Exhibit 10.1

NEITHER THIS WARRANT NOR THE UNDERLYING SHARES OF COMMON STOCK HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES
LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER
EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF
THIS WARRANT.

BAKBONE SOFTWARE INCORPORATED

WARRANT TO PURCHASE 4,425,126 SHARES

OF COMMON STOCK

THIS CERTIFIES THAT, for value received, SUN MICROSYSTEMS, INC. (“Sun”) and its
assigns are entitled to subscribe for and purchase up to 4,425,126 shares of the
fully paid and nonassessable Common Stock (as adjusted pursuant to Section 4
hereof, the “Shares”) of BakBone Software Incorporated, a Canadian corporation
(the “Company”), at the price of $1.78 per share (such price and such other
price as shall result, from time to time, from the adjustments specified in
Section 4 hereof is herein referred to as the “Warrant Price”), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, the term “Common Stock” shall mean the Company’s Common Stock, no par
value, or any stock into or for which such Common Stock may hereafter be
converted or exchanged prior to or concurrent with the exercise of this Warrant.
As used herein, (a) the term “Date of Grant” shall mean April 18, 2007, and
(b) the term “Other Warrants” shall mean any warrant issued upon transfer or
partial exercise of this Warrant or issued in respect of this Warrant pursuant
to Section 4 hereof. The term “Warrant” as used herein shall be deemed to
include Other Warrants unless the context clearly requires otherwise.

This Warrant is being issued pursuant to a Technology Development and License
Agreement dated as of December 18, 2006 (the “TDLA”) between Sun and BakBone
Software, Inc., a California corporation and a wholly owned subsidiary of the
Company (the “Subsidiary”). All capitalized terms used but not otherwise defined
herein shall have the meaning ascribed to such terms in the TDLA.

1. Exercisability.

(a) Vesting of Shares. The number of Shares of Common Stock issuable pursuant to
this Warrant shall be dependent on the achievement of certain milestones as set
forth below and subject to adjustment pursuant to Section 4 hereof. A portion of
the Shares shall become exercisable on the Initial Vesting Date (as defined
below) and the remaining Shares shall vest as follows:

(i) The Initial Vesting Date. 20% of the total number of Shares shall become
exercisable on the Initial Vesting Date.

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(ii) Second Vesting Date. 26-2/3% of the total number of Shares shall become
exercisable on the Second Vesting Date (as defined below), provided that the
cumulative License Fees payable under the TDLA for all periods through the first
anniversary of the Initial Vesting Date are at least $5,000,000.

(iii) Third Vesting Date. 26-2/3% of the total number of Shares shall become
exercisable on the Third Vesting Date (as defined below), provided that the
cumulative License Fees payable under the TDLA for all periods through the
second anniversary of the Initial Vesting Date are at least $10,000,000.

(iv) Fourth Vesting Date. 26-2/3% of the total number of Shares (with any
remaining fractions rounded up) shall become exercisable on the Fourth Vesting
Date (as defined below), provided that the cumulative License Fees payable under
the TDLA for all periods through the third anniversary of the Initial Vesting
Date are at least $15,000,000.

(b) Acceleration of Vesting. In the event of a Change of Control, 25% of all
then unvested Shares shall become immediately exercisable. In the event Sun
terminates the TDLA due to a material breach by the Subsidiary that is not cured
as provided in Section 9.2 of the TDLA, all then unvested Shares shall become
immediately exercisable.

(c) Definitions.

(i) A “Change of Control” of the Company shall mean each and all of the
following occurrences:

(1) The stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent
company) more than fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity, or its parent
company, outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company’s assets.

(2) The stockholders of the Subsidiary approve a merger or consolidation of the
Subsidiary with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Subsidiary outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or its parent company) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Subsidiary or such surviving entity,
or its parent company, outstanding immediately after such merger or
consolidation, or the stockholders of the Subsidiary approve a plan of complete
liquidation of the Subsidiary or an agreement for the sale or disposition by the
Company or the Subsidiary of all or substantially all the Subsidiary’s assets or
capital stock.

 

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(3) The acquisition by any person as the “beneficial owner” (as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company’s then outstanding
voting securities.

(4) The acquisition by any person (other than the Company or any direct or
indirect subsidiary of the Company) as the “beneficial owner” (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of the Subsidiary representing fifty percent (50%) or
more of the total voting power represented by the Subsidiary’s then outstanding
voting securities.

(5) A change in the composition of the Board of Directors of the Company as a
result of which fewer than a majority of the directors are “Incumbent
Directors.” “Incumbent Directors” shall mean directors who either (A) are
directors of the Company as of the date hereof or (B) are elected, or nominated
for election, to the Board of Directors with the affirmative votes (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for election as a director without objection to
such nomination) of at least three-quarters of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors of the Company).

(ii) The “Fourth Vesting Date” shall be the date that Sun receives an undisputed
invoice under Section 7.1 of the TDLA with respect to the Royalty and Support
Fees Report for the quarter ending on the third anniversary of the Initial
Vesting Date.

(iii) The “Initial Vesting Date” shall mean the last day of the calendar quarter
during which Sun notifies the Subsidiary of the General Availability of the Base
Technology.

(iv) “License Fees” shall mean the amounts owed to the Subsidiary by Sun under
the TLDA.

(v) The “Second Vesting Date” shall be the date that Sun receives an undisputed
invoice under Section 7.1 of the TDLA with respect to the Royalty and Support
Fees Report for the quarter ending on the first anniversary of the Initial
Vesting Date.

(vi) The “Third Vesting Date” shall be the date that Sun receives an undisputed
invoice under Section 7.1 of the TDLA with respect to the Royalty and Support
Fees Report for the quarter ending on the second anniversary of the Initial
Vesting Date.

(d) Exercise Period. As to each portion hereof that vests in accordance with
Section 1(a) above, this Warrant shall be exercisable, in whole or in part,
during the term commencing on the date of vesting and ending on the date that is
ten years after the Date of Grant.

 

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2. Exercise of Warrant.

(a) Method of Exercise; Payment. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the holder hereof, in whole or
in part and from time to time, at the election of the holder hereof, by (a) the
surrender of this Warrant (with the notice of exercise substantially in the form
attached hereto as Exhibit A-1 duly completed and executed) at the principal
office of the Company and by the payment to the Company, by certified or bank
check, or by wire transfer to an account designated by the Company (a “Wire
Transfer”) of an amount equal to the then applicable Warrant Price multiplied by
the number of Shares then being purchased, or (b) if in connection with a
registered public offering of the Company’s securities, the surrender of this
Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly
completed and executed) at the principal office of the Company together with
notice of arrangements reasonably satisfactory to the Company for payment to the
Company either by certified or bank check or by Wire Transfer from the proceeds
of the sale of shares to be sold by the holder in such public offering of an
amount equal to the then applicable Warrant Price per share multiplied by the
number of Shares then being purchased or (c) exercise of the “net issuance”
right provided for in Section 2(b) hereof. The person or persons in whose
name(s) any certificate(s) representing the Shares shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of stock so purchased shall be
delivered to the holder hereof as soon as practicable and, if requested by the
holder of this Warrant, the Company shall cause its transfer agent to deliver
the certificate representing Shares issued upon exercise of this Warrant to a
broker or other person (as directed by the holder exercising this Warrant)
within the time period required to settle any trade made by the holder after
exercise of this Warrant.

(b) Right to Convert Warrant into Stock; Net Issuance.

(i) Right to Convert. In addition to and without limiting the rights of the
holder under the terms of this Warrant, the holder shall have the right to
convert this Warrant or any portion thereof (the “Conversion Right”) into shares
of Common Stock as provided in this Section 2(b) in connection with or following
a Change of Control that occurs during the term of this Warrant. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock as is determined according to the following formula:

 

X =

   B - A       Y

 

Where:

   X    =    the number of shares of Common Stock that may be issued to the
holder

 

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   Y    =    the fair market value of one share of Common Stock    A    =    the
aggregate Warrant Price of the specified number of Converted Warrant Shares
immediately prior to the exercise of the Conversion Right (i.e., the number of
Converted Warrant Shares multiplied by the Warrant Price)    B    =    the
aggregate fair market value of the specified number of converted Warrant Shares
(i.e., the number of Converted Warrant Shares multiplied by the fair market
value of one Converted Warrant Shares)

No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.

(ii) Method of Exercise. The Conversion Right may be exercised by the holder in
connection with or following a Change of Control by the surrender of this
Warrant at the principal office of the Company together with a written statement
in the form of Exhibit A-3 hereto specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in Section 2(b)(i) hereof
as the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon the closing of such Change of Control (the
“Conversion Date”). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of the
shares remaining subject to this Warrant, shall be issued as of the Conversion
Date and shall be delivered to the holder as soon as practicable, but in no
event later than 30 days following the Conversion Date.

(iii) Determination of Fair Market Value. For purposes of this Section 2(b),
“fair market value” of a share of Common Stock as of a particular date (the
Determination Date”) shall mean:

(1) The average of the closing bid and asked prices of the Common Stock quoted
Toronto Stock Exchange or in the Over-the-Counter Market Summary or the closing
price quoted on the Nasdaq Stock Market or any other exchange on which the
Common Stock is listed, whichever is applicable, for the ten trading days prior
to the date of determination of fair market value.

(2) If the Common Stock is not traded Over-the-Counter or on the Nasdaq Stock
Market, Toronto Stock Exchange or any other exchange, fair market value of the
Common Stock per share shall be the highest price per share which the Company
could obtain from a willing buyer for shares sold by the Company from authorized
but unissued shares of Common Stock as such price shall be agreed by the parties
hereto, or if agreement cannot be

 

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reached within five business days of delivery of the notice pursuant to
Section 2(b)(ii) hereof, as shall be determined by a panel of appraisers. One
appraiser shall be selected by the Holder, one appraiser shall be chosen by the
Company and the third appraiser shall be chosen by the first two appraisers. If
the appraisers cannot reach agreement as to the fair market value on the
foregoing basis on or before the 30th day following the Holder’s notice of
election pursuant to this Section 2(b), then each appraiser shall deliver its
appraisal and the appraisal which is neither the highest nor the lowest shall be
the fair market value of a share of Warrant Stock. In the event that the Company
fails to choose an appraiser or the three appraisers fail to deliver an
appraisal on or before the 30th day after such notice, the appraisal of the
appraiser selected by the Holder shall control and shall be fair market value
for the purposes of this Warrant. The cost of the appraiser selected by each
party shall be borne by that party and the cost of the third appraiser shall be
borne one-half by each party. In the event that the Company does not select an
appraiser or three appraisals are not received on or before the 30th day after
such notice of election, the Company shall pay one-half the cost of the Holder’s
appraiser. Appraisers selected under this Section 2(b)(iii)(2) must be
unaffiliated with the Holder and the Company and must have reasonable
professional qualifications for the appraisal.

(c) Exercise Prior to Expiration. If this Warrant is not previously exercised
with respect to all Shares that have become exercisable pursuant to
Section 1(c), the Company shall give notice to the Holder not less than 150 days
or more than 210 days prior to the expiration of this Warrant. To the extent any
portion of this Warrant which is exercisable is not previously exercised as to
all of the vested Shares subject hereto, and if the Company fails to provide the
notice required by the previous sentence, and if the fair market value of one
share of the Common Stock is greater than the Warrant Price then in effect, the
exercisable portion of this Warrant then expiring shall be deemed automatically
exercised pursuant to Section 2(b) above (even if not surrendered) immediately
before its expiration. For purposes of such automatic exercise, the fair market
value of one share of the Common Stock upon such expiration shall be determined
pursuant to Section 2(b)(iii). To the extent this Warrant or any portion thereof
is deemed automatically exercised pursuant to this Section 2(c), the Company
agrees to promptly notify the holder hereof of the number of Shares, if any, the
holder hereof is to receive by reason of such automatic exercise.

3. Covenants as to Shares. The Company covenants that all Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof. The Company covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant. The Company further covenants and agrees
that the Company will from time to time take all such action as may be requisite
to assure that the stated or par value per share of Common Stock is at all times
equal to or less than the then effective Warrant Price per share of Common Stock
issuable upon exercise of this Warrant. If and so long as the Common Stock
issuable upon the exercise of the rights represented by this Warrant is listed
on any national securities exchange or quotation system, the Company will, if
permitted by the rules of such exchange or quotation system, use its best
efforts to list and keep listed on such exchange or quotation system, upon
official notice of issuance, all shares of such capital stock.

 

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4. Adjustment of Warrant Price and Number of Shares. The number and kind of
securities purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:

(a) Reclassification or Merger. In case of any reclassification or change of
securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company (each, a
“Reorganization”), the Company, or such successor or purchasing corporation, as
the case may be, shall duly execute and deliver to the holder of this Warrant a
new Warrant (in form and substance satisfactory to the holder of this Warrant),
or the Company shall make appropriate provision without the issuance of a new
Warrant, so that the holder of this Warrant shall have the right to receive upon
exercise of this Warrant, at a total purchase price not to exceed that payable
upon the exercise of the exercisable but unexercised portion of this Warrant,
and in lieu of the shares of Common Stock theretofore issuable upon exercise of
this Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, change or merger by a holder
of the number of shares of Common Stock then purchasable under this Warrant.
Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this subparagraph (a) shall similarly apply to
successive reclassifications, changes, mergers and transfers.

(b) Subdivision or Combination of Shares. If the Company at any time while this
Warrant remains outstanding and unexpired shall subdivide or combine its
outstanding shares of Common Stock, the Warrant Price shall be proportionately
decreased and the number of Shares issuable hereunder shall be proportionately
increased in the case of a subdivision or and the Warrant Price shall be
proportionately increased and the number of Shares issuable hereunder shall be
proportionately decreased in the case of a combination.

(c) Stock Dividends and Other Distributions. If the Company at any time while
this Warrant is outstanding and unexpired shall (i) pay a dividend with respect
to its Common Stock payable in Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by a
fraction (A) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(B) the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution; or (ii) make any
other distribution with respect to Common Stock, including a distribution of
shares of any subsidiary of the Company (except any distribution specifically
provided for in Sections 4(a) and 4(b)), then, in each such case, provision

 

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shall be made by the Company such that the holder of this Warrant shall receive
upon exercise of this Warrant a proportionate share of any such dividend or
distribution as though it were the holder of the Shares as of the record date
fixed for the determination of the shareholders of the Company entitled to
receive such dividend or distribution.

(d) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price,
the number of Shares purchasable hereunder shall be adjusted, to the nearest
whole share, to the product obtained by multiplying the number of Shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.

5. Notice of Certain Events.

(a) Whenever the Warrant Price or the number of Shares purchasable hereunder
shall be adjusted pursuant to Section 4 hereof, the Company shall make a
certificate signed by its chief financial officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the Warrant Price and the
number of Shares purchasable hereunder after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed to the holder of this
Warrant at such holder’s last known address.

(b) In the event of:

(i) any taking by the Company of a record of the holders of Common Stock for the
purpose of determining the holders thereof who are entitled to receive any
dividend, distribution, or other right,

(ii) an underwritten registered public offering subject to the Holder’s rights
as set forth in Section 1.2 of Exhibit C (a “Public Offering”), or

(iii) a Reorganization;

then and in each such event the Company will mail to the Holder hereof a notice
(i) specifying, if known, the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and stating, if known, the
amount and character of such dividend, distribution or right, (ii) specifying
the date on which the Public Offering is anticipated to close, if known, or
(iii) specifying the anticipated date on which any Reorganization is to close,
and, if known, the time, if any is to be fixed, as to which the holders of
record of Common Stock shall be entitled to exchange their shares for securities
or other property deliverable on such Reorganization. The Company shall give
such notice to the Holder at least twenty business days prior to the record date
or closing date specified therein, as the case may be.

6. Fractional Shares. No fractional shares of Common Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor based on the fair market value of
the Common Stock (as determined under Section 2(b) above) on the date of
exercise.

 

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7. Compliance with Securities Act; Disposition of Warrant or Shares of Common
Stock.

(a) Representations of Holder. The holder of this Warrant, by acceptance hereof,
agrees that this Warrant, and the Shares to be issued upon exercise hereof are
being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any Shares except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the “Securities Act”) or any applicable state securities laws. In addition, in
connection with the issuance of this Warrant, the holder specifically represents
to the Company by acceptance of this Warrant as follows:

(i) The holder is aware of the Company’s business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant. The holder is
acquiring this Warrant for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any “distribution” thereof
in violation of the Securities Act.

(ii) The holder understands that this Warrant has not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of the holder’s
investment intent as expressed herein.

(iii) The holder further understands that this Warrant must be held indefinitely
unless subsequently registered under the Securities Act and qualified under any
applicable state securities laws, or unless exemptions from registration and
qualification are otherwise available. The holder is aware of the provisions of
Rule 144, promulgated under the Securities Act.

(iv) The holder is an “accredited investor” as such term is defined in Rule 501
of Regulation D promulgated under the Securities Act.

(b) Disposition of Warrant or Shares. With respect to any offer, sale or other
disposition of this Warrant or any Shares acquired pursuant to the exercise of
this Warrant prior to registration of such Warrant or Shares, the holder hereof
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder’s counsel, or
other evidence, if reasonably satisfactory to the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Securities Act as then in effect or any federal or
state securities law then in effect) of this Warrant or the Shares and
indicating whether or not under the Securities Act certificates for this Warrant
or the Shares to be sold or otherwise disposed of require any restrictive legend
as to applicable restrictions on transferability in order to ensure compliance
with such law. Upon receiving such written notice and reasonably satisfactory
opinion or other evidence, the Company, as promptly as practicable but no later
than 15 days after receipt of the written notice, shall notify such holder that
such holder may sell or otherwise dispose of this Warrant or such Shares, all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 7(b) that the opinion of
counsel for the holder or other evidence is not reasonably satisfactory to the
Company, the Company shall so notify the holder promptly with

 

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details thereof after such determination has been made. Notwithstanding the
foregoing, this Warrant or such Shares may, as to such federal laws, be offered,
sold or otherwise disposed of in accordance with Rule 144 under the Securities
Act, provided that the Company shall have been furnished with such information
as the Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing this
Warrant or the Shares thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to ensure compliance with such laws, unless in the aforesaid opinion of
counsel for the holder, such legend is not required in order to ensure
compliance with such laws. The Company may issue stop transfer instructions to
its transfer agent in connection with such restrictions.

(c) Applicability of Restrictions. Neither any restrictions of any legend
described in this Warrant nor the requirements of Section 7(b) above shall apply
to any transfer or grant of a security interest in this Warrant (or the Shares
obtainable upon exercise thereof) or any part hereof (i) to a partner of the
holder if the holder is a partnership or to a member of the holder if the holder
is a limited liability company, (ii) to a partnership of which the holder is a
partner or a limited liability company of which the holder is a member, or
(iii) to any affiliate of the holder if the holder is a corporation; provided,
however, in any such transfer, if applicable, the transferee shall on the
Company’s request agree in writing to be bound by the terms of this Warrant as
if an original holder hereof.

8. Rights as Shareholders; Information. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities which may at any time be issuable upon the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to receive notice of meetings, or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein. Notwithstanding the foregoing, the Company will transmit to the holder
of this Warrant such information, documents and reports as are generally
distributed to the holders of any class or series of the securities of the
Company concurrently with the distribution thereof to the shareholders:
provided, that the filing by the Company of any such materials on the EDGAR
system of the SEC shall be deemed to satisfy the Company’s obligation to deliver
such material to the holder of this Warrant.

9. Registration Rights. The holder of this Warrant shall be entitled to the
rights set forth on Exhibit C attached hereto (the “Rights Addendum”). In the
event (a) the Company determines to register the sale of additional shares of
its Common Stock under the securities laws of Canada or any province or
territory of Canada, or (b) the Company’s Common Stock is re-listed and trading
in its Common Stock re-commences on the Toronto Stock Exchange, Holder shall be
entitled to receive substantially similar registration rights to those granted
under the Rights Addendum to such registration in Canada to the extent necessary
to provide Holder with liquidity on the Toronto Stock Exchange Similar to that
provided by the Rights Addendum in the United States, pursuant to the securities
laws or regulations of Canada and such province or territory of Canada, and
Holder and the Company agree to negotiate in good faith with respect to the
terms thereof.

 

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10. Representations and Warranties. The Company represents and warrants to the
holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by the Company and is a
valid and binding obligation of the Company enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and the rules of law or principles at equity governing
specific performance, injunctive relief and other equitable remedies;

(b) The Shares have been duly authorized and reserved for issuance by the
Company and, when issued in accordance with the terms hereof will be validly
issued, fully paid and non-assessable;

(c) The execution and delivery of this Warrant are not, and the issuance of the
Shares upon exercise of this Warrant in accordance with the terms hereof will
not be, inconsistent with the Company’s articles of incorporation or bylaws
(collectively, the “Charter Documents”), do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any Federal, state, local
or foreign government authority or agency or other person, except for the filing
of notices pursuant to federal or state securities laws, which filings will be
effected by the time required thereby;

(d) There are no actions, suits, audits, investigations or proceedings pending
or, to the knowledge of the Company, threatened against the Company in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Company to
perform its obligations under this Warrant;

(e) True and correct copies of the Charter Documents as in effect on the date
hereof are attached hereto as Exhibit B.

(f) All shares of Series A convertible preferred stock are convertible into
Common Stock on a 1-to-1 basis. The number of shares of Common Stock of the
Company outstanding on the date hereof, on a fully-diluted basis (assuming the
conversion of all outstanding convertible securities and the exercise of all
outstanding options and warrants) is equal to 88,502,529 shares, 64,542,358 of
which are Common Stock, 5,567,171 of which are options to purchase Common Stock,
18,000,000 of which are Series A convertible preferred stock, 300,000 of which
are restricted stock units, 13,000 of which are shares of Common Stock held by
Employee Benefit Trust and 80,000 of which are warrants to purchase Common
Stock.

11. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

 

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12. Notices. Any notice, request, communication or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by reputable overnight courier service, certified or
registered mail, postage prepaid with return receipt requested, to the initial
holder at the address set forth below, to any subsequent holder at its address
as shown on the books of the Company or to the Company at the address set forth
below.

If to the initial holder:

Sun Microsystems, Inc.

Attn: Business Affairs

Program Coordinator

16 Network Circle UMPK16-226

Menlo Park, CA 94025

investment_admin@sun.com

with a cc to:

Sun Microsystems, Inc.

10 Network Circle

Menlo Park, CA 94025

Attention: General Counsel

If to the Company:

BakBone Software Incorporated

Attn: Legal Department

Manager Intellectual Property & Contracts

9540 Towne Centre Drive, Suite 100

San Diego, CA 92121

Each of the foregoing parties shall be entitled to specify a different address
by giving five days’ advance written notice as aforesaid to the other parties.
All such notices and communications shall be deemed to have been received (i) in
the case of personal delivery, on the date of such delivery and (ii) in the case
of mailing, on the third business day following the date of such mailing.

13. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company’s assets, and all of the obligations of
the Company relating to the Shares issuable upon the exercise or conversion of
this Warrant shall survive the exercise, conversion and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof.

14. Lost Warrants or Stock Certificates. The Company covenants to the holder
hereof that, upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction

 

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or mutilation of this Warrant or any stock certificate and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant or stock certificate, the Company
will make and deliver a new Warrant or stock certificate, of like tenor, in lieu
of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

15. Descriptive Headings. The descriptive headings of the several paragraphs of
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant. The language in this Warrant shall be construed as to its fair
meaning without regard to which party drafted this Warrant.

16. Governing Law. This Warrant shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of California.

17. Survival of Representations, Warranties and Agreements. All representations
and warranties of the Company and the holder hereof contained herein shall
survive the Date of Grant, the exercise or conversion of this Warrant (or any
part hereof) or the termination or expiration of rights hereunder. All
agreements of the Company and the holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.

18. Remedies. In case any one or more of the covenants and agreements contained
in this Warrant shall have been breached, the holders hereof (in the case of a
breach by the Company), or the Company (in the case of a breach by a holder),
may proceed to protect and enforce their or its rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages as
a result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this Warrant.

19. No Impairment of Rights. The Company will not, by amendment of its Charter
Documents or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.

20. Severability. The invalidity or unenforceability of any provision of this
Warrant in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction, or affect any other provision of this
Warrant, which shall remain in full force and effect.

21. Recovery of Litigation Costs. If any legal action or other proceeding is
brought for the enforcement of this Warrant, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Warrant, the successful or prevailing party or parties shall be entitled
to recover reasonable attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.

[Remainder of page intentionally left blank]

 

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22. Entire Agreement; Modification. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.

 

BAKBONE SOFTWARE INCORPORATED By:      Title:     

 

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EXHIBIT A-1

NOTICE OF EXERCISE

To: BakBone Software Incorporated (the “Company”)

1. The undersigned hereby elects to purchase                      shares of
Common Stock of the Company pursuant to the terms of the attached Warrant.

2. The undersigned elects to exercise the attached Warrant by means of a cash
payment and tenders herewith payment of the purchase price of such shares in
full. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, all except as in
compliance with applicable securities laws. The undersigned represents that it
is an “accredited investor” as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended.

3. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:

 

   (Name)       (Address)

 

    Name of Holder     Signature of Authorized Signatory     Name and Title of
Signatory

Date:                                

 

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EXHIBIT A-2

NOTICE OF EXERCISE

To: BakBone Software Incorporated (the “Company”)

1. Contingent upon and effective immediately prior to the closing (the
“Closing”) of the Company’s public offering contemplated by the Registration
Statement on Form S-    , filed,                 , 200    , the undersigned
hereby elects to purchase                      shares of Common Stock of the
Company pursuant to the terms of the attached Warrant:

2. The undersigned elects to exercise the attached Warrant by means of a cash
payment. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $                     or, if less, the
net proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such shares,
the undersigned agrees to deliver the difference to the Company prior to the
Closing. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, all except as in
compliance with applicable securities laws. The undersigned represents that it
is an “accredited investor” as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended.

3. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below
and deliver to the custodian for the selling shareholders:

 

   (Name)       (Address)

 

    Name of Holder     Signature of Authorized Signatory     Name and Title of
Signatory

Date:                                

 

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EXHIBIT A-3

NOTICE OF EXERCISE

To: BakBone Software Incorporated (the “Company”)

1. Contingent upon and effective upon the closing of a Change in Control that
occurs during the term of the attached Warrant, the undersigned hereby elects to
purchase                      shares of Common Stock of the Company pursuant to
the terms of the attached Warrant.

2. The undersigned elects to exercise the attached Warrant and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any, by means of a cashless exercise, such that payment shall take the
form of the cancellation of such number of shares of Common Stock of the Company
as is necessary, in accordance with the formula set forth in subsection 2(b), to
exercise this Warrant with respect to the above number of shares of Common Stock
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(b).

3. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:

 

   (Name)       (Address)

 

    Name of Holder     Signature of Authorized Signatory     Name and Title of
Signatory

Date:                                

 

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EXHIBIT B

CHARTER DOCUMENTS

[WILL FOLLOW SEPARATELY]

 

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EXHIBIT C

ADDITIONAL RIGHTS

SECTION 1. Registration Rights

1.1 Certain Definitions

As used in this Exhibit C, the following terms shall have the following
respective meanings:

“Commission” shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

“Form S-3” means such form under the Securities Act as in effect on the date
hereof or any successor or similar registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.

“Holder” shall mean the Holder and any person holding or having the right to
acquire Registrable Securities to whom the rights under this Agreement have been
transferred in accordance with Section 1.12 hereof.

“Initial Public Offering” shall mean the firm commitment underwritten first
public offering of Common Stock by the Company to the public following the date
hereof pursuant to a registration statement (other than Form S-8 or S-4 or
successors to such forms) filed with, and declared effective by, the Commission
under the Securities Act.

The terms “register”, “registered” and “registration” refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.

“Registrable Securities” means the Warrant Stock or other securities issued or
issuable with respect to the Warrant Stock upon any stock split, stock dividend
or other distribution, recapitalization or similar event, or any Common Stock
otherwise issued or issuable with respect to the Warrant Stock; provided,
however, that shares of Common Stock or other securities shall only be treated
as Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale.

 

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“Registration Expenses” shall mean all expenses incurred by the Company in
complying with Sections 1.2, 1.3 and 1.4 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, reasonable fees and
disbursements not to exceed $50,000 of a single special counsel for the Holders,
blue sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).

“Rule 144” shall mean Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Rule 415” shall mean Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Securities Act” shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

“Selling Expenses” shall mean all underwriting discounts, selling commissions
and stock transfer taxes applicable to the securities registered by the Holders.

“Warrant” shall mean the Warrant to purchase the Common Stock of the Company to
which this Exhibit C is attached.

“Warrant Stock” shall mean the Common Stock issued or issuable upon exercise of
the Warrant.

1.2 Company Registration

(a) Notice of Registration. If at any time or from time to time the Company
shall determine to register any of its securities, either for its own account or
the account of a security holder or holders, other than (x) a registration
relating solely to employee benefit plans or (y) a registration relating solely
to a Commission Rule 145 transaction, the Company will:

(i) promptly give to each Holder written notice thereof, and

(ii) include in such registration (and any related qualification under blue sky
laws or other compliance), and in any underwriting involved therein, all the
Registrable Securities that have been acquired upon exercise of the Warrant or
that are then exercisable under the Warrant specified in a written request or
requests made within 15 days after receipt of such written notice from the
Company by any Holder.

 

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(b) Underwriting. If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 1.2 shall be conditioned upon such Holder’s participation in
such underwriting and the inclusion of Registrable Securities in the
underwriting, to the extent requested, to the extent provided herein. The Holder
shall (together with the Company and the other holders distributing their
securities through such underwriting (the “Other Participating Holders”)) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 1.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting, on a pro rata
basis based on the total number of securities (including, without limitation,
Registrable Securities) requested to be registered pursuant to registration
rights granted to the Holder and the Other Participating Holders by the Company;
provided, however, that the right of the underwriters to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below 25% of the shares
included in the registration, except for a registration relating to the
Company’s Initial Public Offering from which all Registrable Securities may be
excluded. If the Holder or any Other Participating Holder disapproves of the
terms of any such underwriting, it, he or she may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.

(c) Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 1.2
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.

1.3 Resale Registration Rights.

(a) In case the Company shall receive from any Holder or Holders a written
request or requests that the Company effect a registration and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, for an offering to be made on a
delayed or continuous basis pursuant to Rule 415, and the Company is eligible to
register such Registrable Securities on Form S-3, the Company will:

(i) promptly give written notice of the proposed registration, and any related
qualification or compliance, to all other Holders of Registrable Securities; and

(ii) as soon as reasonably 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 1.3(a):

(A) if the Company is not eligible to register the Registrable Securities on
Form S-3 or Form S-3 is not otherwise available for such offering by the
Holders;

 

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(B) 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 of less than $1,000,000;

(C) during the period starting with the date of filing of, and ending on the
date 180 days following the effective date of the registration statement
pertaining to a public offering; provided that the Company makes reasonable good
efforts to cause such registration statement to become effective;

(D) if within 15 days of receipt of a written request from a Holder or Holders
pursuant to Section 1.3(a), the Company gives notice to the Holders of the
Company’s intention to make a public offering within 60 days; or

(E) if the Company shall furnish to the Holders a certificate signed by the
Chairman of the Board of Directors or 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 stockholders 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 60 days after receipt of the request of the Holder or
Holders under this Section 2.4; provided, that such right to delay a request
under this Section 1.3(a)(ii)(E), Section 1.3(b)(ii)(G) or Section 1.4(c)(vi)
(the “Delay Provisions”) shall be exercised by the Company not more than once in
any 12-month period.

(b) In case the Company shall receive from any Holder or Holders a written
request or requests that the Company effect a registration and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, for an offering to be made on a
delayed or continuous basis pursuant to Rule 415, and the Company is not
eligible to register such Registrable Securities on Form S-3, the Company will:

(i) promptly give written notice of the proposed registration, and any related
qualification or compliance, to all other Holders of Registrable Securities; and

(ii) as soon as reasonably practicable, effect such registration on Form S-1 and
effect 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 1.3(b):

(A) for any Registrable Securities that are not fully vested and then-issuable
pursuant to the Warrant;

 

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(B) prior to the date that the Company has filed its Annual Report on Form 10-K
for the fiscal year ended March 31, 2007;

(C) if such Registrable Securities may be sold by the Holders pursuant to Rule
144(k), as determined by counsel to the Company pursuant to a written opinion
letter to such effect, addressed and reasonably acceptable to the Company’s
transfer agent and the affected Holders;

(D) if the Holders of such Registrable Securities do not intend to sell or
distribute such Registrable Securities within 90 days of the effectiveness of
such registration statement pursuant to such registration statement;

(E) 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 of less than $1,000,000;

(F) during the period starting with the date of filing of, and ending on the
date 180 days following the effective date of the registration statement
pertaining to a public offering; provided that the Company makes reasonable good
efforts to cause such registration statement to become effective;

(G) if within 15 days of receipt of a written request from a Holder or Holders
pursuant to Section 1.3(a), the Company gives notice to the Holders of the
Company’s intention to make a public offering within 60 days; or

(H) if the Company shall furnish to the Holders a certificate signed by the
Chairman of the Board of Directors or 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 stockholders for such Form S-1
registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-1 registration statement for a
period of not more than 60 days after receipt of the request of the Holder or
Holders under this Section 2.4; provided, that such right to delay a request
under any of the Delay Provisions shall be exercised by the Company not more
than once in any 12-month period.

(c) The Company shall be required to keep a registration statement on Form S-3
effected pursuant to Section 1.3(a) effective until such date that is the
earlier of one year from the date of effectiveness of such registration
statement or the date when all of the Registrable Securities registered
thereunder shall have been publicly sold by the Holders. The Company shall be
required to keep a registration statement on Form S-1 effected pursuant to
Section 1.3(b) effective until such date that is the earlier of three months
from the date of effectiveness of such registration statement or the date when
all of the Registrable Securities registered thereunder shall have been publicly
sold by the Holders; provided, however, that the Company shall be permitted to
withdraw the Registrable Securities and re-register the registration statement
on Form S-3 at such time as such form becomes available to the Company, in which
case the Company shall be required to keep such registration statement on Form
S-3 effective until such date that is the earlier

 

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of one year from the date of effectiveness of such registration statement or the
date when all of the Registrable Securities registered thereunder shall have
been publicly sold by the Holders.

(d) Subject to the foregoing, the Company shall file a Form S-1 or Form S-3
registration statement, as applicable, covering the Registrable Securities and
other securities so requested to be registered as soon as reasonably practicable
after receipt of the request or requests of the Holders. Registrations effected
pursuant to this Section 1.3 shall not be counted as registrations effected
pursuant to Sections 1.2 or 1.4, respectively.

1.4 Demand Registration

(a) If at any time after the Fourth Vesting Date (as such term is defined in the
Warrant) the Company shall receive from the Holders holding or having the right
to acquire a majority of the Registrable Securities held by the Holders and
their permitted assigns (the “Initiating Holders”) a written request that the
Company file a registration statement under the Securities Act covering the
registration of such Registrable Securities, the Company will, within 15 days of
the receipt thereof, (i) give written notice of such request to all Holders, and
(ii) use its reasonable best efforts to effect, as soon as reasonably
practicable, 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.

(b) If the Initiating Holders intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.4, and the
Company shall include such information in the written notice referred to in
Section 1.4(a). In such event, the right of any Holder to include its
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 to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this
Section 1.4, if the underwriter advises the Company that marketing factors
require a limitation of the number of securities to be underwritten then the
Company shall so advise all Holders which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders on a pro rata basis based on the
number of Registrable Securities held by all such Holders (including the
Initiating Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.

(c) The Company shall not be required to effect a registration pursuant to this
Section 1.4:

(i) for any Registrable Securities that are not fully vested and then-issuable
pursuant to the Warrant;

 

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(ii) if the registration does not cover at least 20% of the Registrable
Securities, or if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would not exceed $5,000,000;

(iii) after the Company has effected two registrations pursuant to Section 1.2,
Section 1.3 or Section 1.4, and such registrations have been declared or ordered
effective;

(iv) during the period starting with the date of filing of, and ending on the
date 90 days following the effective date of the registration statement
pertaining to a public offering; provided that the Company makes reasonable good
faith efforts to cause such registration statement to become effective;

(v) if within 15 days of receipt of a written request from Initiating Holders
pursuant to Section 1.4(a), the Company gives notice to the Holders of the
Company’s intention to make a public offering within 60 days; or

(vi) if the Company shall furnish to Holders requesting a registration statement
pursuant to this Section 1.4, a certificate signed by the Chairman of the Board
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
stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than 60 days after receipt of the request of the Initiating Holders;
provided that such right to delay a request under any of the Delay Provisions
shall be exercised by the Company not more than once in any 12-month period.

1.5 Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 1.2 or any registration under
Section 1.3 or Section 1.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered.

1.6 Registration Procedures. In the case of each registration, qualification or
compliance effected by the Company pursuant to this Exhibit C, the Company will:

(a) Prepare and file with the Commission a registration statement with respect
to such securities and use its best efforts to cause such registration statement
to become and remain effective until the distribution described in the
registration statement has been completed, but in no event longer than 90 days.

(b) Prepare and file with the Commission 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.

(c) Furnish to the Holders participating in such registration and to the
underwriters, if any, of the securities being registered such reasonable number
of copies of the registration

 

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statement, preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the public
offering of such securities.

(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, unless the Company is already subject to
service in such jurisdiction and except as may be required by the Securities
Act.

(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 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.

(g) Cause all such Registrable Securities registered pursuant hereunder to be
listed on each securities exchange or other trading market 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 CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.

(i) Use its best efforts to furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to the terms of this Exhibit C,
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to this Exhibit C, if such
securities arc being sold through underwriters, an opinion, dated such date, of
the counsel representing the Company for the purposes of such registration, in
form substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters and to the Holders requesting
registration of Registrable Securities.

1.7 Indemnification

(a) The Company will indemnify each Holder, each of its officers and directors
and partners, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Exhibit C, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual
out-of-pocket expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in any litigation or
in settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact

 

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contained in any registration statement, prospectus, preliminary prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation or any
alleged violation by the Company of the Securities Act or the Exchange Act or
any state securities law, or of any rule or regulation promulgated under any of
the foregoing applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other actual out-of-pocket expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, as such expenses are incurred;
provided, however, that the indemnity agreement contained in this Section 1.7(a)
shall not apply to amounts paid in settlement of any such matter if the
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld; and provided further that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Holder,
controlling person or underwriter specifically for use therein.

(b) Each Holder will, if Registrable Securities held by such Holder are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company’s securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all actual out-of-pocket
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein, in light of the
circumstances in which they were made, or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, persons, underwriters or control persons for any legal and
any other actual out-of-pocket expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
such expenses are incurred, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use therein; provided,
however, that the indemnity agreement contained in this Section 1.7(b) shall not
apply to amounts paid in settlement of any matter if the settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided, further, that the maximum liability of each selling
Holder under this Section 1.7(b) shall be equal to the net proceeds to such
selling Holder as a result of such registration and offering.

 

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(c) Each party entitled to indemnification under this Section 1.7 (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party’s expense; 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 of such counsel 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 of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1.7 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party’s ability to defend such
action. No Indemnifying Parry, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party (not to be unreasonably
withheld), consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.

(d) If the indemnification provided for in this Section 1.7 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 of 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,
however, that, in no event shall any contribution by a Holder under this
Section 1.7(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.

(e) The obligations of the Company and Holders under this Section 1.7 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.

1.8 Information by Holder. The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder or Holders, the Registrable Securities held by them and
the distribution proposed by such Holder or Holders as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Exhibit C.

 

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1.9 Rule 144 Reporting. With a view to making available the benefits of certain
rules and regulations of the Commission which may at any time permit the sale of
the Common Stock to the public without registration, after the Company files
with the Commission its Annual Report on Form 10-K for the fiscal year ended
March 31, 2007, the Company agrees to use its best efforts to (a) make and keep
public information available, as those terms are understood and defined in
Rule 144 under the Securities Act, (b) file with the Commission in a timely
manner all reports and other documents required of the Company under the
Exchange Act (at any time after it has become subject to such reporting
requirements), and (c) so long as the Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 and of the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as the
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing the Holder to sell any such securities without
registration.

1.10 Limitation on Subsequent Registration Rights. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders holding a majority of the Registrable Securities held by the Holders and
then outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company that would allow such holder or prospective
holder to (a) include such securities in any registration filed under this
Exhibit C, 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) make a demand
registration to the Company.

1.11 Transfer of Registration Rights. The rights to cause the Company to
register securities granted to the Holder under this Exhibit C may be assigned
to a transferee or assignee in connection with any transfer or assignment of
Registrable Securities by the Holder (together with any affiliate); provided,
however, that (a) such transfer may otherwise be effected in accordance with
applicable securities laws, (b) notice of such assignment is given to the
Company, and (c) such transferee or assignee agrees to be bound by the terms and
conditions of this Exhibit C.

1.12 Termination of Rights. The rights of any particular Holder to cause the
Company to register securities under Sections 1.2, 1.3 and 1.4 shall terminate
with respect to such Holder on the earlier of (a) the tenth anniversary of the
Grant Date of the Warrant, (b) the later of (x) the one year anniversary of a
Change of Control and (y) the one year anniversary of the Fourth Vesting Date,
and (c) such time as Rule 144 or another similar exemption under the Securities
Act is available for the sale of all such Holders’ securities during a three
(3)-month period without registration.

 

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