such new building’s assessed value. Accordingly, during the portion of any Expense Year occurring after the Base Year, Tax Expenses shall be considered to be increased appropriately.

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8.4. Calculation and Payment of Direct Expenses. Tenant’s Share of the increased Direct Expenses for any Expense Year shall be calculated and paid as follows:

8.4.1. Calculation of Excess. If Direct Expenses for any Expense Year (other than the Base Year) ending or beginning within the Lease Term exceeds the amount of Direct Expenses applicable to the Base Year, Tenant shall pay as Additional Rent to Landlord an amount equal to Tenant’s Share of that excess, in the manner stated below.

8.4.2. Statement/Payment of Direct Expenses. Tenant shall pay to Landlord, on the first day of each calendar month during the Lease Term, commencing January 1, 2003 as Additional Rent, without notice, demand, offset, or deduction (except as provided below), an amount (“Tenant’s Monthly Payment”) equal to one-twelfth of Tenant’s Share of the amount by which the Direct Expenses for each Expense Year following the Base Year exceed the Base Year Direct Expenses (such excess being referred to herein as the “Increased Direct Expenses”), as estimated (and subsequently reconciled) by Landlord in the most recently delivered Estimated Statement (as defined below). Landlord intends to deliver to Tenant, prior to the commencement of each Expense Year following the Base Year during the Lease Term, a written statement (“Estimated Statement”) setting forth Landlord’s estimate of the Direct Expenses and Increased Direct Expenses allocable to the ensuing Expense Year, and Tenant’s Share of such Increased Direct Expenses. Landlord may, at its option, during any Expense Year, deliver to Tenant a revised Estimated Statement, revising Landlord’s estimate of the Direct Expenses and Increased Direct Expenses, in accordance with Landlord’s most current estimate. Within approximately 90 days after the end of each Expense Year during the Lease Term, Landlord intends to deliver to Tenant a written statement (“Actual Statement”) setting forth the actual Direct Expenses allocable to the preceding Expense Year. Tenant’s failure to object to Landlord regarding the contents of an Actual Statement, in writing, within 90 days after delivery to Tenant of such Actual Statement, shall constitute Tenant’s absolute and final acceptance and approval of the Actual Statement. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any Expense Year exceeds Tenant’s Share of the actual Increased Direct Expenses allocable to such Expense Year, then such excess will be credited against future Tenant’s Monthly Payments, unless such Expense Year was the Expense Year during which the Lease Expiration Date occurs (the “Last Calendar Year”), in which event either (i) such excess shall be credited against any monetary default of Tenant under this Lease, or (ii) if Tenant is not in default under this Lease, then Landlord shall (within the time frame for returning Tenant’s Security Deposit) pay to Tenant such excess. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any Expense Year is less than Tenant’s Share of the actual Increased Direct Expenses allocable to such Expense Year, then Tenant shall, within ten days of delivery of the Actual Statement, pay to Landlord the amount of such deficiency. Landlord’s delay in delivering any Estimated Statement or Actual Statement will not release Tenant from its obligation to pay any Tenant’s Monthly Payment or any such excess upon receipt of the Estimated Statement or the Actual Statement, as the case may be. The references in this Paragraph to the actual Increased Direct Expenses allocable to an Expense Year, shall include, if such Expense Year is the Last Calendar Year, the actual Increased Direct Expenses allocable to the portion of such year prior to the Lease Expiration Date, calculated on a pro rata basis, without regard to the date of a particular expenditure.

8.5. Landlord’s Books and Records. If Tenant disputes the amount of Additional Rent stated in an Actual Statement within 90 days of Tenant’s receipt thereof, Tenant may, upon at least five business days notice to Landlord, request an opportunity to inspect and audit Landlord’s records and supporting documentation regarding such Actual Statement. Such inspection and audit must be conducted by an independent certified public accountant within 180 days of the date Tenant received the Actual Statement, shall be at Tenant’s sole cost and expense (except as provided below), and Landlord shall, at its election, either provide copies of such records and supporting documentation to Tenant or make such records and supporting documentation available to Tenant for its inspection at Landlord’s business office during normal business hours. If Tenant fails to dispute the amount of Additional Rent stated in an Actual Statement within 90 days of Tenant’s receipt thereof, or Tenant’s audit fails to disclose a discrepancy in such Actual Statement within 180 days after Tenant’s receipt of the Actual Statement in question, then the Actual Statement will be deemed binding on Tenant. If it is determined as a result of Tenant’s timely audit of Landlord’s records (and Landlord’s certified public accountant’s concurrence therein) that Tenant was overcharged relative to the Direct Expenses, such overcharge shall entitle Tenant to a credit against its next payment of Direct Expenses in the amount of the overcharge plus, in the case of an overcharge exceeding three percent (3%) of the Direct Expenses, the reasonable third party costs of such audit (and if such credit occurs following the expiration of the Term, Landlord shall promptly pay the amount of such credit to Tenant). If it is determined as a result of Tenant’s timely audit of Landlord’s records (and Landlord’s certified public accountant’s concurrence therein), or otherwise, that Tenant was undercharged relative to the Direct Expenses, Tenant shall, within ten days of written demand, pay such undercharge to Landlord.

9. Utilities and Services.

9.1. Utility Costs. Tenant shall pay when due all bills for gas, water, electricity and other utilities used on the Premises on and after the Commencement Date and through and including the date of expiration of this Lease. If separate utility meters are not already present serving the Premises, Tenant, as part of the Tenant’s Work, shall install separate meters for the utilities used in the Premises, in compliance with the requirements of the utility suppliers.

9.2. Electricity. Landlord shall construct the Building with wiring, outlets, and systems sufficient to provide electrical current to the Premises for Project-standard ordinary and customary office uses. In addition to the foregoing, Landlord shall replace lamps, starters, and ballasts for Project-standard lighting fixtures within the Premises upon Tenant’s request; the expense of which will be an Operating Expense. Tenant shall replace lamps, starters, and ballasts for non-Project-standard lighting fixtures within the Premises at Tenant’s sole expense. Landlord shall provide electrical service in connection with Common Area needs, such as lighting. Tenant shall be responsible, pursuant to Paragraph 9.1, above, for the payment of all charges relating to the electrical service provided to the Premises.

9.3. Janitorial Service. Landlord shall provide five day per week ordinary and customary, basic janitorial services in and about the Premises consistent with other first class office buildings in the vicinity of the Building. Landlord shall not be required to provide janitorial services to above-Project-standard improvements installed in the Premises including but not limited to metallic trim, wood floor covering, glass panels, interior windows,

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kitchen/dining areas, executive washrooms, or shower facilities. Any janitorial services required by Tenant and provided by Landlord in excess of such ordinary and customary, basic janitorial services shall be separately paid for by Tenant, as Additional Rent, within ten days of written demand.

9.4. Over-Standard Tenant Use.Tenant shall not exceed the rated capacity of the Building’s electrical and other utility systems, which systems will be consistent in capacity with other first class office buildings built at or about the same time as the Building. In the event of any damage to any of the Project’s systems caused by Tenant’s use thereof in excess of ordinary and customary usage for a professional office, Tenant shall be responsible for all costs and expenses incurred by Landlord as a result of such over-use. In addition, if Tenant requires any utilities or services described in this Paragraph 9, which are to be provided by Landlord, in excess of the standard levels being provided by Landlord, or during hours other than Building Standard Operating Hours, Landlord shall have the right to impose reasonable restrictions on such usage and/or commercially reasonable charges therefor. The cost for heating and air conditioning during hours other than Building Standard Operating Hours will be Twenty-Five Dollars ($25.00) per hour (or portion thereof, subject to reasonable increase over the Lease Term and during any extensions thereof.

9.5. Conduit and Wiring. Installation of all types of conduit and wiring exclusively serving the Premises (other than as part of Landlord’s Work), including but not limited to Tenant’s Work, is subject to the requirements of Paragraph 23, below, Exhibit “C”, and the Landlord’s reasonable approval of the location, manner of installation, and qualifications of the installing contractor. All such conduit and wiring will, at Landlord’s option, become Landlord’s property upon the expiration of the Term. Upon expiration of the Term, Landlord may elect to require Tenant to remove such conduit and wiring at Tenant’s expense and return the Premises and the Common Areas to their pre-existing condition. Tenant will not be required to remove any conduit or wiring for which Tenant has obtained Landlord’s consent, unless Landlord has indicated at the time of granting such consent, that such removal will be required at the end of the Lease Term. If Landlord constructs new or additional utility facilities, including without limitation wiring, plumbing, conduits, and/or mains, resulting from Tenant’s changed or increased utility requirements, Tenant shall on demand promptly pay (or advance) to Landlord the cost of such items as Additional Rent.

9. 6. Utilities Generally. Tenant agrees that, except as provided below, Landlord will not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services) or for diminution in the quality or quantity of any service. Such failure, delay, or diminution will not constitute an eviction or a disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except that Tenant will be entitled to an equitable abatement of Rent for the period of such failure, delay, or diminution to the extent such failure, delay, or diminution (i) is directly attributable to Landlord’s gross negligence or intentional misconduct, (ii) prevents Tenant from using, and Tenant does not use, the Premises or the affected portion thereof for the conduct of Tenant’s business operations therein, (iii) Tenant was using the Premises or such affected portion for the conduct of Tenant’s business operations immediately prior to the failure, and (iv) such failure, delay, or diminution continues for more than two consecutive business days (or ten business days in any twelve month period) after delivery of written notice of such failure, delay, or diminution from Tenant to Landlord. Landlord will not be liable, under any circumstances, for a loss of or injury to property or for injury to or interference with Tenant’s business, including loss of profits through, in connection with, or incidental to a failure to furnish any of the utilities or services under this Paragraph. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to promptly correct any such interruption of utilities or services. If any governmental authority having jurisdiction over the Project imposes mandatory controls, or suggests voluntary guidelines applicable to the Project, relating to the use or conservation of water, gas, electricity, power, or the reduction of automobile emissions, Landlord, at its sole discretion, may comply with such mandatory controls or voluntary guidelines and, accordingly, require Tenant to so comply. Landlord shall not be liable for damages to persons or property for any such reduction, nor shall such reduction in any way be construed as a partial eviction of Tenant, cause an abatement of Rent, or operate to release Tenant from any of Tenant’s obligations under this Lease, except as specifically provided in this Paragraph 9.6.

10. Maintenance.

10.1. Tenant’s Duties. Tenant shall, at its sole cost, maintain, repair, replace, and repaint, all in first class condition, the interior of the Premises, all building systems exclusively serving the Premises and located within the Premises or the walls of the Premises, and any damage to the Premises or the Project resulting from the acts or omissions of Tenant or Tenant’s Invitees. Tenant shall maintain all communications conduit, equipment, and wiring serving the Premises, whether in the Premises or not (and specifically including all of Tenant’s Work and all wiring, equipment, and conduit located on the roof of the Building), regardless of the ownership of said conduit or wiring, subject to Landlord’s reasonable approval of Tenant’s maintenance/repair contractor and manner of maintenance/repair. If Tenant fails to maintain, repair, replace, or repaint any portion of the Premises or the Project as provided above then following ten days’ written notice thereof to Tenant, Landlord may, at its election, maintain, repair, replace, or repaint any such portion of the Premises or the Project and Tenant shall promptly reimburse Landlord, as Additional Rent, for Landlord’s actual cost thereof plus a supervisory fee in the amount of ten percent (10%) of Landlord’s actual cost. Notwithstanding the foregoing, if following Tenant’s payment (or performance) of its obligations under this Paragraph, Landlord receives payment from an insurer for such work, Tenant will be entitled to receive such proceeds (after Landlord has first been fully reimbursed for its costs and expenses relative thereto including Landlord’s costs and expenses in obtaining such proceeds) to the extent Tenant previously paid or incurred third party costs relative thereto.

10.2. Landlord’s Duties. Landlord shall, as a part of the Operating Expenses, maintain, repair, replace, and repaint, all in good order and condition, consistent with other first-class office buildings in the vicinity of the Building, the Common Areas and all portions of the interior and exterior of the Building and any other buildings in the Project (including, without limitation, all electrical, mechanical, plumbing, fire/life safety, and other building systems), except to the extent of Tenant’s obligations as set forth in Paragraph 10.1, above. Landlord’s failure to perform its obligations set forth above will not release Tenant of its obligations under this Lease, including without limitation

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Tenant’s obligation to pay Rent. Tenant waives the provisions of California Civil Code Section 1942 (or any successor statute), and any similar principles of law with respect to Landlord’s obligations for tenantability of the Premises and Tenant’s right to make repairs and deduct the expense of such repairs from rent. If Landlord fails to perform any of its repair and maintenance obligations under this Paragraph 10.2 and such failure materially and adversely impairs Tenant’s ability to use and occupy the Premises for the Permitted Use, Tenant will have the right, to perform such repairs and/or maintenance to the extent necessary to enable Tenant to resume its use and occupancy of the Premises. Notwithstanding the foregoing, prior to exercising such right, Tenant must, except as provided below in connection with an emergency, have given Landlord at least 30 days’ prior written notice of the nature of the problem and Tenant’s intention to exercise its rights under this Paragraph if such matter is not resolved within such 30-day period; provided, however, if the nature of the matter giving rise to such repair or maintenance obligation will reasonably require more than 30 days to remedy and Landlord is proceeding with due diligence to remedy such matter, then such 30 day period will be extended for such additional time as may be necessary for Landlord to complete such repairs or maintenance. Notwithstanding the preceding sentence, in the case of an emergency which poses an imminent threat of death, injury, or severe damage to persons or property, the required notice from Tenant may be provided orally rather than in writing and for such shorter period of time (i.e. less than 30 days) as Tenant, in the exercise of its reasonable judgment deems appropriate under the exigent circumstances (however, at a minimum, Tenant shall at least contact Landlord telephonically prior to commencing such work so that Landlord may, at its election, make arrangements to handle such emergency itself). If Landlord fails to fulfill its repair and maintenance obligations under this Paragraph, and as a result thereof Tenant exercises the foregoing right to correct such matter, then Landlord shall reimburse Tenant for the reasonable third-party costs incurred by Tenant to complete such repairs and/or maintenance within 30 days after receipt of Tenant’s written demand therefor, together with copies of the paid invoices evidencing the costs so incurred. Any such repairs or maintenance performed by Tenant, as permitted herein, must be performed in a good and workmanlike manner by licensed contractors. If Landlord objects to the repairs and/or maintenance performed by Tenant or the expenses incurred by Tenant in performing such work, or Landlord disputes its obligation therefor, Landlord shall deliver written notice of its objection to Tenant. Landlord’s notice shall set forth in reasonable detail Landlord’s reasons for its objection. If Tenant and Landlord are unable to resolve such dispute within 30 days thereafter, the matter may be submitted to arbitration before the AAA (or its successor) by either party and the decision of the arbitrator will be binding on both parties with the cost of such arbitration being split evenly by the parties and each party bearing its own attorneys’ fees and costs. In no event may Tenant offset any amount owed to it by Landlord from Tenant’s Rent obligations unless Tenant’s claim has been submitted to arbitration and Landlord fails to pay the amount which the above-referenced arbitrator determines is owing to Tenant within ten business days of Landlord’s receipt of the arbitrator’s written ruling.

11. Parking.

11.1. General Parking Rights. Subject to the remaining provisions of this Paragraph 11, Landlord grants to Tenant (for the benefit of Tenant and Tenant’s Invitees) the right to the non-exclusive use of the parking area within the boundaries of and serving the Project (the “Parking Area”). Tenant’s use of the Parking Area shall be subject to such reasonable, non-discriminatory rules as Landlord may, in its sole discretion, adopt from time to time with respect to the Parking Area, including without limitation (i) rules providing for the payment of charges or fees by users of the Parking Area (including, without limitation, Tenant) in order to reimburse Landlord for the expense of a parking attendant and/or an automated parking system or to comply with local taxes or fees and in such event the charges or fees shall be deemed Additional Rent, (ii) rules limiting tenants of the Project (including, without limitation, Tenant) to the use of, or excluding the use of, certain parking spaces or certain portions of the Parking Area, in order to maintain the availability of accessible parking spaces for clients, guests, and invitees of tenants of the Project, and (iii) rules limiting tenants of the Project (including without limitation Tenant) to the use of a restricted number of parking spaces or a restricted area. Notwithstanding anything to the contrary in this Paragraph, Landlord may, at its election, construct improvements upon or otherwise alter in any manner the Parking Area, provided that Landlord makes reasonable amounts of parking available (or reasonable amounts of parking will remain available) to Tenant elsewhere within the Project (or within a reasonable distance from the Project). Landlord reserves the right to grant certain tenants in the Project the exclusive right to park in specified areas of the Parking Area, to the exclusion of all other tenants. Tenant acknowledges that the exercise of the rights reserved to Landlord under this Paragraph may result in a decrease in the number of parking spaces available to Tenant and Tenant’s Invitees, and no such decrease shall affect Tenant’s obligations under this Paragraph or entitle Tenant to any abatement of Rent.

11.2. Parking Ratios. As of the Commencement Date (and subject to temporary interruptions in connection with Landlord’s continued development of the Project, as provided below), the parking ratio within the Project will be approximately four spaces per 1,000 Usable Square Feet (“USF”) of space within the Project. The foregoing (4:1,000 USF) parking ratio includes all spaces within the Project, including covered, uncovered, reserved, unreserved, handicap, and visitor parking spaces.

11.3. Specific Parking Rights. Tenant shall be entitled to the same 4:1,000 USF ratio of parking relative to the USF of the Premises; provided, however, as part of the foregoing parking rights, Landlord agrees that Tenant will be entitled to have such parking proportionately distributed among the surface, subterranean, and structure parking which makes up the total parking pool for the Project. That portion of such parking which is located below the Building (and any reserved parking provided by Landlord in the parking structure) will be marked as reserved for Tenant and will be subject to a monthly charge of $50.00 per space, subject to increase over the Lease Term. Such charge will constitute Additional Rent hereunder and will be due and payable in advance, on or before the first day of each month.

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12. Signs.

12.1. General Signage Conditions. Landlord may at any time change the name of either or both of the Building and/or the Project and install, affix, and maintain all signs on the exterior and interior of the Building and other buildings within the Project as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not have or acquire any property right or interest in the name of the Building or the Project. Subject to Tenant’s signage rights under Paragraph 12.2, below, Tenant may not place, construct, or maintain any sign, advertisement, awning, banner, or other exterior decoration (collectively, “sign”) in the Premises which is visible from the exterior of the Premises, or on the Building or any other portion of the Project, without Landlord’s prior written consent. Any sign that Tenant is permitted by Landlord to place, construct, or maintain in the Premises or on the Building or the Project (including pursuant to Paragraph 12.2, below) must comply with Landlord’s sign criteria applicable to the Project, including, without limitation, criteria relating to size, color, shape, graphics, and location (collectively, the “Sign Criteria”), and shall comply with all applicable laws, ordinances, CC&R’s (or similar recorded instruments), rules, or regulations, and Tenant shall obtain any approvals required by such laws, ordinances, CC&R’s (or similar recorded instruments), rules, and regulations. Landlord makes no representation or warranty with respect to Tenant’s ability to obtain any such approval. Tenant shall, at Tenant’s sole cost, make any changes to any sign, whether in the Premises or on the Building, as required by any new or revised applicable laws, ordinances, rules, or regulations. Tenant shall, additionally, maintain, repair, and replace all of Tenant’s signs (including, specifically, those installed pursuant to Paragraph 12.2, below) in first class condition. Nothing contained in this Paragraph 12 will limit the Landlord’s right to grant signage rights to other tenants of the Building, or to affect the signage rights of any tenant of the Building.

12.2. Tenant’s Individual Signage Rights. Subject to compliance with the requirements of Paragraph 12.1, above, Tenant is hereby granted the following signage rights in/on the Building and at the Project.

12.2.1. Directory/Suite Signage. The Building will be provided, at Landlord’s expense, with a Project-standard lobby directory sign.

12.2.2. Single Tenant Floor. Throughout any period of time during the Term that the Premises comprise or include an entire floor(s) of the Building, Tenant may, at Tenant’s sole expense, install identification signs (including its logo) in the elevator lobby(ies) of such entire floor(s) comprising the Premises, subject to the following requirements: (i) Tenant must obtain Landlord’s and any applicable governmental entity’s prior written approval for such signs (including all required permits); (ii) all signs must be in keeping with the quality, design, and style of the Building; and (iii) no such sign may be visible from the exterior of the Building.

13. Rules, Regulations, and Covenants. Tenant shall observe (and shall cause Tenant’s Invitees to observe) faithfully and comply strictly with any rules and regulations which Landlord may from time to time adopt for the Project (and provide Tenant with a copy of), as well as any recorded easement agreements, maintenance agreements, CC&R’s, or like instruments affecting the Building and/or the Project, whether now existing or hereafter adopted or amended from time to time (all of the foregoing, collectively, “Rules”). Landlord has no duty or obligation to enforce any Rule against any other tenant, and Landlord will not be liable to Tenant for violation of any Rule by any other tenant, or any other tenant’s agents, employees, officers, independent contractors, customers, invitees, visitors, or licensees. Tenant acknowledges that Landlord reserves the right, from time to time, to enter into leases or other agreements by which Landlord agrees to restrict the use of all or any portion of the Project (including the Premises) from certain uses. All such leases and other agreements, whether now existing or entered into in the future, shall be binding upon Tenant and in no event shall Tenant utilize the Premises for any use so prohibited; provided, however, no such restriction may prevent Tenant from using the Premises for the Permitted Use.

14. Early Access/Insurance. If prior to the Rent Commencement Date Tenant is planning to (and permitted by Landlord to—see attached Addendum and Exhibit “C”) make any Alterations (as defined below) to the Premises, perform any of the Tenant’s Work, or install any of Tenant’s personalty, then in addition to complying with the provisions of attached Exhibit “C”, (i) Tenant shall, at Tenant’s sole cost, prior to first entering onto the Project, obtain and thereafter at all times maintain (a) ”Builder’s Risk” or “Course of Construction” insurance with respect to such work reasonably satisfactory to Landlord, and (b) all of the insurance to be maintained by Tenant during the Term, and (ii) all obligations of Tenant under the provisions of this Lease, shall be operative. Any work pursuant to this Paragraph shall be subject to all of the provisions of Paragraph 23, below. Nothing in this Paragraph shall be construed as granting permission to Tenant to enter the Premises, or to make any Alterations, prior to the Lease Commencement Date and no such right shall exist unless specified in Exhibit “C” or agreed to by Landlord in its sole discretion.

15. Plate-Glass Insurance. Tenant shall at its sole cost maintain full coverage plate-glass insurance on the Premises, under which Landlord and any lender holding a security interest in the Project (“Lender”) shall be named as additional insureds.

16. Public Liability and Property Damage Insurance. Throughout the Lease Term, Tenant shall, at Tenant’s sole cost, maintain commercial general liability and property damage insurance (i) with a combined single limit of liability of not less than $2,000,000.00, (ii) insuring (a) against all liability of Tenant and Tenant’s Invitees arising out of or in connection with Tenant’s use or occupancy of the Premises, including, without limitation, Tenant’s use, maintenance, repair, and replacement of systems and equipment either contained within the Premises or in air spaces, walls, roof areas, or other portions of the Building or the Project and which exclusively serve the Premises, and (b) performance by Tenant of the indemnity provisions set forth in this Lease, (iii) naming Landlord, its agent, and any Lender as additional insureds, (iv) containing cross-liability endorsements, and (vi) which includes products liability insurance (if Tenant is to sell merchandise or other products derived, assembled, or produced from the Premises). Not more frequently than once every one year, if in the commercially reasonable opinion of Landlord, the amount of such insurance at that time is not adequate, Tenant shall increase such insurance as reasonably required by Landlord.

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17. Fire and Extended Coverage Insurance. Tenant shall, at Tenant’s sole cost, maintain on Tenant’s Alterations and Tenant’s Personal Property (as defined below) a policy of standard fire and extended coverage and special form insurance, with vandalism and malicious mischief endorsements, coverage with respect to increased costs due to building ordinances, demolition coverage, boiler and machinery insurance, and sprinkler leakage coverage, in each case to the extent of at least 100 percent of full replacement value, and issued in the name of Tenant—with building ordinance protection, demolition coverage, boiler and machinery insurance, and sprinkler leakage coverage, in each case to the extent of at least 100 percent of full replacement value, and issued in the name of Tenant with Landlord, Landlord’s Lender, and Landlord’s designated agent as additional insureds. Such “full replacement value” shall be determined by the company issuing such policy at the time the policy is initially obtained. Not more frequently than once every two years, either Landlord or Tenant may, at its election, notify the other that it elects to have the replacement value redetermined by an insurance company. Such redetermination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and Landlord and Tenant shall be promptly notified of the results by the insurance company. Such policy shall be promptly adjusted according to such redetermination. The foregoing casualty insurance may be maintained under blanket policies so long as there is no diminution in the quality or availability of the required coverage.

18. Business Interruption Insurance. Tenant shall obtain and maintain, throughout the Term, business interruption insurance in amounts sufficient to reimburse Tenant for direct or indirect costs and loss of income attributable to all events/perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Project as a result of such events/perils or otherwise.

19. Insurance Generally. If Tenant fails during the Term to maintain any insurance required to be maintained by Tenant under this Lease (or is within 48 hours of such a failure), then Landlord may, at its election, arrange for any such insurance, and Tenant shall reimburse Landlord, as Additional Rent, for any premiums for any such insurance within ten business days after Tenant receives a copy of the premium notice. Insurance required to be maintained by Tenant under this Lease shall be in form and content reasonably satisfactory to Landlord and its Lender and (i) shall be issued as a primary policy, by insurance companies authorized to do business in the state in which the Project is located with a Best’s Rating of at least “A-” and a Best’s Financial Size Category rating of at least “X,” as set forth in the most current edition of “Best’s Insurance Reports” (unless otherwise approved by Landlord), or such higher rating as may be required by any Lender, (ii) shall name Landlord, Landlord’s agent(s), and any Lender as additional insureds, (iii) shall consist of “occurrence” based coverage, without provision for subsequent conversion to “claims” based coverage, (iv) shall not be cancelable or subject to reduction of coverage or other modification except after 30-days’ prior written notice to Landlord and any Lender, and (v) shall not provide for a deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at least 30 days prior to the expiration of each such policy, furnish Landlord with a renewal of or “binder” extending such policy. Tenant shall promptly, upon request, deliver to Landlord copies of such policy or policies or (if acceptable to Landlord’s Lender) certificates evidencing the existence and amounts of such insurance together with evidence of payment of premiums.

20. Waiver of Subrogation. Tenant releases Landlord and Landlord’s guests, invitees, customers and licensees (collectively, “Landlord’s Invitees”) from all claims for damage, loss, or injury to Tenant’s Personal Property and to the systems, equipment, fixtures, personalty, and Alterations of Tenant in or on the Premises and the Project to the extent such damage, loss, or injury is covered by any insurance policies carried by Tenant and in force at the time of such damage. Tenant shall cause all insurance policies obtained by it pursuant to this Lease to provide (if such provision is generally commercially available) that the insurance company waives all right of recovery by way of subrogation against Landlord in connection with any damage, loss, or injury covered by such policy. Landlord releases Tenant and Tenant’s Invitees from all claims for damage, loss, or injury to Tenant’s Personal Property and to the systems, equipment, fixtures, and Alterations of Tenant in or on the Premises and the Project to the extent such damage, loss, or injury is covered by any insurance policies carried by Landlord and in force at the time of such damage. Landlord shall cause all insurance policies obtained by it pursuant to this Lease to provide (if such provision is generally commercially available) that the insurance company waives all rights of recovery by way of subrogation against Tenant in connection with any damage, loss, or injury covered by such policy.

21. Landlord’s Insurance. Landlord shall maintain (in addition to such other coverages which Landlord elects to maintain or which its Lender might require) the following insurance, in such amounts and with such limits as Landlord shall determine in its reasonable discretion: (i) public liability insurance; (ii) fire and extended coverage (all risk or special form) insurance; and (iii) boiler and machinery insurance, if applicable. The premiums, costs, expenses, co-insurance payments, and deductibles (or similar costs or charges) of and/or with respect to any insurance maintained from time to time by Landlord (all of the preceding, collectively, “Insurance Expenses”) shall constitute Operating Expenses. Any such coverage may be part of an umbrella or blanket policy, whereupon the premiums, costs, and expenses hereof will be reasonably apportioned between the Project and the other properties so included under such policy(ies).

22. Personal Property Taxes. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied or assessed against, or based upon the value of, Tenant’s personal property installed or located in or on the Premises including without limitation trade fixtures, furnishings, equipment, Alterations, and inventory (collectively, “Tenant’s Personal Property”). On written demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of such payments. If any such taxes, assessments, license fees, and/or other charges are levied against Landlord or Landlord’s property, or if the assessed value of the Premises is increased by the inclusion of a value placed on Tenant’s Personal Property, and if Landlord pays such taxes, assessments, license fees, and/or other charges or any taxes based on the increased assessments caused by Tenant’s Personal Property, then Tenant, on demand, shall immediately reimburse Landlord, as Additional Rent, for the sum of such taxes, assessments, license fees, and/or other charges so levied against Landlord, or the proportion of taxes resulting from such increase in Landlord’s assessment. Landlord may, at its election, pay such taxes, assessments, license fees, and/or other charges or such proportion, and receive such reimbursement, regardless of the validity of the levy.

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23. Alterations. Tenant shall not make any alterations, improvements, additions, installations, or changes of any nature in or to the Premises (any of the preceding, “Alterations”) unless (i) Tenant first obtains Landlord’s written consent, provided, however, that minor, interior cosmetic alterations such as painting, wall papering, carpeting or hanging pictures or moving furniture and temporary partitions or cubicldes (the aggregate cost of which will not exceed $50,000.00, and which alteration will not be visible from outside the Premises or affect any structural components of the Project) does not require Landlord’s approval so long as Tenant notifies Landlord in writing of the nature and extent of such alteration at least 15 business days before commencing such alteration); (ii) Tenant complies with all conditions which may be imposed by Landlord, including but not limited to Landlord’s selection of specific contractors or construction techniques and the requirements of the attached Exhibit “C”; and (iii) Tenant pays to Landlord the reasonable costs and expenses of Landlord for architectural, engineering, or other consultants which reasonably may be incurred by Landlord in determining whether to approve any such Alterations. At least 30 days prior to making any Alterations, Tenant shall submit to Landlord, in written form, proposed detailed plans of such Alterations. Tenant shall, prior to the commencement of any Alterations, at Tenant’s sole cost, (i) acquire (and deliver to Landlord a copy of) any required permit from the appropriate governmental agencies to make such Alterations (any conditions of which permit Tenant shall comply with, at Tenant’s sole cost, in a prompt and expeditious manner), (ii) provide Landlord with ten days’ prior written notice of the date the installation of the Alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility, and (iii) obtain (and deliver to Landlord proof of) reasonably adequate workers compensation insurance with respect to any of Tenant’s employees installing or involved with such Alterations (which insurance Tenant shall maintain on an occurrence basis in force until completion of the Alterations). All Alterations shall upon installation become the property of Landlord and shall remain on and be surrendered with the Premises on the Expiration Date, except that Landlord may, at its election, require Tenant to remove any or all of the Alterations, by so notifying Tenant in writing on or about the Expiration Date, in which event, Tenant shall, at its sole cost, on or before the Expiration Date or within five days of Landlord’s request, if after the Expiration Date, repair and restore the Premises to the condition of the Premises prior to the installation of the Alterations which are to be removed. Tenant shall pay all costs for Alterations and other construction done or caused to be done by Tenant and Tenant shall keep the Premises free and clear of all mechanics’ and materialmen’s liens resulting from or relating to any Alterations or other construction. Tenant may, at its election, contest the correctness or validity of any such lien provided that (a) immediately on demand by Landlord, Tenant procures and records a lien release bond, issued by a corporation satisfactory to Landlord and authorized to issue surety bonds in California, in an amount equal to 150 percent of the amount of the claim of lien, which bond meets the requirements of California Civil Code Section 3143 or any successor statute, and (b) Landlord may, at its election, require Tenant to pay Landlord’s attorneys’ fees and costs incurred in participating in such an action.

24. Surrender of Premises and Holding Over. On the Expiration Date, Tenant shall surrender to Landlord the Premises and all Alterations (except for Alterations that Tenant is obligated to remove as expressly set forth above) in a first class and clean condition, less any normal wear and tear, free of trash and debris including cleaning of all flooring; all walls shall be patched and painted; all signage installed by Tenant on any portion of the Buildings or Project shall be removed and the surfaces repaired, including restoration of the signage mounting surfaces to their pre-existing condition; all sign circuits, electrical circuits, and lighting fixtures shall be in good operating condition; all roof penetrations arising from Tenant’s occupancy of the Premises shall be in a watertight condition; and all doors, windows, locks, and hardware shall be in operable condition upon the termination of this Lease. Tenant shall additionally, as of the Expiration Date, remove all of Tenant’s Personal Property and perform all repairs and restoration required by the removal of any Alterations or Tenant’s Personal Property, and Tenant shall surrender to Landlord all keys to the Premises (including without limitation any keys to any exterior or interior doors). Landlord may elect to retain or dispose of in any manner any Alterations or Tenant’s Personal Property that Tenant does not remove from the Premises on the Expiration Date as required by this Lease by giving written notice to Tenant. Any such Alterations or Tenant’s Personal Property that Landlord elects to retain or dispose of shall immediately upon notice to Tenant vest in Landlord. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlord’s retention or disposition of any such Alterations or Tenant’s Personal Property. Tenant will be liable to Landlord for Landlord’s costs for storing, removing (including related restoration work), or disposing of any such Alterations or Tenant’s Personal Property. If Tenant fails to surrender the Premises to Landlord on the Expiration Date in the condition required by this Paragraph, Tenant shall indemnify, defend, and hold Landlord harmless from and against all liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims resulting from such failure, including without limitation any claim for damages made by a succeeding tenant. If Tenant, with Landlord’s consent, remains in possession of the Premises after the Expiration Date, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on 30-days’ written notice given at any time by Landlord or Tenant. During any such month-to-month tenancy, or any other holdover tenancy which is without Landlord’s consent, Tenant shall pay, as Basic Monthly Rent, 150 percent of the Basic Monthly Rent in effect immediately prior to the Expiration Date; which rental amount Tenant acknowledges is fair and reasonable under all of the facts and circumstances existing as of the date of this Lease. All provisions of this Lease except for those pertaining to Term shall apply to any such tenancy.

25. Default. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant (each an “Event of Default”):

25.1. The abandonment (as defined in the California Civil Code 1951.3) of the Premises by Tenant.

25.2. Tenant’s failure to make any payment of Rent (including late charges) within two business days after written notice of delinquency. No grace period prior to the imposition of a late charge pursuant to Paragraph 27, below, shall extend the date when such Rent is due and payable.

25.3. Tenant’s failure to observe or perform any of the provisions of this Lease to be observed or performed by Tenant, other than described in the preceding two paragraphs, where such failure shall continue for a period of ten days after written notice of such failure from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under applicable unlawful detainer statutes; and provided further, that if the nature of Tenant’s default is such that more than ten days are reasonably required for its cure, then

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Tenant shall not be deemed to be in default if Tenant commenced such cure within such ten-day period and thereafter diligently prosecutes such cure to completion within 30 days after Landlord’s written notice.

25.4. The making by Tenant of any general arrangement or assignment for the benefit of creditors; Tenant’s becoming bankrupt, insolvent or a “debtor” as defined in 11 U.S.C. Section 101, or any successor statute (unless, in the case of a petition filed against Tenant, such petition is dismissed within 60 days after its original filing); the institution of proceedings under the bankruptcy or similar laws in which Tenant is the debtor or bankrupt; the appointing of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease (unless possession is restored to Tenant within 60 days after such taking); the attachment, execution, or judicial seizure of substantially all of Tenant’s assets located at the Premises or Tenant’s interest in this Lease (unless such attachment, execution, or judicial seizure is discharged within 60 days after such attachment, execution, or judicial seizure); or, if Tenant is a partnership or consists of more than one person or entity, any partners of the partnership or any such other person or entity becoming bankrupt or insolvent or making a general arrangement or assignment for the benefit of creditors.

25.5. The occurrence of an Event of Default under the terms of that certain lease between Landlord and Tenant dated as of February 22, 2000, for space on the ninth floor of the building located at 10145 Pacific Heights Boulevard, San Diego, California.

26. Landlord’s Remedies. Landlord shall have the following remedies if Tenant commits an Event of Default under this Lease. These remedies are not exclusive, but are cumulative and in addition to any remedies provided elsewhere in this Lease or now or later allowed by law.

26.1. Continuation of Lease. No act by Landlord shall terminate Tenant’s right to possession unless Landlord notifies Tenant in writing that Landlord elects to terminate Tenant’s right to possession. As long as Landlord does not terminate Tenant’s right to possession, Landlord may (i) continue this Lease in effect, (ii) continue to collect Rent when due and enforce all the other provisions of this Lease, and (iii) enter the Premises and relet them, or any part of them, to third parties for Tenant’s account, for a period shorter or longer than the remaining Term of this Lease. Tenant shall immediately pay to Landlord all costs Landlord incurs in such reletting, including, without limitation, brokers’ commissions, attorneys’ fees, advertising costs, and expenses of remodeling the Premises for such reletting. The parties agree that Landlord is to have the remedy described in California Civil Code Section 1951.4 (which effectively provides that a lessor may continue a lease in effect after the lessee’s breach and recover rent as it becomes due), and the Tenant hereby acknowledges that this Lease meets the requirements of such statutory provision and that Tenant’s rights to sublet or assign hereunder are subject only to reasonable limitations.

26.2. Rent from Reletting. If Landlord elects to relet all or any portion of the Premises as permitted above, rent that Landlord receives from such reletting shall be applied to the payment of, in the following order and priority, (i) any indebtedness from Tenant to Landlord other than Rent due from Tenant, (ii) all costs incurred by Landlord in such reletting, and (iii) Rent due and unpaid under this Lease. After applying such payments as referred to above, any sum remaining from the rent Landlord receives from such reletting shall be held by Landlord and applied in payment of future Rent as it becomes due under this Lease. In no event shall Tenant be entitled to any excess rent received by Landlord unless and until all obligations of Tenant under this Lease, including all future obligations, are satisfied in full.

26.3. Termination of Tenant’s Right to Possession. Landlord may terminate Tenant’s right to possession of the Premises at any time, by notifying Tenant in writing that Landlord elects to terminate Tenant’s right to possession. Such written notice will result in the immediate termination of this Lease upon the date such right of possession is terminated. Upon termination of this Lease, Landlord has the right to recover from Tenant (i) the worth at the time of the award of the unpaid Rent which had been earned at the time of such termination, (ii) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after such termination until the time of award exceeds the amount of such loss of Rent that Tenant proves could have been reasonably avoided, (iii) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award (had there been no such termination) exceeds the amount of such loss of Rent that Tenant proves could be reasonably avoided, and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease or in the ordinary course of things would be likely to result therefrom. The “worth at the time of the award” of the amounts referred to in clauses (i) and (ii) above is to be computed by allowing interest at the Default Rate. The “worth at the time of the award” of the amount referred to in clause (iii) above is to be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent.

26.4. Landlord’s Right to Cure Default. Landlord, at any time after Tenant commits an Event of Default, may cure such Event of Default at Tenant’s sole cost. If Landlord at any time, by reason of Tenant’s default or breach, pays any sum or does any act that requires the payment of any sum, such sum shall be due immediately from Tenant to Landlord at the time such sum is paid, along with a supervisory fee in the amount of ten percent (10%) of such amount so expended by Landlord, and shall be deemed Additional Rent under this Lease. If Tenant fails to timely pay any amount due under this Paragraph within ten business days of receipt of Landlord’s invoice for such costs, then (without curing such default) interest at the Default Rate shall accrue (and be immediately payable) on such overdue amount until it is paid.

26.5. Enforcement Costs. All costs and expenses incurred by Landlord in connection with collecting any amounts and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, including reasonable attorneys’ fees, whether or not any action is commenced by Landlord, shall be paid by Tenant to Landlord upon demand. If Tenant fails to timely pay any amount due under this Paragraph, then (without curing such default) interest at the Default Rate shall accrue (and be immediately payable) on such overdue amounts until it is paid.

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27. Late Charges. Late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which would be impracticable or extremely difficult to fix. Such costs include, without limitation, processing, collection and accounting charges, and late charges that may be imposed on Landlord by the terms of any deed of trust covering the Premises. Therefore, if any Rent (in the form of good funds) is not received by Landlord within ten days of its due date, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord an additional sum of ten percent (10%) of such overdue amount as a late charge. Such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any late payment by Tenant, and therefore this Paragraph is reasonable under the circumstances existing at the time this Lease is made. Acceptance of such late charge by Landlord shall not constitute a waiver or cure of Tenant’s default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease.

28. Default Interest. In addition to the late charge payable by Tenant, as provided above, if any Rent is not paid within 30 days of the date such Rent is due, then Tenant shall pay to Landlord interest on such overdue Rent (until all amounts, including interest, are paid in full) at the rate of seven percent (7%) above the “reference rate” announced from time to time by Bank of America, NT&SA (the “Default Rate”). If such reference rate ceases to be announced, then a comparable “prime rate” shall be utilized, as selected by Landlord.

29. Payment of Rent by Cashier’s Check. If a late charge is payable under this Lease, whether or not collected, for two or more installments of Basic Monthly Rent or other Rent due under this Lease, or if any two payments made by Tenant in the form of a personal or business check is returned by the bank it was drawn upon for whatever reason, including but not limited to insufficient funds, then Landlord, at Landlord’s option, may require Tenant to submit future payments to Landlord in the form of a certified cashier’s check, money order, or by wire transfer. Tenant’s obligation to provide payment in the aforementioned manner shall continue in full force and effect until Landlord, in its sole discretion, determines otherwise. Tenant further agrees to reimburse Landlord, as Additional Rent, Landlord’s actual costs imposed by Landlord’s bank or financial institution arising from Tenant’s returned check(s). These costs shall be in addition to any late charges payable by Tenant pursuant to this Lease.

30. Destruction. If the Building is totally or partially destroyed during the Term, rendering the Premises totally or partially inaccessible or unusable, then, subject to the remainder of this Paragraph, (i) Landlord shall promptly commence work necessary to restore the Building to substantially the same condition as it was in immediately before such destruction and shall diligently prosecute such restoration work until completed, (ii) Landlord shall not be required to restore Tenant’s Alterations or Tenant’s Personal Property, unless they are specifically covered by insurance proceeds received by Landlord, such excluded items being the sole responsibility of Tenant to restore, (iii) such destruction shall not terminate this Lease (except as provided below), and (iv) all obligations of Tenant under this Lease shall remain in effect, except that the Basic Monthly Rent and Additional Rent shall be abated or reduced, between the date of such destruction and the date of Substantial Completion of restoration, by the ratio of (a) the Rentable Square Footage of the Premises rendered unusable or inaccessible by the destruction, to (b) the Rentable Square Footage of the Premises prior to such destruction. Notwithstanding anything to the contrary in this Paragraph, either party shall have ten business days from the date of Landlord’s determination that this sentence applies to the subject destruction/reconstruction, in which to terminate this Lease if Landlord determines that (1) it will likely take more than either (A) 330 days following the date of such casualty, or (B) 270 days from obtaining all required permits for such reconstruction, in which to complete such work, (2) such destruction (which is not de minimus in nature) occurs during the last year of the Term, or (3) then-existing laws do not permit such restoration. Additionally, Landlord may, at its election, terminate this Lease by so notifying Tenant in writing on or before the later of 60 days after such destruction or 30 days after Landlord’s receipt of the proceeds (or written notice of the amount of proceeds) from insurance maintained by Landlord, if (I) such destruction exceeds twenty percent (20%) of the then-replacement value of the Premises, the Building, or the Project, or (II) Landlord reasonably determines that the cost of such restoration will exceed the amount of insurance proceeds relating to such destruction actually received by Landlord from insurance maintained by Landlord, excluding deductibles, by more than five percent (5%) of such cost of restoration. If Landlord or Tenant so terminates this Lease, then (x) Landlord shall have no obligation to restore the Project, (y) Landlord shall retain all insurance proceeds relating to such destruction, and (z) this Lease shall terminate as of 30 days after such notice of termination from Landlord to Tenant. Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) or any successor statute with respect to any destruction of the Premises. If Landlord restores the Premises following any such destruction, Tenant shall immediately refixturize, re-equip, and (if applicable) restock the Premises and shall re-open the Premises for business as soon thereafter as is reasonably practicable. If Tenant does not intend to so reopen the Premises for business, it must notify Landlord in writing within 20 business days of such damage or destruction, whereupon Landlord may cease its repair work and terminate this Lease. Additionally, if Landlord fails to Substantially Complete such restoration work within one year, Tenant may, by 30 days’ written notice to Landlord delivered after such year (during which period of time such restoration is not Substantially Completed), terminate this Lease.

31. Condemnation. If during the Term, or during the period of time between the execution of this Lease and the Lease Commencement Date, there is any taking of all or any part of the Premises or any interest in this Lease by the exercise of any governmental power, whether by legal proceedings or otherwise, by any public or quasi-public authority, or private corporation or individual, having the power of condemnation (any of the preceding a “Condemnor”), or a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending (any of the preceding, a “Condemnation”), the rights and obligations of Landlord and Tenant shall be determined pursuant to this Paragraph. If such Condemnation is of the entire Premises, then this Lease shall terminate on the date the Condemnor takes possession of the Premises (the “Date of Condemnation”). If such Condemnation is of any portion, but not all, of the Premises, then this Lease shall remain in effect, except that, if the remaining portion of the Premises is rendered unsuitable for Tenant’s continued use of the Premises, then Tenant may elect to terminate this Lease, by so notifying Landlord in writing (the “Termination Notice”) within 30 days after the date that the nature and extent of the Condemnation have been determined. Such termination shall be effective on the earlier of (i) the date that is 30 days after the giving of the Termination Notice, or (ii) the Date

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of Condemnation. If Tenant does not give to Landlord the Termination Notice within such 30-day period, then all obligations of Tenant under this Lease shall remain in effect, except that (unless the Premises are restored as set forth below) Basic Monthly Rent shall be reduced by the ratio of (a) the Rentable Square Footage of the Premises taken to (b) the Rentable Square Footage of the Premises immediately prior to the Date of Condemnation. Notwithstanding anything to the contrary in this Paragraph, if, within 30 days after Landlord’s receipt of the Termination Notice, Landlord notifies Tenant that Landlord at its cost will add to the remaining Premises (or substitute for the Premises other comparable space in the Project) so that the Rentable Square Footage of the Premises will be substantially the same after the Condemnation as they were before the Condemnation, and Landlord commences the restoration promptly and completes it within 150 days after Landlord so notifies Tenant, then all obligations of Tenant under this Lease shall remain in effect, except that Basic Monthly Rent and Additional Rent shall be abated or reduced during the period from the Date of Condemnation until the completion of such restoration by the ratio of (A) the Rentable Square Footage of the Premises taken to (B) the Rentable Square Footage of the Premises immediately prior to the Date of Condemnation. Unless Landlord restores the Premises pursuant to the preceding sentence, or unless Tenant gives to Landlord the Termination Notice within the relevant 30-day period, Tenant at its sole cost shall accomplish any restoration required by Tenant to use the Premises. A temporary Condemnation of the Premises, or any part of the Premises, for less than 180 days, shall not constitute a Condemnation under this Paragraph; but the Basic Monthly Rent shall abate as to the portion of the Premises affected during such temporary Condemnation. All compensation, sums, or anything of value awarded, paid, or received on a total or partial Condemnation (the “Award”) shall belong to and be paid to Landlord. Tenant shall have no right to any part of the Award, and Tenant hereby assigns to Landlord all of Tenant’s right, title, and interest in and to any part of the Award, except that Tenant shall receive from the Award any sum paid expressly to Tenant from the Condemnor for Tenant’s Personal Property or for severance damages. Landlord and Tenant waive the provisions of any statute (including without limitation California Code of Civil Procedure Section 1265.130 or any successor statute) that allows Landlord or Tenant to petition the superior court (or any other court) to terminate this Lease in the event of a partial Condemnation of the Premises.

32. Assignment and Other Transfers.

32.1. Restriction on Transfer. Without Landlord’s prior written consent, which shall not be unreasonably withheld, and except as permitted by Paragraph 32.3, below, none of the following shall occur (nor be permitted by Tenant to occur), voluntarily, involuntarily, by operation of law, or otherwise (any of the following, a “Transfer”): (i) any assignment, sublease, disposition, sale, concession, license, license agreement for the use of any portion of the Premises, mortgage, encumbrance, hypothecation, pledge, collateral assignment, or other transfer, by Tenant of this Lease, any interest in this Lease, or all or any portion of the Premises; or (ii) any assignment, disposition, sale, transfer, acquisition, or issuance of equitable interests (whether stock, partnership or otherwise) in Tenant, to or by any person, entity, or group of related persons or affiliated entities, whether in a single transaction or in a series of related or unrelated transactions, which results in such person, entity, or group holding (or assigning, transferring, disposing of, or selling) fifty percent (50%) or more of the aggregate issued and outstanding equitable interests in Tenant.

32.2. Transfer Provisions Generally. Landlord shall not be liable in damages to Tenant or to any proposed subtenant, assignee or other transferee (any of the preceding a “Proposed Transferee”) if such consent is adjudicated to have been unreasonably withheld, and, in such event, Tenant’s sole remedy shall be to have the proposed Transfer declared as valid as if Landlord’s consent had been given, although Tenant shall be entitled to reasonable attorney’s fees if Tenant is the prevailing party in such litigation. At least 30 days prior to entering into any proposed Transfer, Tenant shall submit to Landlord the sum of $400.00 (as payment toward Landlord’s and Landlord’s attorneys’ cost of reviewing, consenting to, rejecting and/or consummating any proposed Transfer), and a written notice (“Tenant’s Notice”) which includes or sets forth in reasonable detail (i) the form of the proposed Transfer, including without limitation all related agreements, documents, instruments, exhibits, and escrow instructions, (ii) the name and address of the Proposed Transferee, (iii) the terms and conditions of the proposed Transfer, including without limitation the economics of such Proposed Transfer and the commencement or effective date of the proposed Transfer, which shall be at least 30 days after Tenant’s Notice is given, and (iv) the nature, character, and current financial information and references with respect to the Proposed Transferee and the business of the Proposed Transferee, in reasonably sufficient detail to enable Landlord to determine the Proposed Transferee’s financial responsibility. Within 20 days after Landlord’s receipt from Tenant of such sum and Tenant’s Notice, and all documentation requested of Tenant by Landlord, Landlord shall notify Tenant whether Landlord has consented to the proposed Transfer. Any consent by Landlord to any proposed Transfer shall not constitute a consent with respect to any other Transfer. If Landlord consents to any proposed Transfer, and Tenant fails to consummate such Transfer within 90 days of the commencement or effective date of the proposed Transfer (as set forth in Tenant’s Notice) or, if Tenant’s Notice fails to identify such a date, then within 150 days of the Tenant’s Notice, then such consent shall be deemed withdrawn and Tenant shall be required again to comply with this Paragraph before making a Transfer. Landlord shall not have unreasonably withheld its consent with respect to any Transfer if (among other things) Landlord shall not have received such sum or Tenant’s Notice, if the nature or character of the Proposed Transferee is not in keeping with the dignity and character of the Building and the surrounding area, if the Proposed Transferee’s proposed use is materially and adversely different than the Permitted Use or Tenant’s prior use, if the proposed Transfer will result in the diminution of the value or marketability of the Building or the Project, if Landlord is not reasonably satisfied that the Proposed Transferee is creditworthy, or if the proposed Transfer will conflict with or result in a breach of any of the provisions of, or constitute a default under, any agreement, instrument, or document to which Landlord is a party or by which the Project may be bound. No Transfer shall release or discharge Tenant from any liability, whether past, present, or future, under this Lease and Tenant shall continue to remain directly liable under this Lease (and not as a mere surety). Tenant irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent and other amounts generated from any Transfer, and Landlord, as assignee, may collect such rent and other amounts and apply them toward Tenant’s obligations under this Lease; except that, unless a default occurs under this Lease, Tenant shall have the right to collect such rent and other amounts. Unless otherwise agreed to by all parties, the Tenant’s Security Deposit (if any) shall be retained by Landlord and returned to the lawful tenant in possession of the Premises at the time of the Lease termination, subject to the terms and conditions of Paragraph 6 of this Lease. Any Transfer documentation shall

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contain the following provisions, which provisions whether contained in such Transfer documentation or not, shall apply to such Transfer: (a) Such Transfer shall be subject and subordinate to, and bound by, all provisions of this Lease; (b) No Proposed Transferee shall be permitted to enter into any Transfer without Landlord’s prior written consent; and (c) At Landlord’s option, in the event of cancellation or termination of this Lease for any reason or the surrender of this Lease, whether voluntarily, involuntarily, by operation of law or otherwise, prior to the expiration of such Transfer, the Proposed Transferee shall make full and complete attornment to Landlord for the balance of the term of such Transfer. Such attornment shall be evidenced by an agreement in form and substance reasonably satisfactory to Landlord that the Proposed Transferee shall execute and deliver to Landlord within five days after request by Landlord. Tenant shall promptly reimburse Landlord for Landlord’s reasonable cost (less the $400.00 previously paid) of reviewing, consenting to, rejecting, and/or consummating any proposed Transfer, including without limitation reasonable attorneys’ fees and costs/fees of Landlord’s Lender in connection therewith. If Tenant fails to pay such amount within ten business days of written demand, Tenant shall be in default hereunder and Landlord shall have the right, in addition to its other rights and remedies under this Lease, to revoke its prior approval of the proposed Transfer if such Proposed Transferee has not yet taken over possession of the Premises.

32.3. Excess Rent and Recapture. Tenant shall promptly pay to Landlord, as and when received, fifty percent (50%) of all rents and other consideration after all of Tenant’s reasonable third-party expenses incurred in connection with such Transfer are deducted, of whatever nature, payable by the Proposed Transferee (or receivable by Tenant) pursuant to or as a result of any Transfer, which exceed (i) in the case of a sublease of a portion of the Premises, the portion of the Basic Monthly Rent that is allocable to the portion of the Premises subleased (such allocation based on the Rentable Square Footage of the portion subleased), or (ii) in the case of any other Transfer, the Basic Monthly Rent. Landlord additionally has the right, in the event Tenant indicates in the Tenant’s Notice that it desires to assign this Lease or sublet greater than 50% of the Premises, at its election, by giving written notice (the “Recapture Notice”) to Tenant within 15 days after receipt of Tenant’s Notice, to recapture the Premises and terminate this Lease. If Landlord elects to exercise such right and delivers a Recapture Notice to Tenant, this Lease shall automatically be deemed terminated as of the commencement or effective date stated in Tenant’s Notice for the proposed Transfer, and Tenant shall surrender possession of the Premises as of such date (and any failure to do so shall constitute a default hereunder). Landlord’s giving of a Recapture Notice shall not constitute Landlord’s consent to Tenant’s proposed Transfer.

32.4. Permitted Transferee. Notwithstanding anything to the contrary contained in Paragraphs 32.1 or 32.3, above, no consent of Landlord will be required for, and no amounts will be payable to Landlord in connection with, any assignment or subletting to any of the following (any of which will constitute a “Permitted Transferee”):

32.4.1. Any parent company which owns all or substantially all of the voting and beneficial interests in Tenant and which has a net worth (determined in accordance with GAAP) equal to or greater than Tenant’s net worth as of the day before such transaction or as of the Commencement Date, whichever is less;

32.4.2. Any surviving or successor entity resulting from a merger, consolidation, or sale of substantially all of the assets of Tenant, where the net worth of the resulting or acquiring company exceeds (as determined in accordance with GAAP) the net worth of the Tenant as of the day prior to such transaction or as of the Commencement Date, whichever is less; or

32.4.3. Any sale of stock as part of a “public offering” on one of the nationally recognized securities exchanges (such as, without limitation, NYSE or NASDAQ).

Notwithstanding the foregoing, and as a condition to the effectiveness of any such Transfer to a Permitted Transferee, at least 20 days prior to any proposed Transfer to a Permitted Transferee, Tenant shall notify Landlord in writing of its intention to undertake such a Transfer and provide Landlord with sufficient information to confirm that such entity will in fact be a Permitted Transferee. Landlord shall keep all such information confidential. Other than the right to engage in such a Transfer to a Permitted Transferee without Landlord’s consent, all other provisions of this Paragraph 32 shall apply to such a Transfer. Furthermore, if the Permitted Transferee is not in as strong a financial position as Tenant (as reasonably determined by Landlord), based on Tenant’s financial position both as of the date of this Lease and as of the date of such Transfer, then as a condition to the effectiveness of such Transfer, Tenant shall, at Landlord’s request, provide Landlord with an acceptable guarantor of this Lease on Landlord’s standard form.

33. Landlord’s Reserved Rights. Landlord, as owner of the Project, in addition to Landlord’s other rights, reserves the right from time to time: (i) to temporarily utilize portions of the Common Areas for, among other things, entertainment, outdoor shows, displays, automobile and other product shows, the leasing of kiosks, or such other uses which, in Landlord’s reasonable judgment, are appropriate; (ii) to utilize the lighting standards and other areas or improvements in the Common Areas for advertising, notice purposes, or other reasonable purposes; (iii) to close any of the Common Areas to the extent required in the opinion of Landlord’s legal counsel to prevent a dedication of any of the Common Areas or the accrual of any rights to any person or to the public in and to any portion of the Common Areas; (iv) to close, temporarily, any of the Common Areas for maintenance purposes; (v) to designate other property outside the boundaries of the Project to become part of the Common Areas; (vi) to close off or otherwise utilize portions of the Common Areas while constructing improvements or making repairs or alterations to any portion of the Project; (vii) to utilize portions of the Common Areas, on a temporary basis, as a staging area for any construction work by Landlord or its affiliates, agents, tenants, or contractors; and (viii) to make any changes to the Common Areas, or any part of the Project, including without limitation changes to buildings or other improvements, the addition of new buildings or other improvements, and/or changes in (among other things) the location of driveways, entrances, exits, vehicular parking spaces, or the direction of the flow of traffic. In exercising such rights, Landlord agrees to use commercially reasonable efforts to minimize any interference with Tenant’s use of the Premises.

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34. Continued Development of Project.

34.1. Further Construction. Tenant acknowledges that Landlord may, from time to time, at its sole election, construct (including, without limitation, additional buildings), reconstruct, improve (including tenant improvements), modify, expand, or otherwise alter the Project (collectively, “Construction Work”), or portions thereof (in no event however will Landlord have any obligation to do so). Tenant acknowledges that any such Construction Work will necessarily involve, among other things, the generation of noise, dust, and vibrations, barricading portions of the Project and the placement of scaffolding within the Project, demolition, structural alterations, storage of materials and equipment within the Project, and the presence of workmen within the Project, all of which may require the rearrangement of the Common Areas, including, without limitation, landscaping, parking areas, roadways, lighting facilities, and the re-direction of vehicular and pedestrian traffic. Except as provided below, Tenant waives any and all claims, defenses, rights of offset, or deductions based upon any inconvenience suffered by Tenant or any interruption of or interference with Tenant’s business including, without limitation, any loss of business, decreased sales, or inconvenience to Tenant or Tenant’s Invitees as a result of or relating to such Construction Work. Landlord hereby reserves for itself and its agents, employees, licensees and contractors, the right to enter the Premises to the extent reasonably necessary to pursue such Construction Work upon 24 hours’ prior notice to Tenant. The exercise of any of Landlord’s rights pursuant to this Paragraph will not entitle Tenant to any abatement of Rent or other claim, right of offset, or defense against Landlord, except that (i) Tenant shall have the right to bring an action against Landlord (as Tenant’s sole remedy) in the event Tenant suffers any damages as a result of Landlord’s gross negligence or intentional misconduct in pursuing such Construction Work, and (ii) if such Construction Work results in Tenant being unable to access the Premises, or portions thereof, for the Permitted Use for a period of greater than ten business days, Tenant shall be entitled to equitable abatement of the Rent for such period of time during which it is unable to access the Premises. Tenant further acknowledges that expansion of the Project may affect the amount of the Lease Expenses and the portion thereof payable by Tenant.

34.2. Reserved Rights. Landlord hereby reserves such licenses and easements in, on, above or below the Premises as may be reasonably required (i) for the installation, inspection, surveying, maintenance, or construction of mains, conduits, shafts, columns, footings, piers, pipes or other facilities to serve any building within the Project, or (ii) for any Construction Work; provided, however, Landlord will use its best efforts to minimize any unreasonable interference with Tenant’s use, occupancy, or enjoyment of the Premises as contemplated by this Lease.

35. Access by Landlord. Landlord and any of Landlord’s Invitees shall have the right to enter the Premises at all reasonable times, during normal business hours if feasible under the circumstances, and upon 24 hours’ notice, if feasible under the circumstances, (i) to determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease, (ii) to do any necessary maintenance or make any restoration to the Premises that Landlord has the right or obligation to perform, (iii) to serve, post, or keep posted any notices required or allowed under this Lease, (v) to post “for sale” or “for rent” or “for lease” signs during the final nine months of the Term, (vi) to show the Premises to brokers, lenders, agents, prospective buyers, prospective tenants, or other persons interested in a listing of, financing, purchasing, or occupying the Project, the Premises or any portion of the Project or the Premises, and (vii) to shore the foundations, footings, and walls of the Project, and to erect scaffolding and protective barricades around and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety or preservation of the Premises if any excavation or other construction is undertaken or is about to be undertaken on any adjacent property or nearby street. In the event of an emergency Landlord shall have the right to enter the Premises at any time, without prior notice to Tenant. Landlord’s rights under this Paragraph extend, with Landlord’s consent, to the owner of adjacent property on which excavation or construction is to take place and the adjacent property owner’s agents, employees, officers, and contractors. Landlord shall not be liable for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of any entry on the Premises as provided in this Paragraph except damage resulting directly from the grossly negligent acts or willful misconduct of Landlord or Landlord’s Invitees. Tenant shall not be entitled to any abatement or reduction of Basic Monthly Rent or other Rent because of the exercise by Landlord of any rights under this Paragraph.

36. Indemnity. Tenant hereby agrees to indemnify, defend, protect, and hold harmless Landlord and its shareholders, officers, directors, agents, property managers, employees, contractors, and the partners comprising Landlord (if any) from and against all Claims (as defined below) and all costs, expenses, and attorneys’ fees incurred in the defense or handling of any such Claims or any action or proceeding brought on any of such Claims. For purposes of this Lease, the term “Claims” shall mean all liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims (except to the extent they result from Landlord’s grossly negligent acts or willful misconduct) arising from or which seek to impose liability under or because of (i) Tenant’s or Tenant’s Invitees’ use of the Premises, (ii) the conduct of Tenant’s business, (iii) any activity, work, or things done, permitted, or suffered by Tenant or any of Tenant’s Invitees in or about the Premises or elsewhere, (iv) any breach or default in the performance of any obligation to be performed by Tenant under this Lease, and/or (v) any negligence of Tenant or any of Tenant’s Invitees. If any action or proceeding is brought against Landlord or its shareholders, officers, directors, agents, property managers, employees, contractors, or the partners comprising Landlord (if any) by reason of any such Claims, Tenant upon notice from Landlord shall defend such action or proceeding at Tenant’s sole cost by legal counsel satisfactory to Landlord. Notwithstanding anything to the contrary in this Paragraph 36:

36.1. Tenant shall not waive any claims against Landlord or be required to indemnify, defend, or hold Landlord harmless from or against claims, liability, loss, cost or expense arising out of the breach by Landlord, or Landlord’s agents, employees, or independent contractors (collectively “Landlord’s Agents”), of any covenant, representation or warranty under this Lease.

36.2. Except to the extent caused by the negligent acts or willful misconduct of Tenant or Tenant’s employees, officers, or agents, Landlord shall protect, defend and hold harmless Tenant and Tenant’s employees, officers, and agents against and from any and all claims, demands, losses, liabilities, damages, costs and expenses (including, without limitation, attorneys’ and consultants’ fees and the costs and expenses of defense) arising or resulting from (i) Landlord’s or Landlord’s Agents’ breach of any covenant, representation or warranty under this Lease and (ii) Landlord’s or Landlord’s Agents’ negligence or willful misconduct. The mutual indemnity obligations of Landlord and

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Tenant under this Lease shall not, however, release the respective insurers of Landlord and Tenant from such insurers’ obligations under any policies covering their respective insureds.

37. Exemption of Landlord from Liability. Except to the extent caused by Landlord’s grossly negligent acts or willful misconduct, Tenant assumes all risk of, Tenant waives all claims against Landlord in respect of, and Landlord shall not be liable for, any of the matters set forth in the preceding Paragraph or any of the following: injury to Tenant’s business, loss of income from such business, or damage or injury to the goods, wares, merchandise, or other property or the person of Tenant, Tenant’s Invitees, or any other persons in, upon, or about the Premises, whether such damage, loss, or injury is caused by or results from criminal acts, fire, steam, electricity, gas, water, rain, the breakage, leakage, obstruction or other defects of pipes, sewer lines, sprinklers, wires, appliances, plumbing, air-conditioning or lighting fixtures, or any other cause, conditions arising upon the Premises, or other sources or places, and regardless of whether the cause of such damage, loss, or injury or the means of repairing such damage, loss, or injury is inaccessible to Tenant. This Lease shall not be affected or impaired by any change to any part of the Project or any sidewalks, streets, or improvements nearby the Project.

38. Hazardous Substances.

38.1. Landlord’s Covenants. Landlord hereby notifies Tenant, and Tenant hereby acknowledges that, prior to the leasing of the Premises pursuant to this Lease, Tenant has been notified, pursuant to California Health and Safety Code Section 25359.7 (or any successor statue), that Landlord knows, or has reasonable cause to believe, that certain hazardous substances (as such term is used in such Section 25359.7), such as common cleaning supplies, office supplies, spillage of petroleum products from motor vehicles, and other consumer products, may have come (and may in the future come) to be located on or beneath the Premises and/or the Project. Notwithstanding the foregoing, Landlord shall not cause any unlawful accumulations of Hazardous Material (as defined below) to be generated, brought onto, used, stored, or disposed of in or about the Premises, the Building, or the Project by Landlord or its agents, employees, or contractors, except for limited quantities of standard office and janitorial supplies and petroleum and petroleum-related products commonly used on or at similar office projects. Furthermore, Landlord shall: (a) use, store, and dispose of all such permitted Hazardous Material in strict compliance with all applicable statutes, ordinances, and regulations in effect during the Lease Term that govern and/or relate to Hazardous Material, public health and safety and protection of the environment, and (b) comply at all times during the Lease Term with all environmental laws (as defined in Paragraph 38.2, below. Except as to those matters which are Tenant’s responsibility pursuant to Paragraph 38.2, below, Landlord shall be responsible, at its expense (or the expense of others; but not as an Operating Expense) to cause any unlawful accumulations of Hazardous Materials to be remediated in accordance with the requirements of all applicable environmental laws.

38.2. Tenant’s Covenants. Tenant represents and warrants to the Landlord that its use of the Premises, the Building, and the Project will be in full compliance with all environmental laws. Tenant hereby agrees to indemnify Landlord against all actions, liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims (except to the extent they arise as a result of Landlord’s grossly negligent acts or willful misconduct), arising from or relating to: (i) any discharges, releases, or threatened releases of any Hazardous Material into ambient air, water, or land by Tenant or Tenant’s Invitee’s from, on, under, or above the Premises, (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or hazardous or toxic wastes, substances, or materials by Tenant or Tenant’s Invitees, or otherwise from, on, or under, the Premises, or (iii) a violation of any environmental law on, under, or above the Premises (for purposes of this Lease, “environmental laws” shall mean any Federal, State, or local law, statute, regulation, ordinance, guideline, or common law principle relating to public health or safety or the use or control of the environment, including without limitation the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Carpenter-Presley-Tanner Hazardous Substance Account Act, the California Hazardous Waste Control Law, the Federal Clean Air Act, the California Air Resources Act, the Federal Clean Water Act, the California Porter-Cologne Water Quality Control Act, the Federal Resource Conservation and Recovery Act, the California Nejedly-Z’berg-Dills Solid Waste Management and Recovery Act, and California Health and Safety Code Section 25359.7). Tenant agrees to promptly reimburse Landlord for all of Landlord’s costs arising from periodic monitoring of Tenant’s use, handling, or storage of Hazardous Substances at or surrounding the Premises. Tenant shall not cause or permit any Hazardous Material to be generated, brought onto, used, stored, or disposed of in or about the Premises, the Building, or the Project by Tenant or its agents, employees, contractors, subtenants, or invitees, except for limited quantities of standard office and janitorial supplies. Tenant shall: (a) use, store, and dispose of all such permitted Hazardous Material in strict compliance with all applicable statutes, ordinances, and regulations in effect during the Lease Term that govern and/or relate to Hazardous Material, public health and safety and protection of the environment, and (b) comply at all times during the Lease Term with all environmental laws. If the Premises are contaminated (or, due to the acts or omissions of Tenant or Tenant’s Invitees, the Project is contaminated) by any Hazardous Material during the Term, then (1) Tenant shall promptly notify Landlord in writing of such contamination, and (2) Landlord may elect to either (A) demand that Tenant perform all remediation required by Landlord (to Landlord’s satisfaction and at Tenant’s sole cost, necessary to return the Premises (and/or the Project) to at least as good a condition as the Premises (or the Project) are in as of the date of this Lease, which Tenant shall immediately do upon receipt of notice from Landlord, or (B) proceed to cause such investigation, clean-up, and remediation work which Landlord deems necessary or desirable to be undertaken, whereupon the entire cost thereof (plus a supervisory fee equal to ten percent (10%) of such cost) will be payable by Tenant to Landlord upon demand as Additional Rent. If, after demand by Landlord, as provided in this Paragraph, Tenant does not promptly commence and diligently pursue such remediation, then Landlord may, at Landlord’s election, perform or cause to be performed such remediation and Tenant shall immediately, upon demand, pay the cost thereof to Landlord, plus a supervisory fee in the amount of ten percent (10%) of such cost. Tenant’s obligations and liability under this Paragraph shall survive the termination of Tenant’s tenancy and the Term of this Lease, except that nothing contained in this Paragraph shall be deemed to impose liability on Tenant for any problem arising after the Term of this Lease provided neither Tenant nor Tenant’s Invitees contributed to such problem during the Term of the Lease.

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38.3. Definition of Hazardous Materials. As used in this Lease, the term “Hazardous Material” shall mean any hazardous or toxic substance, material, or waste that is or becomes regulated by the United States, the State of California, or any local government authority having jurisdiction over the Building. Hazardous Material includes, without limitation: (a) any “hazardous substance”, as that term is defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections 9601-9675); (b) “hazardous waste”, as that term is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections 6901-6992k); (c) any pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning any hazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect); (d) petroleum products; (e) radioactive material, including any source, special nuclear, or byproduct material as defined in 42 United States Code Sections 2011-2297; (f) asbestos in any form or condition; and (g) polychlorinated biphenyls (PCBs) and substances or compounds containing PCBs.

39. Prohibition Against Asbestos-Containing Materials. Tenant shall not allow or permit any materials which contain asbestos in any form or concentration (“Asbestos-Containing Materials”) to be used or stored in the Premises or used in the construction of any improvements or alterations to the Premises, including, without limitation, building or construction materials and supplies. Such prohibition against Asbestos-Containing Materials shall apply regardless of whether the Asbestos-Containing Materials may be considered safe or approved for use by a manufacturer, supplier, or governmental authority, or by common use or practice. Landlord shall have the right, upon 24-hours’ notice, to enter upon and conduct inspections of the Premises to determine Tenant’s compliance with this Paragraph. If Tenant allows or permits Asbestos-Containing Materials to be used or stored in the Premises or used in the construction of any improvements or alterations to the Premises, (a) Tenant shall, upon notice from Landlord, immediately remove such Asbestos-Containing Materials at Tenant’s sole cost, (b) such removal shall comply with all applicable laws, regulations, and requirements concerning asbestos and the removal and disposal of Asbestos-Containing Materials, (c) Tenant shall reimburse Landlord for all expenses incurred in connection with any inspection of the Premises conducted by Landlord, and (d) unless Tenant completes such removal within 30 days after notice from Landlord, Landlord may, at its election, do either or both of the following: (i) declare an Event of Default (without the requirement of any notice under Paragraph 25.3) and exercise Landlord’s remedies hereunder, including, without limitation, terminate this Lease upon ten days prior written notice to Tenant, and/or (ii) remove and dispose of the Asbestos-Containing Materials and obtain reimbursement from Tenant for the cost of such removal and disposal, including a supervisory fee payable to Landlord in the amount of ten percent (10%) of the removal and disposal cost. Tenant shall indemnify Landlord and Landlord’s directors, officers, employees, and agents against all costs, liabilities, expenses, penalties, and claims for damages, including, without limitation, litigation costs and attorneys’ fees, arising from (A) the presence of Asbestos-Containing Materials upon the Premises, to the extent that such Asbestos-Containing Materials are used or stored in the Premises or used in the construction of any Alterations by Tenant or Tenant’s agents, employees, representatives, or independent contractors, (b) any lawsuit, settlement, governmental order, or decree relating to the presence, handling, removal, or disposal of Asbestos-Containing Materials upon or from the Premises, to the extent that such Asbestos-Containing Materials are used or stored in the Premises or used in the construction of any improvements or Alterations to the Premises by Tenant or Tenant’s agents, employees, representatives, or independent contractors, or (C) Tenant’s failure to perform its obligations to remove such Asbestos-Containing Materials under this Paragraph. The provisions of this Paragraph shall not apply to any Asbestos-Containing Materials brought onto the Premises by Landlord or Landlord’s Invitees.

40. Security Measures. Tenant acknowledges that, although the Building will contain a restricted access entry system (if provided for as part of Landlord’s Work), (i) the Basic Monthly Rent does not include the cost of any security measures for any portion of the Project (ii) Landlord shall have no obligation to provide any such security measures, (iii) Landlord has made no representation to Tenant regarding the safety or security of the Project, and (iv) Tenant will be solely responsible for providing any security it deems necessary to protect itself, its property, and Tenant’s Invitees in, on, or about the Project. If Landlord provides any security measures at any time, then the cost thereof shall be included as part of the Operating Expenses, but Landlord will not be obligated to continue providing such security measures for any period of time, Landlord may discontinue such security measures without notice and without liability to Tenant, and Landlord will not be obligated to provide such security measures with any particular standard of care. Tenant assumes all responsibility for the security and safety of Tenant, Tenant’s property, and Tenant’s Invitees. Tenant releases Landlord from all claims (other than due to Landlord’s gross negligence or intentional misconduct) for damage, loss, or injury to Tenant, Tenant’s Invitees, and/or to the personal property of Tenant and/or of Tenant’s Invitees, even if such damage, loss, or injury is caused by or results from the criminal, reckless, or negligent acts of third parties. Landlord shall have no duty to warn Tenant of any criminal acts or dangerous conduct that has occurred in or near the Project, regardless of Landlord’s knowledge of such crimes or conduct, and Tenant hereby undertakes to remain informed regarding such issues.

41. Subordination and Attornment.

41.1. Priority of Title. This Lease and Tenant’s rights under this Lease are subject and subordinate to any mortgage, deed of trust, ground lease, or underlying lease (and to all renewals, modifications, consolidations, replacements, or extensions thereof), now or hereafter affecting the Premises. The provisions of this Paragraph shall be self-operative, and no further instrument of subordination shall be required. In confirmation of such subordination, however, Tenant shall promptly execute and deliver any commercially reasonable instruments that Landlord, any Lender, or the lessor under any ground or underlying lease, may request to evidence such subordination, provided such instrument contains customary non-disturbance language in favor of Tenant and is consistent with the provisions of the next sentence. If any Lender, or the lessor of any ground or underlying lease affecting the Premises, shall hereafter succeed to the rights of Landlord under this Lease, whether by foreclosure, deed in lieu of foreclosure, or otherwise, then (i) such successor landlord shall not be subject to any offsets or defenses which Tenant might have against Landlord, (ii) such successor landlord shall not be bound by any prepayment by Tenant of more than one month’s installment of Basic Monthly Rent or any other Rent, (iii) such successor landlord shall not be subject to any

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liability or obligation of Landlord except those arising after such succession, (iv) Tenant shall attorn to and recognize such successor landlord as Tenant’s landlord under this Lease, (v) Tenant shall promptly execute and deliver any commercially reasonable instruments that may be necessary to evidence such attornment, (vi) upon such attornment, this Lease shall continue in effect as a direct lease (whether separately documented or not) between such successor landlord and Tenant upon and subject to all of the provisions of this Lease, and (v) Tenant shall be entitled to quiet enjoyment of the Premises for so long as Tenant is not in default under the terms of this Lease or any substitute lease referenced above. Notwithstanding the preceding provisions of this Paragraph, if any ground lessor or Lender elects to have this Lease prior to the lien of its ground lease, deed of trust, or mortgage, and gives written notice thereof to Tenant that this Lease shall be deemed prior to such ground lease, deed of trust, or mortgage, whether this Lease is dated prior or subsequent to the date of such ground lease, deed of trust, or mortgage, then this Lease shall be deemed to be prior to the lien of such ground lease or mortgage and such ground lease, deed of trust, or mortgage shall be deemed to be subordinate to this Lease.

42. Estoppel Certificate. Within ten days after written request from Landlord, Tenant shall execute and deliver to Landlord, in recordable form, a certificate stating (i) that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and stating all modifications, (ii) the then-current Basic Monthly Rent, (iii) the dates to which Basic Monthly Rent has been paid in advance, (iv) the amount of any security deposit, prepaid rent, or other payment constituting Rent which has been paid, (v) whether or not Tenant or Landlord is in default under this Lease and whether there currently exist any defenses or rights of offset under the Lease in favor of Tenant, (vi) that any Landlord’s Work required by this Lease is complete (or stating any exceptions) and (vii) such other matters as Landlord may reasonably request. Tenant’s failure to deliver such certificate within such ten day period shall be conclusive upon Tenant for the benefit of Landlord, and any successor in interest to Landlord, any lender or proposed lender, and any purchaser or proposed purchaser of the Project that, except as may be represented by Landlord, this Lease is unmodified and in full force and effect, no Rent has been paid more than 30 days in advance, neither Tenant nor Landlord is in default under this Lease, no defenses or rights of offset under the Lease exist in favor of Tenant, and that all Landlord’s Work required by this Lease is complete. Landlord will similarly, in connection with any lending or Transfer transaction, upon ten days written request from Tenant, execute an estoppel certificate in favor of Tenant’s proposed lender or Transferee confirming (i) that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and stating all modifications, (ii) the then-current Basic Monthly Rent, (iii) the dates to which Basic Monthly Rent has been paid in advance, (iv) the amount of any security deposit, prepaid rent, or other payment constituting Rent which has been paid, and (v) whether or not to the best of Landlord’s knowledge Tenant is in default under this Lease.

43. Waiver. No delay or omission in the exercise of any right or remedy of Landlord in the event of any default or Event of Default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any default other than the particular Rent payment accepted. Landlord’s receipt and acceptance from Tenant, on any date (the “Receipt Date”), of an amount less than the Rent actually due on such Receipt Date, or to become due at a later date but applicable to a period prior to such Receipt Date, shall not release Tenant of its obligation (i) to pay the full amount of such Rent due on such Receipt Date or (ii) to pay when due the full amount of such Rent to become due at a later date but applicable to a period prior to such Receipt Date. No act or conduct of Landlord, including without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance by Landlord of the surrender of the Premises by Tenant before the Expiration Date. Only a written notice from Landlord to Tenant stating Landlord’s election to terminate Tenant’s right to possession of the Premises shall constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease. Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any other or subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease. Tenant hereby waives any rights granted to Tenant under California Code of Civil Procedure Section 1179, California Civil Code Section 3275, and/or any successor statute(s). Tenant represents and warrants that if Tenant breaches this Lease and, as a result, this Lease is terminated, Tenant will not suffer any undue hardship as a result of such termination and, during the Term, will make such alternative or other contingency plans to provide for its vacation of the Premises and relocation in the event of such termination. Tenant acknowledges that Tenant’s waivers set forth in this Paragraph are a material part of the consideration for Landlord’s entering into this Lease and that Landlord would not have entered into this Lease in the absence of such waivers.

44. Brokers. Tenant represents that no real estate broker, agent, finder, or other person is responsible for bringing about or negotiating this Lease other than the Tenant’s broker listed in the Principal Lease Provisions, and Tenant has not dealt with any other real estate broker, agent, finder, or other person, relative to this Lease in any manner. Tenant hereby indemnifies Landlord against all liabilities, damages, losses, costs, expenses, attorneys’ fees and claims arising from any claims that may be made against Landlord by any real estate broker, agent, finder, or other person (other than as set forth above), alleging to have acted on behalf of or to have dealt with Tenant. Landlord shall be responsible, upon satisfaction of the requirements of a separate written listing agreement between Landlord and Landlord’s broker, for the payment of the commission due and owing to Landlord’s brokers identified in the Principal Lease Provisions (or any other brokers engaged by Landlord), pursuant to such separate written agreement between Landlord and Landlord’s broker. Landlord’s broker will in turn split such commission with Tenant’s broker as such parties may agree.

45. Easements. Landlord may, at its election, from time to time, grant such easements, rights and dedications, and cause the recordation of parcel maps, easement and operating agreements, and restrictions affecting the Premises and the Project, provided that no such acts materially and adversely affect Tenant’s rights of ingress or egress to the Building and the Premises or Tenants right to use the Premises. Tenant shall promptly sign any documents or instruments to accomplish the foregoing upon request by Landlord. Tenant irrevocably appoints Landlord as Tenant’s special attorney-in-fact to execute and deliver such documents or instruments on behalf of Tenant if Tenant refuses or fails to do so within ten days of written request.

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46. Limitations on Landlord’s Liability. If Landlord is in default of this Lease, and as a consequence Tenant recovers a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levy against the right, title, and interest of Landlord in the Project, and out of rent or other income from the Project receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord’s right, title, and interest in the Project. Neither Landlord nor Landlord’s shareholders, members, officers, directors, agents, property managers, employees, contractors, or the partners comprising Landlord (if any) shall be personally liable for any deficiency.

47. Sale or Transfer of Premises. If Landlord sells or transfers the Project (whether voluntarily or involuntarily), Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord may transfer the security deposit and/or prepaid rent to Landlord’s successor-in-interest and on such transfer Landlord shall be discharged from any further liability arising from the security deposit or prepaid rent.

48. Quitclaim Deed. Tenant shall execute and deliver to Landlord on the Expiration Date, promptly on Landlord’s request, a quitclaim deed to the Premises, in recordable form, designating Landlord as transferee.

49. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation of this Lease, or a termination by Landlord, shall not work a merger, and shall, at the option of Landlord, terminate any existing subleases or may, at the option of Landlord, operate as an assignment to Landlord of any such subleases.

50. Confidentiality. Except as essential to the consummation of the transaction contemplated by this Lease (together with all amendments and addenda hereto), or in connection with a legitimate business purpose (such as in connection with a sale or loan transaction), Tenant shall keep and maintain the terms of this Lease and the transactions contemplated by this Lease in strict confidence. Nothing provided herein, however, shall prevent Tenant from disclosing to its legal counsel and/or certified public accountants, prospective purchasers, or lenders the existence and terms of this Lease or any transaction under this Lease, or any aspect of this lease, or from complying with any governmental or court order or similar legal requirement which requires Tenant to disclose this Lease, the terms of this Lease, the transaction contemplated by this Lease and/or any aspect of this Lease; provided that Tenant and its agents, representatives, and professional advisors use reasonable and diligent good faith efforts to disclose no more than is absolutely required to be disclosed by such legal requirement.

51. Miscellaneous.

51.1. This Lease may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one document.

51.2. Upon Landlord’s written request, Tenant shall promptly furnish to Landlord, from time to time, financial statements certified by Tenant to be true and correct, reflecting Tenant’s then current financial condition. Such financial statements shall include a current balance sheet and a profit and loss statement covering the most recent 12-month period available. In addition, Tenant shall provide Landlord with its annual audited financial statements prepared by its outside firm of certified public accountants. Landlord shall not request financial statements from Tenant more than once every six months and Landlord or Landlord’s Lender shall keep the information contained therein in confidence. Furthermore, Tenant’s obligations with respect to financial statements shall be limited to Tenant’s financial statements existing as of the time of the request. In the event that Tenant becomes a publicly traded company and a reporting company under the Federal Securities Laws, then, until such time as Tenant ceases to be publicly traded, Tenant’s obligations with respect to delivery of financial statements shall cease and Landlord’s obligation as to confidentiality of Tenant’s financial statements shall cease.

51.3. Notwithstanding any other provision in this Lease to the contrary, Tenant shall refrain from selling or otherwise distributing any alcoholic beverages and such sales are expressly forbidden under this Lease notwithstanding the fact that Tenant may hold the appropriate license as issued and/or approved by the California Alcoholic Beverage Control Agency.

51.4. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises are located. If the Premises are located outside of California, then the references in this Lease to California statutes shall be deemed to include any relevant statute of the jurisdiction in which the Premises are located that is comparable to such California statutes.

51.5. For purposes of venue and jurisdiction, this Lease shall be deemed made and to be performed in the City of San Diego, California (whether or not the Premises are located in San Diego, California) and Landlord and Tenant hereby consent to the jurisdiction of the Courts of the County of San Diego.

51.6. Tenant covenants and agrees not to protest or in any way oppose any application for a license to serve or sell liquor filed by tenants or other users of space within the Project.

51.7. Whenever the context so requires, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other genders, and the word “person” shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a limited liability company, a trust, an estate, or any other entity.

51.8. Each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Lease or the application of such provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or

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circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by such invalidity or unenforceability, unless such provision or such application of such provision is essential to this Lease.

51.9. In the event any litigation, arbitration, mediation, or other proceeding (“Proceeding”) is initiated by any party against any other party to enforce, interpret or otherwise obtain judicial or quasi-judicial relief in connection with this Lease the prevailing party in such Proceeding shall be entitled to recover from the unsuccessful party all costs, expenses, and reasonable attorney’s fees and expert witness fees relating to or arising out of such Proceeding (whether or not such Proceeding proceeds to judgment), and any post-judgment or post-award proceeding including without limitation one to enforce any judgment or award resulting from any such Proceeding. Any such judgment or award shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees and expert witness fees.

51.10. This Lease shall become effective and binding upon the parties when it has been executed by each of Landlord and Tenant; notwithstanding the fact that the Term of this Lease (i.e. Tenant’s rights of full occupancy hereunder) will not commence until the Lease Commencement Date.

51.11. Subject to any restriction on transferability contained in this Lease, this Lease shall be binding upon and shall inure to the benefit of the successors-in-interest and assigns of each party to this Lease. Nothing in this Paragraph shall create any rights enforceable by any person not a party to this Lease, except for the rights of the successors-in-interest and assigns of each party to this Lease, unless such rights are expressly granted in this Lease to other specifically identified persons.

51.12. The headings of the Paragraphs of this Lease have been included only for convenience, and shall not be deemed in any manner to modify or limit any of the provisions of this Lease, or be used in any manner in the interpretation of this Lease.

51.13. Time and strict and punctual performance are of the essence with respect to each provision of this Lease. All references to “days” in this Lease will refer to calendar days, unless such reference specifically indicates that “business days” are intended. Business days will mean and refer to all calendar days other than Saturdays, Sundays, and national or California state holidays.

51.14. Each party to this Lease and its legal counsel have had an opportunity to review and revise this Lease. The rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any Addendum or Exhibit to this Lease, and such rule of construction is hereby waived by Tenant.

51.15. All notices required or permitted to be given by Tenant to Landlord shall be in writing and shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by a nationally recognized overnight express courier service that provides written confirmation of delivery to Landlord at the address set forth in the Principal Lease Provisions of this Lease. Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this Paragraph. Landlord or Tenant must give a notice of a change of its address to the other, if such address changes. All notices required or permitted to be given to Tenant by Landlord shall Landlord shall, except as otherwise provided in this Lease, be in writing, and such notice shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by a nationally recognized overnight express courier service that provides written confirmation of delivery, to Tenant at the address set forth in the Principal Lease Provisions of this Lease. Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this Paragraph. Notwithstanding the foregoing, routine correspondence between Landlord and Tenant shall be deliverable by regular U.S. mail, by fax, or by other such means of delivery as may become customary.

51.16. If more than one person is Tenant, then the obligations of Tenant under this Lease shall be the joint and several obligations of each of such persons; provided, however, that any act or signature of one or more of any of such persons and any notice or refund given to or served on any one of such persons shall be fully binding on each of such persons.

51.17. All provisions, whether covenants or conditions, to be performed or observed by Tenant shall be deemed to be both covenants and conditions.

51.18. All payments to be made by Tenant to Landlord under this Lease shall be in United States currency.

51.19. This Lease, the Exhibits and Addenda, if any, attached hereto (which are incorporated herein by this reference), constitute all of the covenants, promises, assurances, representations, warranties, statements, agreements, conditions and understandings between Landlord and Tenant concerning the Premises and the Project, and there are no other covenants, promises, assurances, representations, warranties, statements, conditions, or understandings, either oral or written, between them. Except as herein otherwise provided, no subsequent alteration, change, modification, or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each of them. Notwithstanding the foregoing, the Landlord may, from time to time, establish and amend such Rules, regulations, and signage criteria, in a written form, for the benefit of the Project and Building, as it deems appropriate. Violations of such Rules, regulations, and signage criteria by Tenant or Tenant’s Invitees shall constitute a material default of this Lease.

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51.20. This Lease, upon full execution, supersedes and revokes any and all previous leases governing the Premises, lease negotiations, arrangements, letters of intents, offers to lease, lease proposals or drafts, brochures, representations, and information conveyed, whether oral or written, between parties hereto or their respective representations or any other person purported to represent Landlord or Tenant. The Tenant acknowledges it has not been induced to enter into this Lease by any representations not set forth in the Leases, nor has it relied on any such representations. No such representations should be used in the interpretation or construction of this Lease and the Landlord shall have no liability for any consequences arising as a result of any such representations.

LANDLORD:
PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common
By:	American Assets, Inc., as Agent
	By:	/s/    JOHN. W. CHAMBERLAIN
		John W. Chamberlain Chief Executive Officer
Date: August 14, 2000

TENANT:
BAKBONE SOFTWARE, INC., a California Corporation
By:	/s/    Illegible
Date:	July 21, 2000

By:	/s/    Illegible
Date:	July 21, 2000

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

BakBone Software Incorporated:

We consent to the incorporation by reference in the registration statement (No. 333-109390) on Form S-8 of BakBone Software Incorporated of our report dated June 25, 2004, with respect to the consolidated balance sheets of BakBone Software Incorporated and subsidiaries as of March 31, 2003 and 2004, and the related consolidated statements of operations, shareholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended March 31, 2004, which report appears in the March 31, 2004, annual report on Form 10-K of BakBone Software Incorporated.

Our report refers to the restatement of the Company’s consolidated financial statements as of March 31, 2003, and for each of the years in the two-year period ended March 31, 2003.

KPMG LLP

San Diego, California

June 29, 2004

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Keith G. Rickard, certify that:

1. I have reviewed this annual report on Form 10-K of BakBone Software Incorporated;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its controlled subsidiaries, is made known to us by others within these entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

c) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2004

/s/    KEITH G. RICKARD

Keith G. Rickard

Chief Executive Officer, President and Director

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, John Fitzgerald, certify that:

1. I have reviewed this annual report on Form 10-K of BakBone Software Incorporated;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its controlled subsidiaries, is made known to us by others within these entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

c) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2004

/s/    JOHN FITZGERALD

John Fitzgerald

Chief Financial Officer and Chief Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Keith G. Rickard, Chief Executive Officer of BakBone Software Incorporated (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, (“Section 906”) that, based on my knowledge:

(1) the Annual Report on Form 10-K of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: June 29, 2004

/s/    Keith G. Rickard        

Keith G. Rickard

Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Registrant and will be retained by Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John Fitzgerald, Chief Financial Officer of BakBone Software Incorporated (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, (“Section 906”) that, based on my knowledge:

(1) the Annual Report on Form 10-K of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: June 29, 2004

/s/    John Fitzgerald        

John Fitzgerald

Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Registrant and will be retained by Registrant and furnished to the Securities and Exchange Commission or its staff upon request.