Securities Law & Instruments

Headnote

Section 144 -- Revocation of a cease trade order -- Issuer subject to a cease trade order as a result of its failure to file certain financial statements and related filings -- Issuer has brought its filings up-to-date.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127, 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

BAKBONE SOFTWARE INCORPORATED

 

ORDER

(Section 144)

WHEREAS a Director of the Ontario Securities Commission (the "Commission") issued a temporary cease trade order dated December 8, 2004 pursuant to paragraph 2 of subsection 127(1) and subsection 127(5) of the Act, as extended by an order dated December 20, 2004 pursuant to paragraph 2 of subsection 127(1) of the Act (collectively, the "Cease Trade Order") which provided that all trading in the securities of BakBone Software Incorporated (the "Company" or "BakBone") shall cease until further order by the Director;

AND WHEREAS the Company has applied to the Commission pursuant to Section 144 of the Act for an order revoking the Cease Trade Order;

AND WHEREAS the Company has represented to the Commission that:

About BakBone

1. The Company was incorporated on May 30, 1979 under the Company Act (British Columbia) under the name "Ican Resources Ltd.". On September 12, 1984, the Company amalgamated with Kimberley Gold Resources Inc. under the Company Act (British Columbia) and continued as "Ican Resources Ltd.". On December 18, 1986, the Company amalgamated with Canu Resources Limited under the Company Act (British Columbia) and continued as "Ican Resources Ltd.". On November 20, 1992, Ican Minerals Ltd. continued from the laws of British Columbia to the laws of Alberta. On December 17, 1998, the Company changed its name to "Net Resources Inc.". Effective December 17, 1998, the Company consolidated its issued and outstanding share capital on the basis of one new common share for each six common shares issued and outstanding. On March 13, 2000, the Company changed its name to "BakBone Software Incorporated". On April 1, 2002, the Company amalgamated with NVS Holdings Inc. under the Business Corporations Act (Alberta) and continued as "BakBone Software Incorporated". On August 11, 2003, the Company continued from the laws of Alberta to the federal laws of Canada. The Company extra-provincially registered in Alberta on September 30, 2003.

2. The Company's head office is located at 9540 Towne Centre Drive, Suite 100, San Diego, California, 92121. The Company's registered office is located at 1400, 350 7th Avenue SW, Calgary, Alberta T2P 3N9.

3. The Company provides software-based, data protection solutions that enable the backup, recovery and overall availability of business data and information.

4. The Company has operations in three primary geographic regions: North America; Asia-Pacific; and Europe, Middle East and Africa (or EMEA), through three of its respective wholly-owned subsidiaries: BakBone Software, Inc., BakBone Software KK, and BakBone Software Ltd. All of the Company's operations are located outside of Canada.

5. The Company's fiscal year end is March 31.

6. The authorized share capital of the Company consists of an unlimited number of common shares (the "Common Shares") and 22,000,000 Series A preferred shares (the "Preferred Shares"). As of December 31, 2008, there were approximately 64,632,793 Common Shares and 18,000,000 Preferred Shares outstanding. The Company has no securities, including debt securities, outstanding other than (i) the Common Shares, (ii) the Preferred Shares, (iii) 5,518,000 options granted to directors, officers and employees to acquire Common Shares, (iv) 150,000 restricted stock units granted to a former executive officer (and now a director) of the Company, and (v) 4,505,126 warrants to acquire Common Shares.

7. The Company is a reporting issuer in Alberta, Ontario and British Columbia. The securities regulatory authorities of Alberta, Ontario and British Columbia are referred to in this Order as the "Securities Commissions".

8. The Common Shares are registered under Section 12 of The Securities Exchange Act of 1934 of the United States, as amended from time to time (the "1934 Act"). The Company is not registered or required to be registered as an investment company under the Investment Company Act of 1940 of the United States, as amended from time to time. The Company is a "SEC issuer" (as defined under National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102")).

9. The Common Shares were listed on the Toronto Stock Exchange (the "TSX") under the symbol "BKB". The Common Shares were delisted from the TSX on June 2, 2006 due to the Company's failure to meet the continued listing requirements of the TSX. The Company is a "venture issuer" (as defined under NI 51-102) and is not required to file an annual information form for the years ended after March 31, 2006.

10. The Common Shares were traded on the Over-the-Counter Bulletin Board (the "OTCBB") in the United States under the symbol "BKBOF". The Common Shares were delisted from the OTCBB on February 17, 2005 due to the Company's failure to keep current in the filing of its periodic reports with the Securities and Exchange Commission of the United States (the "SEC").

11. The Common Shares currently trade through Pink OTC Markets Inc. in the United States under the symbol "BKBO.PK". No securities of the Company are traded on a marketplace in Canada.

Cease Trade Orders

12. In March 2004, the Company ceased to be a "foreign private issuer" under the 1934 Act. As a consequence, the Company was required to prepare and file its audited financial statements in accordance with generally accepted accounting principles in the United States in an annual report on Form 10-K for the year ended March 31, 2004. On June 30, 2004, the Company filed with the SEC and Securities Commissions its annual report on Form 10-K for the year ended March 31, 2004.

13. On October 12, 2004, KPMG LLP resigned as the Company's independent auditor. On October 25, 2004, the Company engaged Deloitte & Touche LLP ("Deloitte") as the Company's independent registered public accounting firm.

14. The Cease Trade Order (and similar orders of the other Securities Commissions) was issued because the Company failed to file quarterly financial statements and related management's discussion and analysis for the interim period ended September 30, 2004 (collectively, the "Q2 2005 Financials") with the Securities Commissions as required by the securities laws of Alberta, Ontario and British Columbia.

15. The Q2 2005 Financials were not filed when required as a result of delays due to the recent change in the Company's auditors and the Company learning that its financial statements for the year ended March 31, 2004 and for the interim period ended June 30, 2004 required restatement due to various financial statement errors.

16. On December 23, 2004, the Company issued a press release advising investors that they should no longer rely upon the Company's financial statements for the years ended March 31, 2003 and 2004, and the interim period ended June 30, 2004.

17. From January 2005 through May 2006, the Company performed an extensive review of their revenue related business processes in connection with the restatement for the year ended March 31, 2004 and on April 6, 2006, the Company's board of directors determined that an independent investigation should be directed by a special committee of the board of directors with respect to historical business practices surrounding revenue recognition. The special committee engaged independent accounting and legal advisers to assist with this review. In September 2006, the independent advisers reported to the special committee that certain of the Company's business practices had permitted improper recognition of revenue in prior periods, however, no instances of fraud were detected. The board of directors and management of the Company instituted a variety of remedial activities, including, but not limited to, terminating various executives and non-executives, implementing organizational changes and changing accounting policies and procedures of the Company.

18. After the Cease Trade Orders were issued, the Company failed to file with the Securities Commissions when required (i) its audited financial statements for the years ended March 31, 2005, 2006, 2007 and 2008, (ii) its unaudited financials statements for the first, second and third interim periods of fiscal 2005, 2006, 2007 and 2008 and the interim periods ended June 30 and September 30, 2008, (iii) the related management's discussion and analysis and certifications required under then Multilateral Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim Filings for the foregoing periods, and (iv) its annual information forms for the years ended March 31, 2005 and 2006.

19. From January 4, 2007 through August 5, 2008, the Company continued to work with its former independent registered public accounting firm, KPMG LLP (with respect to the Company's restated financial statements for the year ended March 31, 2004), and its then-current independent registered public accounting firm, Deloitte (with respect to the years ended March 31, 2005 and 2006), to complete the restatement process, the audits of the Company's financial statements for the years ended March 31, 2005 and 2006, and the preparation of its annual report on Form 10-K for the year ended March 31, 2006 (the "2006 10-K").

Current Filings

20. The Company filed the 2006 10-K with the SEC on August 6, 2008. On August 28, 2008, the Company filed the 2006 10-K with the Securities Commissions. The 2006 10-K includes the following:

(a) audited consolidated financial statements of the Company for the years ended March 31, 2004 (restated), 2005 and 2006 together with the reports of the Company's independent registered public accounting firms;

(b) management's discussion and analysis for the years ended March 31, 2004, 2005 and 2006 except that the results for the year ended March 31, 2004 are not compared to the results for the year ended March 31, 2003;

(c) certification of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; and

(d) certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for James R. Johnson.

21. Subsequent to filing the 2006 10-K with the SEC, the Company dismissed Deloitte on August 12, 2008 and engaged Mayer Hoffman McCann P.C. on August 13, 2008 as its independent registered public accounting firm for the years ended March 31, 2007 and March 31, 2008. Mayer Hoffman McCann P.C. is registered with the Canadian Public Accountability Board.

22. On February 3, 2009, the Company filed its annual report on Form 10-K for the year ended March 31, 2008 (the "2008 10-K") with the SEC and Securities Commissions. The 2008 10-K includes the following:

(a) audited consolidated financial statements of the Company for the years ended March 31, 2007 and 2008 together with the reports of the Company's independent registered public accounting firm;

(b) management's discussion and analysis for the fiscal years 2007 and 2008 except that the results for such years are compared to each other but not to prior periods;

(c) certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; and

(d) certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for James R. Johnson and Steven R. Martin.

23. In addition to filing the 2008 10-K with the SEC and Securities Commissions, the Company also filed on February 3, 2009 its quarterly reports on Form 10-Q for the interim periods ended June 30 (the "Q1 Report") and September 30, 2008 (the "Q2 Report"). These reports include (as applicable) the following:

(a) unaudited consolidated financial statements of the Company for the interim periods ended June 30 and September 30, 2008;

(b) management's discussion and analysis for the interim periods ended June 30 and September 30, 2008;

(c) certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; and

(d) certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

24. On February 9, 2009, the Company filed its quarterly report on Form 10-Q for the interim period ended December 31, 2008 (the "Q3 Report"). The Company included the following in the Q3 Report:

(a) unaudited consolidated financial statements of the Company for the periods ended December 31, 2008;

(b) management's discussion and analysis for the three and nine months ended December 31, 2008;

(c) certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; and

(d) certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Continuing defaults

Outstanding interim filings

25. The Company is in default of certain interim filing requirements under the securities laws of Alberta, Ontario and British Columbia. Specifically:

(a) the Company has not filed with the Securities Commissions restated financial statements and related management's discussion and analysis for the interim period ended June 30, 2004;

(b) the Company has not filed with the Securities Commissions interim financial statements for the interim periods ended September 30 and December 31, 2004 and, June 30, September 30 and December 31, 2005, 2006 and 2007; and

(c) the Company has not filed with the Securities Commissions management's discussion and analysis for the interim periods ended September 30 and December 31, 2004 and, June 30, September 30 and December 31, 2005, 2006 and 2007.

Outstanding annual filings

26. The Company is in default of certain annual filing requirements under the securities laws of Alberta, Ontario and British Columbia. Specifically:

(a) the Company has not filed with the Securities Commissions restated financial statements and the related management's discussion and analysis for the years ended March 31, 2000, 2001, 2002 and 2003 in accordance with the requirements of Parts 4 and 5 of NI 51-102;

(b) the Company's audited consolidated financial statements and the related management's discussion and analysis included in the 2006 10-K for the year ended March 31, 2004 (restated) does not contain the required comparative financial information for the year ended March 31, 2003 in accordance with the requirements of Parts 4 and 5 of NI 51-102;

(c) the Company's audited consolidated financial statements included in the 2006 10-K for the years ended March 31, 2004 (restated) and 2005, and related management's discussion and analysis, do not comply with the reconciliation and other disclosure requirements set out under NI 51-102 and National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency in respect of such years;

(d) the management's discussion and analysis for the years ended March 31, 2004, 2005, and 2006 (as contained in the 2006 10-K) fails to include the disclosure required under Form 52-110F1 of National Instrument 52-110 Audit Committees ("NI 52-110") and Form 58-101F1 of National Instrument 58-101 Disclosure of Corporate Governance Practices ("NI 58-101"); and

(e) the management's discussion and analysis for the years ended March 31, 2007 and 2008 (as contained in the 2008 10-K) fails to include the disclosure required under Form 52-110F2 of NI 52-110 and Form 58-101F2 of NI 58-101.

27. Except as described above, the Company is not in default of any of its obligations as a reporting issuer under the Act or the rules and regulations made pursuant thereto.

Annual meeting requirements

28. The Company has not held annual general meetings of shareholders of the Company for the years ended March 31, 2005 through 2008 contrary to the requirements of the CBCA.

29. On February 5, 2008, the board of directors of the Company called a meeting of shareholders which was held on March 31, 2009 (the "2009 Meeting") for the purpose of electing directors, appointing auditors and approving an equity incentive plan for the Company (the "Plan").

30. The proxy-related materials for the 2009 Meeting (the "2009 Proxy Materials") were filed with the Securities Commissions on February 26, 2009 and sent to the shareholders of the Company on February 27, 2009. The information circular included in the 2009 Proxy Materials (the "Information Circular") includes the disclosure required under NI 51-102, NI 52-110 and NI 58-101.

31. In connection with the mailing of the 2009 Proxy Materials, the Company sent copies of the 2008 10-K, Q1 Report, Q2 Report and Q3 Report to the registered holders and beneficial holders of its shares.

32. The Information Circular states that directors, officers and employees of the Company (and other eligible participants) who are residents of or otherwise located in Alberta, Ontario and British Columbia shall not be entitled to receive grants under the Plan to the extent the Cease Trade Orders are still in effect and prohibit the issuance of securities of the Company to such persons.

Trades in securities of BakBone

33. On April 27, 2006, the Company issued 300,000 restricted stock units ("RSUs") to an executive officer of the Company (the "Grantee") under a restricted stock unit award agreement in connection with the commencement of employment of the executive officer with the Company. Each RSU entitles the Grantee to receive one Common Share upon the satisfaction of certain conditions. The RSUs vest over a four year period, with 50% vesting on the second anniversary of the grant date and 25% vesting on each of the third and fourth anniversaries of the grant date. Among other things, the restricted stock unit award agreement provided that in the event (i) the Company does not have an effective registration statement on Form S-8 on file registering the issuance of the Common Shares under such agreement or (ii) the Common Shares are not listed and eligible for trading on any specified stock exchanges or national market systems, then the vested RSUs would be settled in cash equal to the fair market value of the Common Shares as of the date such shares would otherwise be transferred to the Grantee. As none of these conditions had been satisfied by the first vesting date, the first tranche of the RSUs were required to be settled in cash.

34. In April 2008, the Company entered into an amendment to the restricted stock unit award agreement with the Grantee for the purposes of minimizing the cash costs of settling the first tranche of vested RSUs. The amendment provided for the settlement of these RSUs in a cash amount sufficient to satisfy the expected tax obligation of the Grantee, and the issuance of 90,345 Common Shares to the Grantee representing the residual value of the vested RSUs. Further, under the amendment, if the contingent cash-settlement conditions contained in the RSU award are not met on the vest dates of the second and third tranches of the award, these tranches will be settled in an amount of cash sufficient to satisfy the expected tax obligation of the Grantee, with the residual value of the award to be settled in Common Shares. Otherwise, the second and third tranches will be settled entirely in Common Shares.

35. At the time of the distribution of the RSUs and the Common Shares underlying the RSUs:

(a) the mind and management of the Company was located in the United States and all of the Company's operations were located outside of Canada;

(b) the Grantee was an executive officer of the Company domiciled in the United States with no connection to Canada;

(c) the only connection between the distribution of these securities and Canada was that (i) the Company was a corporation governed by the Canada Business Corporations Act ("CBCA"), (ii) the Company was a reporting issuer in Alberta, Ontario and British Columbia, (iii) the Company had three directors resident in Alberta, and (iv) the Company's registered office was located in Alberta; and

(d) the transfer of the RSUs was (and remains) restricted by the terms of the restricted stock unit award agreement.

36. In April 2007, the Company entered into a warrant agreement with Sun Microsystems, Inc. ("Sun") pursuant to which the Company granted to Sun the right to purchase 4,425,126 Common Shares at a price of USD$1.78 per share (the "Warrants"). The Warrants were issued in connection with a technology development and license agreement dated as of December 18, 2006 by and between the Company and Sun. Approximately 885,025 Warrants have vested, none of which have been exercised. The Company does not expect that any of the Warrants will be exercised in the near future.

37. At the time of the distribution of the Warrants:

(a) the mind and management of the Company was located in the United States and all of the Company's operations were located outside of Canada;

(b) the mind and management of Sun was located in the United States;

(c) the only connection between the distribution of the Warrants and Canada was that (i) the Company was a corporation governed by the CBCA, (ii) the Company was a reporting issuer in Alberta, Ontario and British Columbia, (iii) the Company had three directors resident in Alberta, and (iv) the Company's registered office was located in Alberta; and

(d) the transfer of the Warrants was restricted by applicable United States federal and state securities laws.

38. None of the trades referred to above were made in or to residents of any jurisdiction in which the Company is a reporting issuer.

39. Other than the distribution of the RSUs, Common Shares underlying the RSUs and Warrants described above, the Company has not traded in any securities of the Company after the Cease Trade Orders were issued.

Other representations

40. The Company has not previously been subject to a cease trade order of the Securities Commissions or in any other jurisdiction.

41. The Company is applying to have each of the Cease Trade Orders concurrently revoked.

42. Upon the revocation of the Cease Trade Orders (or one or more of them), the Company will issue and file a news release and material change report with the Securities Commissions.

43. The Company's SEDAR and SEDI profiles are up-to-date.

44. The Company has paid all outstanding filing fees, participation fees and late filing fees in the jurisdictions where it is a reporting issuer.

AND UPON considering the application and the recommendations of staff of the Commission;

AND WHEREAS the Director is satisfied that it would not be prejudicial to the public interest to revoke the Cease Trade Order;

IT IS ORDERED, pursuant to Section 144 of the Act, that the Cease Trade Order is revoked.

DATED at Toronto this 27th day of April, 2009.

"Michael Brown"
Assistant Manager, Corporate Finance
Ontario Securities Commission