November 6, 2000
PRIVATE AND CONFIDENTIAL
Sand Technology Inc.
0000 Xxxxxxxxxx Xx. X.
Xxxxx 000
Xxxxxxxxx, X.X.
H3Z 1B8
ATTENTION: XX. XXXXXX X. XXXXXXX
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dear Sirs:
RE: PROPOSED UNDERWRITING
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Sprott Securities Inc. ("Sprott") hereby offers to purchase from Sand Technology
Inc. (the "Corporation") 2,000,000 common shares (the "Common Shares") at a
price of U.S. $6.00 per Common Share (being the current market price as at the
close of trading on November 3, 2000) for an aggregate purchase price of U.S.
$12,000,000 according to the terms detailed herein and in the term sheet
attached hereto as Schedule "A" (the "Offer"). The Common Shares will be fully
marketed and Sprott may invite other underwriters (acceptable to the
Corporation) to participate in the purchase and sale of the Common Shares (the
"Offering"). The Corporation also hereby grants to Sprott an over-allotment
option (the "Over-Allotment Option") to purchase at anytime prior to the Closing
(as hereinafter defined) up to an additional 1,000,000 Common Shares having an
aggregate purchase of U.S. $6,000,000 at a price of U.S. $6.00 per Common Share.
The Offer is subject to the following terms and conditions:
The Offer is open for acceptance until 9:20 a.m. (Toronto time) on November 6,
2000 and, if accepted, unless previously amended or withdrawn, is subject to the
other terms and conditions herein;
The Corporation agrees not to deal with any other underwriters in respect of the
subject financing, nor will the Corporation seek financing in a form the same
as, or similar to, the subject financing, before the end of the term of this
agreement;
Closing of the Offering ("Closing") will take place in Toronto on November 22,
2000, or such other date as the Corporation and Sprott agree;
Xxxxxx shall be paid at Closing a commission equal to 6% of the gross proceeds
raised through the Offering. In addition, at the Closing, the Corporation will
issue to Sprott compensation warrants (the "Compensation Warrants"), each such
Compensation Warrant to be exercisable (subject to any applicable laws or
regulatory approval) for a period of 24 months following the Closing for the
purchase of a number of common shares of the Corporation ("Common Shares") which
is equal to 10% of the total number of Common Shares sold pursuant to the
Offering at a price per Common Share equal to the issue price of the Common
Shares;
The Corporation undertakes that prior to Closing, it will use its best efforts
to have extinguished or amended to Xxxxxx'x satisfaction (in the sole discretion
of Sprott) its existing equity line of credit (the "Line of Credit") with
Sundowner Investments Limited as more particularly described in the
Post-Effective Amendment No. 2 to the Form F-2 filed with the U.S. Securities
and Exchange Commission by the Corporation on October 13, 2000. In the event
that the Corporation is unsuccessful in extinguishing or amending the Line of
Credit to Xxxxxx'x satisfaction, then the Corporation agrees that it shall not
issue and exercise a draw down under the Line of Credit without first obtaining
Xxxxxx'x written consent thereto.
Sprott shall have the right to conduct adequate due diligence and obtain
satisfactory results therefrom prior to Closing, and shall have the right to
terminate this Offer if such due diligence identifies a material adverse fact
with respect to the Corporation or the securities being offered which exists at
the time of making this Offer but which has not been disclosed to the public;
Execution of an underwriting agreement mutually satisfactory to the Corporation
and Sprott which shall include, among other things, an indemnity of the
Corporation in favour of Sprott, its directors, officers, employees and agents,
and our usual forms of "disaster out" and "material change out" clauses
substantially in the form of Schedule "B" attached hereto, such clauses to
commence upon acceptance of this Offer and to terminate on Closing;
The Corporation agrees to disclose to Sprott the Corporation's officers' and
directors' trading history and any exercise or their options in the Corporation
for the prior 30 days from the signing of this agreement. In addition, the
Corporation agrees that its officers and directors will not sell any shares in
the Corporation until after the Closing without the prior consent of Xxxxxx;
The Corporation will grant to Sprott : (i) a right of first refusal (exercisable
within five business days of Sprott being provided with written notice thereof)
to act as lead agent or lead underwriter, as the case may be, with respect to
any brokered private placement or distribution to the public, if any, of any
securities of the Corporation (including, without limitation, special warrants);
and (ii) a right of first refusal to act as financial advisor or agent with
respect to any merger and/or acquisition contemplated by the Corporation, in
each case for a period of 12 months following the date of Closing;
The Corporation agrees upon the acceptance of this Offer to immediately issue a
press release announcing the terms of this agreement;
Whether or not the transaction herein contemplated shall be completed, all
expenses of or incidental to the sale of the Common Shares plus applicable taxes
shall be borne by the Corporation including the fees, disbursements and
applicable taxes of legal counsel for Sprott (to a maximum in respect of fees of
Cdn. $75,000) and Sprott's reasonable "out of pocket" expenses;
The Corporation's obligations under section 11 hereof shall survive the
termination of the agreement hereunder;
This agreement shall be governed by and construed according to the laws of the
Province of Ontario and the federal laws of Canada applicable therein. Each of
the parties hereto hereby attorns to the jurisdiction of the courts of the
Province of Ontario; and
This agreement may be executed in one or more counterparts, and when so executed
shall form one agreement.
Should you wish to accept this Offer, please sign and return one copy of this
letter to our attention by no later than 9:20 a.m. Toronto time on November 6,
2000.
Yours truly,
SPROTT SECURITIES INC.
Per: /s/ Xxxx X. Xxxxxx
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The foregoing is in accordance with our understanding and is agreed to by us as
of November __________, 2000.
SAND TECHNOLOGY INC.
Per: /s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
Chairman, President and Chief Executive Officer
SCHEDULE "A"
SAND TECHNOLOGY INC.
PRIVATE PLACEMENT TERM SHEET
ISSUE: 2,000,000 common shares ("Common Shares") in the capital of Sand Technology Inc. (the
"Corporation") at a price of U.S. $6.00 per Common Share (being the current market
price as at the close of trading on November 3, 2000). The Corporation also grants to
Sprott Securities Inc. ("Sprott") an over-allotment option (the "Over-Allotment
Option") to purchase at anytime prior to the Closing (as hereinafter defined) up to an
additional 1,000,000 Common Shares at a price of U.S. $6.00 per Common Share.
TOTAL U.S.$12,000,000 (the "Offering") and up to an additional U.S.$6,000,000 upon the
OFFERING: exercise of the Over-Allotment Option.
MINIMUM That number of Common Shares whose aggregate Issue Price is not less than Cdn. $150,000
SUBSCRIPTION: (that number of Common Shares whose aggregate Issue Price is not less than Cdn. $97,000
in Alberta, British Columbia, Manitoba, New Brunswick or Xxxxxx Xxxxxx Island and that
number of Common Shares whose aggregate Issue Price is not less than Cdn. $100,000 in
Newfoundland) unless the purchaser is otherwise exempt.
PRICE: U.S. $6.00 per Common Share, being the current market price as at the close of trading
on November 3, 2000 (the "Issue Price").
COMMISSION: U.S. $0.36 per Common Share (the "Commission") which will be payable by the Corporation
to Sprott Securities Inc. ("Sprott") on the Closing Date. Xxxxxx will also be entitled
to receive on the Closing Date a number of compensation warrants equal to 10% of the
number of Common Shares sold. Each compensation warrant will entitle the holder
thereof to purchase one Common Share at the Issue Price per share for a period of 24
months from the Closing Date.
CLOSING: November 22, 2000 or such later date as the Corporation and Xxxxxx may agree upon (the
"Closing Date").
ESCROW An amount (the "Escrowed Funds") equal to 66 2/3% of the aggregate Issue Price will be
TERMS: held by an escrow agent (the "Escrow Agent") pursuant to an escrow agreement and such
funds will be invested by the Escrow Agent on behalf of the Corporation and the
purchasers of Common Shares with interest to follow principal.
The Escrowed Funds shall be released to the Corporation upon the later to
occur of (i) the acceptance by the Securities Exchange Commission for filing an
F3 registration statement registering the Common Shares issued and (ii) the
common shares of the Corporation (including the Common Shares issued being
quoted on the NASDAQ. The satisfaction of each of the conditions referred to in
items (i) and (ii) above being hereinafter referred to as the "Release
Condition".
FILING OF The Corporation will use its best efforts to satisfy the Release Condition as soon as
REGISTRATION possible but in any event on or prior to the date which is 90 days following the
STATEMENT: Closing Date.
In the event that the Release Condition has not been satisfied prior to
5:00 p.m. (Toronto time) on the first business day which is at least 90 days
following the Closing Date (the "Condition Deadline") each holder of Common
Shares will be entitled to elect either (a) that the Corporation purchase for
cancellation all of such holder's Common Shares for the amount of the Issue
Price thereof plus any interest earned on such amount and payable from the
Escrowed Funds or (b) to retain such Common Shares provided that, in the absence
of such election being made by the holder prior to 5:00 p.m. (Toronto time) on
the fifth business day following the Condition Deadline, the holder shall be
deemed to have elected to have all of the Common Shares held by such holder
purchased for cancellation in the manner set forth above.
If required, the Corporation acknowledges and agrees that it shall pay the
difference between the gross proceeds of the Offering and the balance of the
Escrowed Funds (including all interest accrued thereon) to the Escrow Agent to
ensure that all Common Shares surrendered or deemed to be surrendered for
repurchase may be repurchased.
RESTRICTION ON The Corporation will not, directly or indirectly, without
SHARE ISSUANCES: the prior written consent of Sprott, which consent shall not be
unreasonably withheld, issue, offer, sell, grant any option to purchase or
otherwise dispose of (or announce any issue, offer, sale, grant of any option to
purchase or other disposition of) any Common Shares or any securities
convertible into, or exchangeable or exercisable for, Common Shares until the
date which is 90 days following the Expiry Date, nor shall the Corporation
publicly announce until such date an intention to do so, except for (i) the
issuance of Common Shares in connection with the exercise of any currently
outstanding stock options, (ii) the issuance of stock options pursuant to the
Corporation's stock option plan, or (iii) the issuance of Common Shares in
connection with an arm's length acquisition.
EQUITY LINE OF The Corporation undertakes that prior to Closing, it will use its best efforts to
CREDIT: have extinguished or amended to Sprott's satisfaction (in the sole discretion of Sprott) its
existing equity line of credit (the "Line of Credit") with Sundowner Investments
Limited as more particularly described in the Post-Effective Amendment No. 2 to the
Form F-2 filed with the U.S. Securities and Exchange Commission by the Corporation on
October 13, 2000. In the event that the Corporation is unsuccessful in extinguishing
or amending the Line of Credit to Xxxxxx'x satisfaction, then the Corporation agrees
that it shall not issue and exercise a draw down under the Line of Credit without first
obtaining Xxxxxx'x written consent thereto.
RIGHT OF FIRST REFUSAL: The Corporation will grant to Sprott : (i) a right of first refusal (exercisable within
five business days of Sprott being provided with written notice thereof) to act as lead
agent or lead underwriter, as the case may be, with respect to any brokered private
placement or distribution to the public, if any, of any securities of the Corporation
(including, without limitation, special warrants; and (ii) a right of first refusal to
act as financial advisor or agent with respect to any merger and/or acquisition
contemplated by the Corporation, in each case for a period of 12 months following the
date of Closing.
TSE LISTING: The Corporation shall use its best efforts to have its common shares listed and posted
on The Toronto Stock Exchange.
SCHEDULE "B"
SAND TECHNOLOGY INC.
TERMINATION RIGHTS
Sprott may terminate its obligations on or before Closing in the following
circumstances:
If at any time prior to the Closing:
(1) there shall have occurred any adverse material change or
material fact in relation to Sand Technology Inc. ("Sand"), or
a development in relation to Sand that could result in an
adverse material change in relation to Sand, or any other
development; or
(a) there shall have occurred any change in the applicable
securities laws of any province of Canada, or any state of the
United States or any inquiry, investigation or other
proceeding is made or any order issued under or pursuant to
any statute of Canada or any province thereof or any statute
of the United States or any state thereof or any stock
exchange in relation to Sand or any of its securities (except
for any inquiry, investigation or other proceeding or order
based upon activities of Sprott and not upon activities of
Sand);
which, in the opinion of Sprott prevents or restricts trading in or the
distribution of the Common Shares or adversely affects or might reasonably be
excepted to adversely affect the investment quality or which may prevent the
profitable marketing of the Common Shares; or
(b) if there should develop, occur or come into effect or
existence any event, action, state, condition or major
financial occurrence of national or international consequence
or any law or regulation which, in the opinion of Sprott,
seriously adversely affects or involves, or will seriously
adversely affect or involve, the financial markets or the
business, operations or affairs of Sand and its subsidiaries,
taken as a whole; or
(c) a cease trading order is made by any Securities Commission or
other competent authority by reason of the fault of Sand or
its respective directors, officers and agents and such case
trading order is not rescinded within 48 hours;
Sprott shall be entitled, to terminate and cancel its obligations to Sand by
written notice to that effect given to Sand prior to the Closing.
