PURCHASE AGREEMENT
November 22, 2000
SAND TECHNOLOGY INC.
0000 Xxxxxxxxxx Xx. O.
Suite 410
Westmount, P.Q.
H3Z 1B8
ATTENTION: XX. XXXXXX X. XXXXXXX
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURCHASE OF COMMON SHARES OF
SAND TECHNOLOGY INC.
Sand Technology Inc. (the "Corporation") has agreed to issue, from treasury, and
Sprott Securities Inc. ("Sprott") has agreed to purchase 2,000,000 Class A
Common Shares (the "Offered Shares") and up to 1,000,000 Class A Common Shares,
pursuant to an Over-Allotment Option described below (the "Optioned Shares"),
pursuant to and on the terms and conditions set forth in this Agreement.
Based upon the foregoing and subject to the terms and conditions set out below,
Sprott has obtained subscribers (the "Subscribers") to purchase at the Closing
Time (as hereinafter defined), all but not less than all of the Offered Shares
at a price of U.S. $6.00 (the "Offering Price") for each Offered Share. By its
acceptance hereof, the Corporation agrees to allot, issue and sell to Sprott or
one or more substituted purchasers designated by it all but not less than all of
the Offered Shares at such price for aggregate gross proceeds of U.S.
$12,000,000. If the Corporation is not able or willing to sell all of the
Offered Shares hereunder (whether or not such action is a default hereunder by
the Corporation), the Subscribers shall not be obligated to purchase any of the
Offered Shares, but may do so if they elect to waive this condition in
accordance with the terms hereof.
The Corporation (on the basis set out in the second paragraph hereof) hereby
grants to Sprott an option (the "Over-Allotment Option") to purchase and offer
for sale to the public the Optioned Shares at a purchase price of U.S. $6.00 per
Optioned Share all upon the terms and conditions set forth herein for the
purchase and sale of the Offered Shares. The Over-Allotment Option shall be
exercisable at any time from the date hereof until November 30, 2000 (the
"Over-Allotment Option Expiry Date"). The Over-Allotment Option shall be
exercisable, from time to time, in whole or in part by Sprott, giving notice to
the Corporation by not later than 5:00 p.m. on the Over-Allotment Option Expiry
Date, specifying the number of Optioned Shares to be purchased and the date and
time
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of completion of the sale of the Optioned Shares (which shall not be less
than one business day after the date of notice and not more than five business
days after the Over-Allotment Option Expiry Date). Upon furnishing such notice,
Sprott shall purchase and the Corporation shall sell, in accordance with and
subject to the provisions hereof, the number of Optioned Shares indicated in
such notice.
The following are the further terms and conditions of this agreement:
1 - INTERPRETATION
1.1 In this agreement:
"APPLICABLE SECURITIES LAWS" includes, without limitation, all
applicable securities, corporate and other laws, rules, regulations,
notices, policies and rulings of each of the Canadian Selling
Jurisdictions;
"BUSINESS DAY" means a day, other than Saturdays, Sundays and statutory
holidays, when the banks conducting business in the Cities of Montreal
and Toronto are generally open for the transaction of banking business;
"CANADIAN SELLING JURISDICTIONS" means such of the provinces of British
Columbia, Manitoba and Ontario in which the Common Shares are sold on
the Closing Date, provided that a purchaser of Common Shares resides in
such a province;
"CLEARING DATE" means that date which is the earlier of: (i) the date
on which the Registration Statement becomes effective; and (ii) 90 days
from the later to occur of (A) the Over-Allotment Option Expiry Date
and (B) the date, if any, upon which the last Optioned Shares are
purchased pursuant to the Over-Allotment Option or such other date as
may be agreed upon between Sprott and the Corporation;
"CLOSING DATE" means, as the case may be, November 22, 2000 with
respect to the initial closing or such other date as Sprott and the
Corporation may agree upon in respect of any subsequent closing;
"CLOSING TIME" means 10:00 a.m. (Toronto time) or such other time, on
the Closing Date, as Sprott and the Corporation may agree upon;
"COMMON SHARES" means the Class A common shares in the capital of the
Corporation;
"COMPENSATION WARRANT" has the meaning ascribed thereto in Section 9.2;
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"CORPORATION'S COUNSEL" means Xxxxxx, de Xxxxx and such other counsel
as may be chosen by the Corporation;
"ESCROW AGREEMENT" means the escrow agreement between Sprott, the
Corporation and Xxxx & Berlis as escrow agent (the "Escrow Agent")
dated as of the date hereof;
"FINANCIAL STATEMENTS" means the comparative audited consolidated
financial statements of the Corporation for the fiscal year ended July
31, 2000;
"NASDAQ" means the Nasdaq Stock Market National Market System;
"PUBLIC RECORD" means all information filed by and on behalf of the
Corporation with the Securities Commissions since August 1, 2000,
including, without limitation, the Registration Statement and any other
information filed with any Securities Commission in compliance, or
intended compliance, with any Applicable Securities Laws;
"PURCHASERS" means the subscribers purchasing Common Shares hereunder;
"REGISTRATION STATEMENT" shall have the meaning ascribed thereto in
Section 12;
"SEC" means the United States Securities and Exchange Commission;
"SECURITIES COMMISSIONS" means the securities commissions or
similar regulatory authorities in the Canadian Selling Jurisdictions;
"SELLING JURISDICTIONS" means the Canadian Selling Jurisdictions and
such other jurisdictions as Sprott may determine provided notice is
provided to the Corporation not less than 48 hours prior to the Closing
Time;
"SIGNIFICANT INTEREST COMPANIES" means those companies, other than the
Subsidiaries, in which the Corporation holds 10% or more of the
outstanding voting securities;
"SPROTT'S COUNSEL" means Xxxx & Berlis and such other counsel as may be
chosen by Sprott;
"SUBSCRIPTION AGREEMENTS" means the agreements to be entered into
between the subscribers for Common Shares and the Corporation; and
"SUBSIDIARY" means any subsidiary of the Corporation, as such term is
defined in the U.S. SECURITIES ACT (Quebec);
"U.S. SECURITIES ACT" means the United States Securities Act of 1933,
as amended;
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"WARRANT SHARES" means the Common Shares underlying the Compensation
Warrants;
1.2 In addition, the terms "MISREPRESENTATION", "MATERIAL CHANGE" and
"MATERIAL FACT" shall have the meanings ascribed thereto under the
Applicable Securities Laws and "distribution" or "DISTRIBUTION TO THE
public", as the case may be, shall also have the meanings as defined
under the Applicable Securities Laws and "DISTRIBUTE" has a
corresponding meaning.
1.3 The terms "THIS AGREEMENT", "HERETO", "WHEREIN", "HEREBY",
"HEREUNDER", "HEREOF" and similar expressions refer to the agreement of
the parties set forth herein and not to any particular paragraph or
other portion of this agreement.
The division of this Agreement into sections, subsections, paragraphs and other
subdivisions and the insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
Unless something in the subject matter or context is inconsistent therewith,
references herein to sections, subsections, paragraphs and other subdivisions
are to sections, subsections, paragraphs and other subdivisions of this
Agreement. Unless otherwise expressly provided, all amounts expressed herein in
terms of money refer to lawful currency of Canada and all payments to be made
hereunder shall be made in such currency.
If any provision of this Agreement shall be adjudged by a competent authority to
be invalid or for any reason unenforceable, such invalidity or unenforceability
shall not affect the validity, enforceability or operation of any other
provision herein.
The following are the schedules attached to this Agreement, which schedules are
deemed to be a part hereof and are hereby incorporated by reference herein:
Schedule "A" - Details of the Offering
Schedule "B" - United States Offers and Sales
2 - THE COMMON SHARES
2.1 The proceeds from the sale and issue of the Offered Shares and
Optioned Shares together with any interest thereon will be released to
the Corporation as follows:
(a) 33 1/3% at the Closing Time (less the fees and expenses payable to
Sprott pursuant to paragraphs 9.1 and 9.3 hereof); and
(b) subject to exercise of the Repurchase Right (as provided for in
paragraph 2.2), the remaining proceeds upon the Registration
Statement becoming effective, provided
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that in any event such proceeds shall be released to the
Corporation on the Clearing Date.
2.2 The Escrow Agreement shall provide that in the event that the
Registration Statement does not become effective on or prior to the
Clearing Date, then each holder of Offered Shares and/or Optioned
Shares shall thereafter be entitled, prior to 5:00 p.m. (Toronto Time)
on that date which is five business days from the Clearing Date, to
require the Corporation to repurchase for cancellation all of the
Offered Shares and/or Optioned Shares held by such holder and thereby
to receive U.S. $6.00 per Common Share eligible for repurchase plus
such holder's pro rata portion of the interest earned by the Escrow
Agent under the Escrow Agreement (calculated from and including the
Closing Date to the date immediately preceding the date of payment to
the holder of Common Shares) (the "Repurchase Right"). If the
Registration Statement does not become effective on or before the
Clearing Date, the Corporation, in conjunction with Sprott, shall send
or cause to be sent to each Purchaser a written notice advising each
such holder of its possible entitlement to exercise its Repurchase
Right. Such notice will be sent, by courier, on or before the first
business day following the Clearing Date to the address of each such
holder appearing in the register of Common Shares maintained by the
registrar and transfer agent of the Corporation.
2.3 Sprott agrees to obtain and to deliver to the Corporation at or
prior to the Closing Time a duly completed Subscription Agreement for
each Purchaser and such other documents specifically referred to in the
Subscription Agreement, all of which will have been duly executed by
each of the subscribers for Common Shares.
2.4 The Escrow Agreement shall otherwise be in such form and contain
such terms as are agreed to by the Corporation and the Corporation's
counsel and Sprott and Sprott's counsel including, without limitation,
a mechanism satisfactory to Sprott for the release of the proceeds of
the offering.
3 - DUE DILIGENCE REVIEW
3.1 Prior to the Closing Time, the Corporation shall allow Sprott the
opportunity to conduct required due diligence and to satisfy itself as
a result of its inquiries and, allow Sprott and Sprott's counsel to
conduct all due diligence which Sprott may reasonably require in order
to confirm the Public Record is accurate, complete and current in all
material respects and to fulfill Sprott's obligations hereunder and to
enable Sprott to responsibly complete the private placement of Common
Shares described herein. Sprott shall have the option to terminate this
agreement if its due diligence inquiries and investigations identify a
material adverse circumstance which existed either at the effective
date of this agreement but which was not disseminated to the public or
occurred after the effective date hereof but prior to the Closing Time.
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4 - REPRESENTATIONS AND WARRANTIES OF SPROTT
4.1 Sprott hereby represents and warrants that:
(a) it is not a person in the United States nor is it a United States
person (as such terms are defined in Regulation S under the U.S.
Securities Act and it is not acquiring the Compensation Warrants
for the account or benefit of a person in the United States or a
United States person or for resale in the United States; and
(b) it is aware that the Compensation Warrants and the Warrant Shares
have not been registered under the U.S. Securities Act, may not for
a period of 40 days be offered or sold to a "U.S. person" (as that
term is defined in Regulation S under the U.S. Securities Act) and,
in any event, may not be reoffered or resold in the absence of such
registration except in a transaction that is exempt therefrom and
from the registration or qualification requirements of any
applicable securities laws of any state or other jurisdiction of
the United States.
5 - REPRESENTATIONS AND WARRANTIES OF
THE CORPORATION
5.1 The Corporation represents and warrants to Sprott, and acknowledges that
Sprott is relying upon such representations and warranties, that:
(a) the Corporation has full corporate power and authority to issue and
sell the Common Shares;
(b) at the Closing Date and thereafter the Common Shares will be duly
and validly authorized, allotted and issued as fully, paid and
non-assessable Common Shares;
(c) the Corporation and each of the Subsidiaries has been duly
incorporated and organized and is validly existing under the laws
of the jurisdiction of its incorporation and has all requisite
corporate power to carry on its business, as now conducted and as
presently proposed to be conducted, and to own its assets and to
execute, deliver and perform this agreement;
(d) the Corporation has no subsidiaries and no Significant Interest
Companies other than the Subsidiaries listed below and the
Corporation beneficially owns, directly or indirectly, the
percentage indicated herein of all the issued and outstanding
shares in the capital of each of the Subsidiaries free and clear of
all mortgages, liens, charges, pledges, security interests,
encumbrances, claims or demands of any kind whatsoever, all of such
shares have been duly authorized and validly issued and are
outstanding as fully-paid shares and no person has any right,
agreement or option, present or future, contingent or absolute, or
any right capable of becoming a right, agreement
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or option, for the purchase from the Corporation of any interest in
any of such shares or for the issue or allotment of any unissued
shares in the capital of any Subsidiary or any other security
convertible into or exchangeable for any such shares;
--------------------------------------------- ----------------------------- ----------------------
Name Jurisdiction Percentage Ownership
--------------------------------------------- ----------------------------- ----------------------
Sand Technology (U.K.) Limited United Kingdom 100%
--------------------------------------------- ----------------------------- ----------------------
Sand Technology Systems Inc. Delaware 100%
--------------------------------------------- ----------------------------- ----------------------
STSI Licensing, LLC New Jersey 100%
--------------------------------------------- ----------------------------- ----------------------
(e) the Corporation and each of the Subsidiaries has conducted and is
conducting its business in compliance in all material respects with
all applicable laws, rules and regulations in each jurisdiction
which any material portion of its business is carried on and is
duly licensed, registered or qualified in all jurisdictions in
which it owns, leases or operates any material portion of its
property or carries on any material portion of its business to
enable its business and assets to be owned, leased and operated,
except to the extent that the failure to so comply or to be so
licensed, registered or qualified would not have a material adverse
effect on the Corporation and the Subsidiaries (taken as a whole)
and all such licences, registrations or qualifications which are
material are valid and existing in good standing;
(f) there has not been any material change in the capital, assets,
liabilities or obligations (absolute, accrued, contingent or
otherwise) of the Corporation (taken as a whole), from the position
set forth in the Financial Statements and there has not been any
material adverse change in the business, operations or condition
(financial or otherwise) or results of the operations of the
Corporation (taken as a whole), since July 31, 2000, and to the
best of the knowledge, information and belief of the Corporation,
there are no material facts, transactions, events or occurrences
which could have a materially adverse impact on such capital,
assets, liabilities, obligations, business, operations, condition
or prospects of the Corporation (taken as a whole) which have not
been generally disclosed to the public or disclosed to Sprott;
(g) the description of the assets and liabilities of the Corporation
(taken as a whole) set forth in the Financial Statements fairly
represents, in accordance with generally accepted accounting
principles, the financial position and condition of the Corporation
(taken as a whole), at the dates thereof and reflects all material
liabilities (absolute, accrued, contingent or otherwise) of the
Corporation as at the dates thereof and the Corporation has no
additional material liabilities which are not set forth in the
Financial Statements and the assets of the Corporation are as set
forth in the Public Record;
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(h) except as disclosed in the Financial Statements or as otherwise
disclosed to Sprott there are no actions, suits, proceedings or
inquiries pending or threatened against or affecting the
Corporation or any of the Subsidiaries at law or in equity or
before or by any federal, provincial, municipal or other
governmental department, commission, board, bureau or agency which
could reasonably be expected to in any way materially adversely
affect the business, operations or condition (financial or
otherwise) of the Corporation (on a consolidated basis) or its
assets or which may affect the placement of Common Shares;
(i) the Corporation is not in default or breach of, and the execution,
delivery and performance of this agreement, the Escrow Agreement,
the Subscription Agreements by the Corporation or the transactions
contemplated hereby and thereby will not result in any breach of,
or constitute a material default under, or create a state of facts
which, after notice or lapse of time or both, would constitute a
material default under, any term or provision of the constating
documents, by-laws or directors and shareholders resolutions of the
Corporation or any mortgage, note, indenture, contract, agreement
(written or oral), instrument, lease or other document to which the
Corporation is a party or by which it is bound or any judgment,
decree, order, statute, rule or regulation applicable to the
Corporation which might reasonably be expected to materially
adversely affect the business, operations or condition (financial
or otherwise) of the Corporation (on a consolidated basis) or its
assets;
(j) the information and statements set forth in the Public Record were
true, correct and complete and did not contain any
misrepresentation, as of the date of such information or statement,
and the Corporation has not filed any confidential material change
reports still maintained on a confidential basis;
(k) as of November 20, 2000, the authorized capital of the Corporation
consists of an unlimited number of Common Shares and Class B
preferred shares ("Preferred Shares") of which 10,576,684 Common
Shares and no Preferred Shares are currently issued and
outstanding, all of which shares are issued as fully paid and
non-assessable and there is no agreement between the Corporation
and any shareholder of the Corporation under which the Corporation
obligates itself to redeem or otherwise purchase all or part of the
shares held by shareholders in the capital of the Corporation;
(l) no person holds any securities convertible or exchangeable into
shares of the Corporation or has any agreement, warrant, option,
right or privilege being or capable of becoming an agreement,
warrant, option or right for the purchase of any unissued
securities of the Corporation except approximately 2,009,746 Common
Shares which are reserved for issuance upon the exercise of stock
options currently issued to
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directors, officers and employees of, and consultants to, the
Corporation under each of the Corporation's Stock Option Plan, the
Corporation's Stock Incentive Plan and pursuant to certain issued
warrants as previously disclosed to Sprott;
(m) the Corporation has full corporate power and authority to enter
into this agreement, the Escrow Agreement and the Subscription
Agreements, and to perform its obligations set out herein and
therein, and this agreement has been, and the Escrow Agreement, and
the Subscription Agreements will on the Closing Date be, duly
authorized, executed and delivered by the Corporation and this
agreement and each of the Escrow Agreement and the Subscription
Agreements will on the Closing Date be, legal, valid and binding
obligations of the Corporation enforceable against the Corporation
in accordance with its respective terms subject to the general
qualifications that:
(i) enforceability may be limited by bankruptcy, insolvency or
other laws affecting creditors rights generally,
(ii) equitable remedies, including the remedies of specific
performance and injunctive relief, are available only in the
discretion of the applicable court, and
(iii) rights to indemnity and contribution hereunder may be limited
under applicable law;
(n) no Securities Commission, the SEC nor any similar regulatory
authority in Canada or the United States has issued any order which
is currently outstanding preventing or suspending trading in any
securities of the Corporation, and to the best of the knowledge,
information and belief of the Corporation, the Corporation is not
in default of any requirement of Applicable Securities Laws;
(o) the Corporation has taken or will take prior to the Closing Date
all such steps as may be necessary to comply with such requirements
of Applicable Securities Laws such that the Common Shares may, in
accordance with Applicable Securities Laws, be offered for sale and
sold on a private placement basis in the Canadian Selling
Jurisdictions and complying with Applicable Securities Laws by way
of the exemptions to the prospectus requirements;
(p) Continental Stock Transfer and Trust Company at its principal
office in the City of New York is the duly appointed registrar and
transfer agent for the Common Shares;
(q) the issued and outstanding Common Shares are quoted for trading on
NASDAQ;
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(r) the minute books of the Corporation contain full, true and correct
copies of the constating documents of the Corporation and, at the
Closing Time, will contain copies of all minutes (or drafts
thereof) of all meetings and all consent resolutions of the
directors, committees of directors and shareholders of the
Corporation;
(s) with such exceptions as are not material to the Corporation, the
Corporation and each of the Subsidiaries has duly and on a timely
basis filed all tax returns required to be filed by it, has paid
all taxes due and payable by it and has paid all assessments and
re-assessments and all other taxes, governmental charges,
penalties, interest and other fines due and payable by it and which
are claimed by any governmental authority to be due and owing and
adequate provision has been made for taxes payable for any
completed fiscal period for which tax returns are not yet required
and there are no agreements, waivers, or other arrangements
providing for an extension of time with respect to the filing of
any tax return or payment of any tax, governmental charge or
deficiency by the Corporation or any of the Subsidiaries and there
are no actions, suits, proceedings, investigations or claims
threatened or pending against the Corporation or any of the
Subsidiaries in respect of taxes, governmental charges or
assessments or any matters under discussion with any governmental
authority relating to taxes, governmental charges or assessments
asserted by any such authority;
(t) except as previously disclosed to Sprott, the Corporation and each
of the Subsidiaries is entitled to use, without payment of any
royalty or other fee, all of the tradenames, trademarks, patents,
designs, processes, copyrights and licenses (collectively, the
"Intellectual Property") required in connection with the sale of
the Corporation's products (on a consolidated basis) and now used
by the Corporation in the course of carrying on its business.
Except as previously disclosed to Sprott, none of the Corporation
nor the Subsidiaries has not received any written notice claiming
that the conduct of its business infringes upon the patents,
trademarks, tradenames, service marks or copyrights, domestic or
foreign, or any other industrial property or intellectual property
rights of any other person, firm or corporation; and
(u) the representations and warranties made by the Corporation in the
Escrow Agreement and Subscription Agreements are, or will be, true
and correct as of the date at which they are made.
6 - COVENANTS
6.1 The Corporation agrees that:
(a) the Corporation will duly, punctually and faithfully perform all
the obligations to be performed by it under this agreement, the
Escrow Agreement and the Subscription Agreements; and
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(b) the Corporation shall use its best efforts to maintain its listing
on NASDAQ for a period of not less than one year from the Closing
Date and shall also use its best efforts to have its Common Shares
listed and posted for trading on The Toronto Stock Exchange.
7 - CLOSING PROCEDURES AND ELECTION FOR
OPTIONED SHARES
7.1 The purchase of the Offered Shares shall be completed at the Closing Time
on the Closing Date at the offices of Xxxx & Berlis, BCE Place, 000 Xxx
Xx., Xxxxxxx, Xxxxxxx, X0X 0X0, or at such other place as Sprott and the
Corporation may agree. If Sprott exercises the Over-Allotment Option in
whole or in part, in accordance with the provisions hereof, the purchase
and sale of the Optioned Shares shall be completed in the same manner as
the Closing (the "Additional Closing") but at the time and on the date
(the "Additional Closing Time" and "Additional Closing Date") set for such
purchase in the notice provided to the Corporation by Sprott. All
provisions of this Agreement with respect to the sale of the Offered
Shares shall apply, mutatis mutandis, to the sale of the Optioned Shares
at the Additional Closing, with the Additional Closing Time being
substituted for the Closing Time, the Additional Closing Date being
substituted for the Closing Date, the Optioned Shares being substituted
for the Offered Shares, and any other required substitutions being made.
If the Over-Allotment Option is exercised at least one business day prior
to the Closing Time, the sale of the Optioned Shares shall be made
contemporaneously with the sale of the Offered Shares.
7.2 The Corporation may not reject any properly completed Subscription
Agreements which are in compliance with Applicable Securities Laws unless
the number of Common Shares subscribed for pursuant to all Subscription
Agreements tendered by Sprott exceeds the maximum number of Common Shares
to be sold under this agreement, in which case, Subscription Agreements
representing the over-allotment shall, after consultation with Sprott, be
rejected.
8 - CONDITIONS OF CLOSING
8.1 The obligations of Sprott hereunder shall be conditional upon Sprott
receiving, and Sprott shall have the right on the Closing Date on behalf
of subscribers for Common Shares to withdraw all Subscription Agreements
delivered and not previously withdrawn by subscribers unless Sprott
receives, on the Closing Date:
(a) a legal opinion of the Corporation's counsel in form and substance
reasonably satisfactory to Sprott, with respect to such matters, as
Sprott may reasonably request relating to the purchase, including,
without limitation: the due incorporation and valid existence of
the Corporation; the corporate power and capacity of the
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Corporation; the authorized capital of the Corporation; the Common
Shares having been duly authorized, allotted and reserved for
issuance and issued as fully paid and non-assessable; the due and
proper appointment of the Escrow Agent under the Escrow Agreement;
the due authorization, execution, delivery and enforceability of
this agreement, the Escrow Agreement, and the Subscription
Agreements and the fulfilment of the terms hereof and thereof; that
the issue, sale and delivery of the Common Shares or any of them do
not and will not result in a breach of, and do not and will not
create a set of facts which, after notice or lapse of time or both,
conflict with any terms, conditions or provisions of the articles
of the Corporation, the by-laws or any resolutions of the directors
or shareholders of the Corporation; compliance with all Applicable
Securities Laws including, without limitation, the receipt of all
necessary regulatory approvals relating to the distribution of the
Common Shares; the distribution of the Common Shares in the
Canadian Selling Jurisdictions; the first trade in Common Shares
received. It is understood that the Corporation's counsel may rely
on the opinions of local counsel acceptable to them as to matters
governed by the laws of jurisdictions other than Quebec or Canada
and on certificates of officers of the Corporation and the transfer
agent of the Common Shares as to relevant matters of fact;
(b) a certificate of the Corporation dated the Closing Date, addressed
to Sprott and signed on the Corporation's behalf by two senior
officers of the Corporation, acceptable to Sprott, acting
reasonably, certifying that:
(i) the Corporation has complied with and satisfied all
covenants, terms and conditions of this agreement on its part
to be complied with and satisfied at or prior to the Closing
Time other than those which have been waived by Sprott;
(ii) the representations and warranties of the Corporation set
forth in this agreement are true and correct at the Closing
Time, as if made at such time;
(iii) no event of the nature referred to in subparagraphs 10.2(a)
and (b) has occurred or to the knowledge of such officers is
pending, contemplated or threatened;
(iv) the Corporation has made and/or obtained, on or prior to the
Closing Time, all necessary filings, approvals, consents and
acceptances of applicable regulatory authorities and under
any applicable agreement or document to which the Corporation
is a party or by which it is bound in respect of the
execution and delivery of this agreement, the offering and
sale of the Common Shares and the consummation of the other
transactions contemplated hereby; and
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(v) such other matters as may be reasonably requested by Sprott
or Underwriter's counsel;
(c) definitive certificates representing, in the aggregate, all of the
Common Shares subscribed for registered in such name or names as
Sprott shall notify the Corporation in writing of not less than 24
hours prior to the Closing Time provided such certificates
registered in such names may be delivered in advance of the Closing
Date to Sprott or such other parties in such locations as Sprott
may direct and Sprott and the Corporation may agree upon; and
(d) executed copies of the Escrow Agreement and the Subscription
Agreements, each in form and substance reasonably satisfactory to
Sprott and Sprott counsel.
9 - FEES AND EXPENSES
9.1 In consideration for its services hereunder, the Corporation agrees to pay
to Sprott at the Closing Time a fee, by way of certified cheque or bank
draft, equal to the amount of U.S. $0.36 (6.00%) for each Common Share
subscribed for, including any Common Shares purchased by Sprott as
principals hereunder, representing an aggregate fee of U.S. $720,000
("Sprott's Commission").
9.2 In addition to the fee referred to in Section 9, as additional
consideration for the performance of its obligations hereunder and in
consideration for the provision of long-term research and after-market
trading support by Sprott, the Corporation shall issue to Sprott at the
Closing that number of compensation warrants (the "Compensation Warrants")
equal to up to 12% of the total number of Offered Shares and Optioned
Shares subscribed for. Each Compensation Warrant will entitle the holder
thereof to purchase one Common Share at a price of U.S. $6.00 per share
exercisable during the period from the Closing Date until November 22,
2002.
9.3 Whether or not the transactions contemplated herein shall be completed,
all costs and expenses of or incidental to the creation of the Common
Shares, the distribution of the Common Shares, including the fees (to a
maximum of Cdn. $75,000 plus G.S.T.) and disbursements of Sprott's counsel
shall be borne by the Corporation, including, without limitation, all
costs and expenses of or incidental to the preparation, filing and
reproduction of the Registration Statement and the fees and expenses of
Corporation's counsel and the Corporation's auditors.
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10 - EARLY TERMINATION
10.1 All representations, warranties, covenants, terms and conditions of this
agreement shall be construed as conditions, and any material breach or
failure to comply with any such representation, warranty, covenant, term
or condition shall entitle Sprott to terminate its obligation to
distribute the Common Shares by written notice to that effect given to the
Corporation prior to the Closing Date. Sprott may waive in whole or in
part any breach of default under or noncompliance by the Corporation with,
any representation, warranty, term or condition hereof; or extend the time
for compliance therewith, without prejudice to any of their rights in
respect of any other representation, warranty, term or condition hereof;
any other breach of, default under or non-compliance with any other
representation, warranty, term or condition hereof; provided that any such
waiver or extension shall be binding on Sprott only if the same is in
writing.
10.2 In addition to any other remedies which may be available to Sprott, Sprott
shall be entitled, at its option, to terminate and cancel, without any
liability on such Underwriter's part, Sprott's obligations under this
agreement if prior to the Closing Time on the Closing Date:
(a) any order to cease or suspend trading in any securities of the
Corporation, or prohibiting or restricting the distribution of the
Common Shares is made, or proceedings are announced or commenced
for the making of any such order, by any securities commission or
similar regulatory authority, NASDAQ or by any other competent
authority, and has not been rescinded, revoked or withdrawn; or
(b) any inquiry, investigation (whether formal or informal) or other
proceeding in relation to the Corporation or any of its directors
or senior officers is announced, commenced or threatened by any
Securities Commission or similar regulatory authority, the SEC,
NASDAQ or any other competent authority or any order is issued
under or pursuant to any statute of Canada or of any of the
provinces of Canada, or any other applicable law or regulatory
authority (unless based on the activities or alleged activities of
an Underwriter or their agents), or there is any change of law,
regulation or policy or the interpretation or administration
thereof; which, in the sole opinion of Sprott, acting reasonably,
operates to materially prevent or restrict trading in the Common
Shares or distribution to the public of the Common Shares and which
has not been rescinded, revoked or withdrawn; or
(c) there shall occur an event, or, Sprott's due diligence
investigation shall identify or discover an event, fact or
circumstance, (actual, contemplated or threatened) which
constitutes a material change or any change in a material fact or
occurrence of a material fact or event in respect of the business,
operations, assets or affairs (financial or otherwise) of the
Corporation as disclosed in the Public Record, which in Sprott's
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sole opinion, acting reasonably, could reasonably be expected to
have a material adverse effect on the market price or value of the
Common Shares; or
(d) 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 action by government,
law or regulation, enquiry or other such occurrence which, in the
sole opinion of Sprott, acting reasonably, materially adversely
affects or involves, or will materially adversely affect or
involve, the financial markets or the business, operations or
affairs of the Corporation and its subsidiaries (taken as a whole)
such that it would not be practicable to market the Common Shares
or which would render the Common Shares unsaleable; or
(e) the state of the financial markets or of the industry or markets in
which the Corporation operates is or becomes such that the Common
Shares cannot, in the reasonable opinion of Sprott, be successfully
or profitably marketed; or
(f) the Corporation shall be in breach of default under or
non-compliance with any material representation, warranty, term or
condition of this agreement.
Sprott may exercise any or all of the rights provided for in paragraphs
10.1, 10.2 or 10.3 notwithstanding any act or thing taken or done by
Sprott or any action by Sprott, whether before or after the occurrence of
any material change, including, without limitation, any act of Sprott
related to the private placement of the Common Shares for sale and Sprott
shall only be considered to have waived or be stopped from expressing or
relying upon any of its rights under or pursuant to paragraphs 8.1, 10.1,
10.2 or 10.3 if such waiver or estoppel is in writing and specifically
waives or estops such exercise or reliance.
10.3 Any termination pursuant to the terms of this agreement shall be effected
by notice in writing delivered to the Corporation; provided that no
termination shall discharge or otherwise affect any obligation of the
Corporation under paragraphs 9.3, 11.1, 11.2 or 11.3. The rights of Sprott
to terminate its obligations hereunder are in addition to, and without
prejudice to, any other remedies it may have.
11 - INDEMNIFICATION AND CONTRIBUTION
11.1 The Corporation shall indemnify and save Sprott, and each of Sprott's
directors, officers, employees and agents (collectively "Indemnified
Parties" and singularly an "Indemnified Person") harmless against and from
all liabilities, claims, demands, losses (other than losses of profit in
connection with, any sale of the Common Shares), costs, damages and
expenses to which such person or companies may be subject or which such
person or companies may suffer or incur, whether under the provisions of
any statute or otherwise, in any way caused by, or arising directly or
indirectly from or in consequence of:
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(a) any misrepresentation or alleged misrepresentation (except a
misrepresentation relating solely to Sprott) contained in the
Public Record;
(b) any prohibition or restriction of trading in the securities of the
Corporation or any prohibition or restriction affecting the
distribution of the Common Shares imposed by any competent
authority if such prohibition or restriction is based on any
misrepresentation or alleged misrepresentation of a kind referred
to in subparagraph 11.1(a) (except a misrepresentation relating
solely to Sprott or Subscriber);
(c) any order made or any inquiry, investigation (whether formal or
informal) or other proceeding commenced or threatened by any one or
more competent authorities into the affairs of the Corporation
relating to or affecting the sale of Common Shares other than any
such order, inquiry, investigation or other proceeding based solely
upon the activities or alleged activities of Sprott (or selling
group members, if any); or
(d) any breach or default under or non-compliance by the Corporation
with any representation, warranty, covenant, term or condition of
this agreement.
With respect to any person or corporation in respect of which
indemnification is or might reasonably be considered to be provided for in
this Article 11 and who is not a party to this agreement, Sprott shall
obtain and hold the rights and benefits of this Article 11 in trust for
and on behalf of such person or corporation.
The Corporation agrees that in case any legal proceedings or investigation
shall be brought against or initiated against the Corporation by any
governmental commission, regulatory authority, the Exchange, a court, or
other entity having regulatory authority, and an Indemnified Person or
other representatives of Sprott shall be required to testify in connection
therewith or shall be required to respond to procedures designed to
discover information regarding, in connection with, or by reason of the
performance of professional services rendered to the Corporation by
Sprott, the Corporation shall pay Sprott the reasonable costs, (including
an amount to reimburse Sprott for time spent by their personnel in
connection therewith on a per diem basis and out-of-pocket expenses
incurred by their personnel in connection therewith), as they occur unless
such proceedings or investigations shall be brought or initiated as a
result of any actions or inaction of Sprott, or any of them, or any
selling group members, if any.
11.2 If any claim contemplated by paragraph 11.1 shall be asserted against any
Indemnified Person, such Indemnified Person shall notify the Corporation
as soon as possible of the nature of such claim and the Corporation shall
be entitled (but not required) to assume the defence of any suit brought
to enforce such claim, provided however, that the defence shall
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be through legal counsel selected by the Corporation and acceptable to the
Indemnified Person acting reasonably and that no settlement may be made by
the Corporation or the Indemnified Person without the prior written
consent of the other, such consent not to be unreasonably withheld. The
Indemnified Person shall have the right to retain its own counsel in any
proceeding relating to a claim contemplated by paragraph 11.1 if:
(a) the Corporation or the Indemnified Person has been advised by
counsel that there are legal defences available to the Indemnified
Person which are different from or additional to defences available
to the Corporation (in which case the Corporation shall not have
the right to assume the defence of such proceedings on the
Indemnified Person's behalf);
(b) the Corporation shall not have taken the defence of such
proceedings and employed counsel within 15 days after notice of
commencement of such proceedings; or
(c) the employment of such counsel has been authorized by the
Corporation in connection with the defence of such proceedings;
and, in any such event, the reasonable fees and expenses of such
Indemnified Person's counsel (on a solicitor and his client basis) shall
be paid by the Corporation provided that in no event shall the
Corporation be required to pay the fees and disbursements of more than one
set of counsel in any single jurisdiction for all Indemnified Persons.
11.3 In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in this agreement is due in
accordance with its terms but is, in whole or in part, for any reason,
held by a court to be unavailable from the Corporation on grounds of
policy or otherwise, each of the Corporation and the party or parties
seeking indemnification shall contribute to the aggregate liabilities,
claims, demands, losses (other than losses of profit in connection with
the distribution of the Common Shares), costs, damages and expenses
(including legal or other expenses reasonably incurred in connection with
the investigation or defence of the same) to which they may be subject or
which they may suffer or incur:
(a) in such proportion as is appropriate to reflect the relative
benefit received by the Corporation on the one hand, and by the
party or parties seeking indemnity on the other hand, from the sale
of the Common Shares; or
(b) if the allocation provided by subparagraph (a) above is not
permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in
subparagraph (a) above but also to reflect the relative fault of
the party or parties seeking indemnity, on the one hand, and the
parties from whom indemnity is sought, on the other hand, in
connection with the statements or omissions or other
- 18 -
matters which resulted in such liabilities, claims, demands,
losses, costs, damages or expenses as well as any other relevant
equitable considerations.
The relevant benefits received by the Corporation, on the one hand, and
Sprott on the other hand shall be deemed to be in the same proportion that
the total proceeds of the offering received by the Corporation (net of
fees but before deducting expenses) bear to the fees received by Sprott.
In any event, the Corporation and Sprott agree that any contribution of
Sprott should be limited to the fees paid to Sprott in connection with the
sale of the Common Shares. The Corporation agrees that it would not be
just and equitable if contributions pursuant to this agreement were
determined by any other method of allocation than those referred to above.
The rights to contribution provided in this paragraph 11.3 shall be in
addition to, and without prejudice to, any other right to contribution
which Sprott may have.
12 - REGISTRATION RIGHTS
12.1 The Corporation agrees that: (i) as soon as practicable after the date of
the last Additional Closing, but in any event not more than five days
following the Closing Date it will prepare and file with the SEC, at the
Corporation's expense, a registration statement under the U.S. Securities
Act sufficient to permit the public resale of the Offered Shares, the
Optioned Shares and the Warrant Shares (collectively, the "Shares") and
(ii) promptly after the receipt of a written request from the holders of a
majority of the then outstanding Warrant Shares it will prepare and file
with the SEC at the Corporation's expense a registration statement
sufficient to permit the public resale of the Warrant Shares. The
Corporation will use its reasonable best efforts to cause each
registration statement filed hereunder (a "Registration Statement") to
become effective and to remain effective until (a) all of the securities
so registered (the "Registered Securities") shall have been sold the
earlier of (b) the Corporation shall have delivered to Sprott a written
opinion of counsel reasonably satisfactory to Sprott to the effect that
the sale of the Shares or the Warrant Shares, as the case may be, in the
United States proposed to be offered is exempt from the registration or
qualification requirements of all applicable federal and state securities
laws in the United States and purchasers or other transferees thereof
would not acquire such shares as "restricted securities" within the
meaning of Rule 144 under the U.S. Securities Act; or (c) the Shares held
by such subscriber, and the Warrant Shares, may be sold without
registration under Rule 144 during any 90 day period. The Corporation
shall not be obligated to file more than one Registration Statement that
becomes effective pursuant to the foregoing clause (i) or more than one
Registration Statements that become effective pursuant to the foregoing
clause (ii)
12.2 The Corporation shall take such action as may be necessary to register or
qualify the Registered Securities under the securities or Blue Sky laws of
such states of the United States as shall reasonably be requested by the
Agent, and shall do any and all other acts which may
- 19 -
benecessary or advisable to permit the proposed sale or other disposition
of such Registered Securities in any such state; provided that in no event
shall the Corporation be obligated in connection therewith to qualify as a
foreign corporation in any jurisdiction where it is not already so
qualified, or to execute a general consent for service of process in suits
other than those arising out of the offer and sale of the Registered
Securities, or to take any action which would subject it to taxation in
any jurisdiction where it is not then so subject.
12.3 The Corporation's obligations under this Section 8 to register and qualify
shares for resale by any subscriber (a "Selling Shareholder") shall be
conditioned upon the timely receipt by the Corporation in writing of (i)
information from such Selling Shareholder as to the proposed plan of
distribution of the Registered Securities to be included in the
Registration Statement, and (ii) such other information as the Corporation
may reasonably require from such Selling Shareholder for inclusion in the
Registration Statement.
12.4 The Corporation shall pay all expenses in connection with each
Registration Statement, including, without limitation, all registration
and filing fees, printing expenses, and fees and disbursements of counsel
for the Corporation, but excluding all brokerage fees, underwriting
discounts and selling commissions applicable to the sale of the Registered
Securities.
12.5 The Corporation shall:
(a) furnish to each Selling Shareholder of Registered Securities
covered by a Registration Statement such number of copies of the
prospectus constituting a part of such Registration Statement
(including the preliminary prospectus) and any amendments or
supplements thereto, and such other documents as such holder may
reasonably request in order to facilitate the public sale or other
disposition of such Registered Securities;
(b) notify on a timely basis each Selling Shareholder at any time when
a prospectus relating to such Registered Securities is required to
be delivered under the U.S. Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing
and, at the request of such Selling Shareholder, prepare and
furnish to such Selling Shareholder such reasonable number of
copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the offerees of
such Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
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(c) list such Securities on NASDAQ; and
(d) use its commercially reasonable efforts to take all other steps
necessary to effect the registration of such Registered Securities
contemplated hereby.
12.6 With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted
securities to the public without registration, the Corporation agrees to
file with the Commission in a timely manner all reports and other
documents required of the Corporation under the U.S. Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
upon request, to furnish each holder of Shares with a written statement by
the Corporation as to its compliance with the current public information
requirements of Rule 144(c)(1) under the U.S. Securities Act, a copy of
the most recent annual and quarterly reports of the Corporation, and such
other reports and documents so filed as such holders may reasonably
request in order to comply with any rule or regulation of the Commission
allowing such holders to sell their Shares or Warrant Shares without
registration.
12.7 If at any time or from time to time after the effective date of any
Registration Statement, the Corporation notifies the Selling Shareholders
in writing of the existence of a Potential Material Event (as defined in
paragraph 12.8 below), the Selling Shareholders shall not offer or sell
any Registered Securities gage in any other transaction involving or
relating to Securities, from the time of the giving of notice with respect
to a Potential Material Event until the Investor receives written notice
from the Corporation that such Potential Material Event either has been
disclosed to the public or no longer constitutes a Potential Material
Event. If a Potential Material Event shall occur prior to the date a
Registration Statement is required to be filed, then the Corporation's
obligation to file such Registration Statement shall be delayed without
penalty for not more than thirty (30) days, and such delay or delays shall
not constitute a breach of this Agreement. The Corporation must, if
lawful, give the Investor notice in writing at least two (2) Business Days
prior to the first day of the blackout period.
12.8 "Potential Material Event" means any of the following: (a) the possession
by the Corporation of material information not ripe for disclosure in a
registration statement, as determined in good faith by the Chief Executive
Officer or the Board of Directors of the Company that disclosure of such
information in a Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or
activity by the Corporation which would, in the good faith determination
of the Chief Executive Officer or the Board of Directors of the
Corporation, be adversely affected by disclosure in a registration
statement at such time, which determination shall be accompanied by a good
faith determination by the Chief Executive Officer or the Board of
Directors of the Corporation that the applicable Registration Statement
would be materially misleading absent the inclusion of such information.
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13 - INDEMNIFICATION
13.1 In the event of the filing of any Registration Statement pursuant to
Section 12 hereof, the Corporation agrees to indemnify and hold harmless
each Selling Shareholder and each person, if any, who controls such
Selling Shareholder within the meaning of the U.S. Securities Act, against
any and all losses, claims, damages or liabilities, joint or several
(including the costs of any reasonable investigation and legal and other
expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted) to which they,
or any of them, may become subject under the U.S. Securities Act, the
Exchange Act or other federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in such
Registration Statement, or any related preliminary prospectus, final
prospectus, or amendment thereof or supplement thereto, or arise out of or
are based upon 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 under which they were
made, not misleading; provided, however, that the Corporation shall not be
liable under this Section 13.1 in any such case to the extent that any
such losses, claims, damages or liabilities arise solely out of or are
based upon an untrue statement of a material fact contained in or any
omission of a material fact from such Registration Statement, preliminary
prospectus, final prospectus or amendment thereof or supplement thereto in
reliance upon, and in conformity with, information furnished in writing to
the Corporation by the Selling Shareholder specifically for use therein.
This paragraph 13.1 shall not enure to the benefit of any Selling
Shareholder if the Selling Shareholder failed to send or give (in
violation of the U.S. Securities Act or the Rules and Regulations
promulgated thereunder) a copy of the prospectus contained in such
Registration Statement to a Purchaser at or prior to the written
confirmation to such person of the sale of shares by such Selling
Shareholder. This indemnity will be in addition to any liability which the
Corporation may otherwise have.
13.2 The Corporation may, as a condition to its obligations under this Section
13, require that each Selling Shareholder of Registered Securities
thereunder agree in writing to indemnify and hold harmless the
Corporation, each other person referred to in subparts (1), (2) and (3) of
Section 11(a) of the U.S. Securities Act in respect of such Registration
Statement, and each person, if any, who controls the Corporation or any
such person within the meaning of Section 15 of the U.S. Securities Act,
against any and all losses, claims, damages or liabilities (including the
costs of any reasonable investigation and legal and other expenses
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted) to which they, or any of
them, may become subject under the U.S. Securities Act, the Exchange Act
or other federal, provincial or state law or regulation, at common law, or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged
- 22 -
untrue statement of a material fact contained in such Registration
Statement, or any related preliminary prospectus, final
prospectus or amendment thereof or supplement thereto, or arise out of or
are based upon 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 under which they were
made, not misleading, in each case to the extent, but only to the extent,
that such untrue statement or omission was made in such Registration
Statement, preliminary prospectus, final prospectus or amendment thereof
or supplement thereto in reliance upon, and in conformity with,
information furnished in writing to the Corporation by the Selling
Shareholder specifically for use therein; PROVIDED, HOWEVER, that the
obligations of each Selling Shareholder hereunder shall be limited to an
amount equal to the net proceeds to such Selling Shareholder from sales of
Registered Securities sold pursuant to the Registration Statement. The
Corporation's failure to require such written indemnification from a
Selling Shareholder under this Section shall not effect the Selling
Shareholders' liability with respect to the information provided by them
in writing to the Corporation for use in the Registration Statement,
Preliminary Prospectus, Final Prospectus or amendment thereof or
supplement thereto.
13.3 Any party that proposes to assert the right to be indemnified under this
Section 13 shall, promptly after receipt of notice of the commencement of
any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section 13, notify each such indemnifying party of the commencement
thereof, enclosing a copy of all papers served. No indemnification
provided for in Section 13.1 or 13.2 shall be available to any party who
shall fail to give notice as provided in this Section 13.3, provided that
the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under this
Section 13 unless the indemnifying party was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice and provided that the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not
relieve it from any liability that it may have to any indemnified party
other than under this Section 13 or Section 14 below. In case any such
action, suit or proceeding is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, such
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof and the approval by the indemnified party of such
counsel (which shall not be unreasonably withheld), the indemnifying party
shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have the
right to employ its counsel in any such action, suit or proceeding but the
fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such indemnified
party
- 23 -
has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be
differing or additional defenses available to it and not to one or more of
the indemnifying parties in such action, suit or proceeding so that it
would be inappropriate for counsel to represent both the indemnified party
and the indemnifying party in view of actual or potential conflicts of
interest (in which case if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at
the expense of the indemnifying party, the indemnifying party shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of such indemnified party); or (iii) the indemnifying parties shall
not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which
cases the fees and expenses of the indemnified party's counsel shall be at
the expense of the indemnifying parties, it being understood, however,
that the indemnifying party shall not, in connection with any one such
action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys
for the indemnified party and its controlling persons. An indemnifying
party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
14 - CONTRIBUTION
14.1 In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in Section 13 is due in
accordance with its terms but for any reason is held to be unavailable or
insufficient to hold harmless an indemnified party, the Corporation on the
one hand and the Selling Shareholder on the other hand shall, in lieu of
indemnifying such indemnified party, contribute to the aggregate losses,
claims, damages or liabilities referred to in Section 13 (including costs
of any investigation and legal and other expenses reasonably incurred in
connection therewith, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted), in such proportions as is
appropriate to reflect the relative fault of the Corporation and such
Selling Shareholder in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Corporation and the Selling Shareholder shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
a material fact or omission related to information supplied by the
Corporation (including for this purpose information supplied by any
officer, director, employee or agent of the Corporation) or to written
information furnished to the Corporation by or on behalf of the Selling
Shareholder specifically for use in the preparation of the Registration
Statement or any amendment thereof or supplement thereto, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
provisions of this Section 14 in no case shall the Selling Shareholder be
liable or responsible for any amount in excess of the proceeds received by
the such Selling Shareholder from the sale of the
- 24 -
Registered Securities included in the Registration Statement, provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the U.S. Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 14, each person, if any,
who controls a Selling Shareholder within the meaning of Section 15 of the
U.S. Securities Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Selling Shareholder, and each person,
if any, who controls the Corporation within the meaning of the Section 15
of the U.S. Securities Act or Section 20(a) of the Exchange Act, each
director of the Corporation and each officer of the Corporation who shall
have signed the Registration Statement shall have the same rights to
contribution as the Corporation, subject to the immediately preceding
sentence of this Section 14. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution
may be made against another party or parties under this Section 14, notify
such party or parties from whom contribution may be sought, and the
omission so to notify such party or parties from whom contribution may be
sought shall relieve the party or parties from whom contribution may be
sought (if such party was unaware of such action, suit, or proceeding and
was materially prejudiced by such omission) from any liability under this
Section 14, but not from any other obligation it or they may have
hereunder or other than under this Section 14. No party shall be liable
for contribution with respect to the settlement of any action, suit,
proceeding or claim effected without its written consent. The obligations
of the Selling Shareholder to contribute pursuant to this Section 14 are
several in proportion to their respective number of Registered Securities
included in the Registration Statement and not joint. The Corporation may,
as a condition to its obligations under this Section 14, require that each
Selling Shareholder of Registered Securities thereunder agree in writing
to be bound by the provisions of this Section 14.
15 - RIGHT OF FIRST REFUSAL
15.1 In further consideration of the services to be provided hereunder by
Sprott, the Corporation hereby grants to Sprott a right of first refusal
to act as the lead agent or lead underwriter with respect to any brokered
private placement or distribution, if any, of any securities of the
Corporation (including, without limitation, special warrants) in Canada
and the United States and a right of first refusal to act as lead agent
and/or financial advisor in any merger or acquisition undertaken by the
Corporation, in each case for a period of 12 months following the Closing
Date (a "Distribution"). This right of first refusal shall be subject to
the following terms:
(a) in the event that the Corporation receives a binding proposal (or a
proposal which would be binding and enforceable if it were executed
and delivered by the parties thereto), from a registered Canadian
investment dealer or group of dealers, other than Sprott
(collectively, a "Dealer") pursuant to which a Dealer proposes,
agrees or offers
to act as the Corporation's agent or underwriter to conduct the
Distribution of any of the Corporation's securities, whether on an
agency, underwritten or bought-deal basis, the Corporation shall be
entitled to accept such proposal on the condition that Sprott be
invited to participate in the agents or underwriting group, as the
co-lead or second leading agent or underwriter in Canada to the
extent of not less than the percentage represented by the lead
agent or lead underwriter in Canada;
(b) in the event the Corporation elects to accept the Dealer's proposal
in respect of the Distribution, the Corporation shall provide
Sprott with a written notice (the "Notice");
(c) the Notice shall contain the terms and conditions pursuant to which
the Dealer has proposed to act as the Corporation's agent or
underwriter, including, without limitation, the consideration to be
received by such Dealer for its services, the consideration to be
received by the Corporation for its securities, if known, and the
quantity and the nature of the securities subject to the
Distribution;
(d) Sprott shall have a period of five (5) Business Days after receipt
of the Notice except in the case of a "bought deal" or "firm
underwriting" in which case Sprott shall have a period of 24 hours
or 48 hours after receipt of the Notice, respectively, (the "Notice
Period") from the Corporation to elect in writing to act as co-lead
or second leading agent or underwriter in Canada, as the case may
be, on behalf of the Corporation on the terms and conditions
contained in the Notice to assist in conducting the Distribution as
such agent or underwriter, as the case may be; and
(e) if Sprott declines or fails to elect within the Notice Period to
assist in conducting the Distribution as co-lead or second leading
agent or underwriter on behalf of the Corporation, the Corporation
shall be entitled for a period of sixty 60 days beginning upon the
expiry of the Notice Period, to engage the Dealer on the same terms
and conditions as set forth in the Notice. Upon expiry of such
sixty 60 day period or in the event that such terms and conditions
of the engagement with the Dealer change materially, the
Corporation shall not be entitled to enter an engagement or
agreement with the Dealer or any other Dealer without again
complying with paragraphs (a) to (e) herein inclusive, with
necessary modifications.
16 - SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS, TERMS AND CONDITIONS
16.1 It is understood that all representations, warranties, covenants,
indemnities, terms and conditions herein or contained in certificates or
documents submitted pursuant to or in connection with the transactions
contemplated herein shall survive the payment by Sprott for the Common
Shares, the termination of this agreement and the resale of the Common
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Shares pursuant to the Registration Statement and shall continue in full
force and effect for the benefit of Sprott for a period of six years from
the Closing Date regardless of any investigation by or on behalf of Sprott
with respect thereto.
17 - STANDSTILL
17.1 The Corporation will not, directly or indirectly, without 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 Closing 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, warrants and
convertible securities, (ii) the issuance of stock options pursuant to the
Corporation's stock option plans, or (iii) the issuance of Common Shares
in connection with an arm's length acquisition or (iv) the issuance of
Common Shares provided for by the Heads of Agreement dated November 6,
2000 between the Corporation, Ladenburg Xxxxxxx & Co. Inc., Sundowner
Investments Limited and AMRO International, S.A. The restrictions set
forth in this Section shall not apply in the event that any Subscriber has
exercised the Repurchase Right.
18 - NOTICES
18.1 Any notice or other communication to be given hereunder shall, in the case
of notice to be given to the Corporation, be addressed to the Corporation
to Xx. Xxxxxx X. Xxxxxxx, Chairman, President and Chief Executive Officer,
Sand Technology Inc., 0000 Xxxxxxxxxx Xx. X., Xxxxx 000, Xxxxxxxxx,
Xxxxxx, X0X 0X0, Telecopy No. (000) 000-0000 and to Xxxxxx, xx Xxxxx,
Xxxxx 0000, 1 Place Ville Xxxxx, Montreal, Quebec, H3B 4M4, Attention:
Xxxxxxx Xxxx, Telecopy No. (000) 000-0000 and, in the case of notice to be
given to Sprott, be addressed to:
Sprott Securities Inc.
Royal Bank Plaza South
Suite 3450, X.X. Xxx 00
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxxx Xxxxxx
Telecopy No.: (000) 000-0000
with a copy to:
- 00 -
Xxxx & Xxxxxx
Xxxxx 0000, Box 754
000 Xxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxx Xxxx
Telecopy No.: (000) 000-0000
Any such notice or other communication shall be in writing and may be given by
telefax or delivery, and shall be deemed to have been given 12 hours after being
telefaxed (provided, that such time falls on a business day, otherwise notice
shall be deemed to have been so given on the next business day) or upon receipt
by a responsible officer of the addressee if delivered.
19 - COVENANTS OF SPROTT
19.1 Sprott covenants with the Corporation that it will: (i) conduct activities
in connection with soliciting purchasers of the Common Shares and will
indemnify the Corporation from all losses incurred by it or claims made
against it as a result of a violation by Sprott or any selling agent
retained by it of such Applicable Securities Laws; (ii) not deliver to any
prospective Subscriber any document or material which constitutes an
offering memorandum under Applicable Securities Laws; (iii) not solicit
offers to purchase or sell the Common Shares so as to require registration
thereof or filing of a prospectus with respect thereto or continuing
obligations under the laws of any jurisdiction including, without
limitation, the United States of America or any state thereof, and not
solicit offers to purchase or sell the Common Shares in any jurisdiction
outside of Canada where the solicitation or sale of the Common Shares
would result in any statutory ongoing disclosure requirements in such
jurisdiction or any registration requirements in such jurisdiction except
for the filing of a notice or report of the solicitation or sale; (iv)
obtain from each Subscriber an executed Subscription Agreement in a form
reasonably acceptable to the Corporation and to Sprott relating to the
transactions herein contemplated, together with all documentation as may
be necessary in connection with subscriptions for Common Shares; (v)
refrain from advertising the Offering in (A) printed media of general
circulation, (B) radio, (C) television, or (D) electronic media, and not
make use of any green sheet or other internal marketing document without
the consent of the Corporation, such consent to be promptly considered and
not to be unreasonably withheld; (vi) comply with, and ensure that its and
its selling agents and their and its respective directors, officers,
employees and affiliates comply with, all applicable market stabilization
rules and requirements of the Securities Commissions and applicable laws
and (vii) only offer and sell the Common Shares to persons who are not
"U.S. persons" as that term is defined in Regulation S promulgated under
the U.S. Securities Act.
- 28 -
20 - GENERAL
20.1 If one or more of the provisions contained herein shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this agreement, but this agreement shall be construed as if
such invalid, illegal or unenforceable provision or provisions had never
been contained herein.
20.2 This agreement shall be governed by and construed in accordance with the
laws of the Province of Quebec and the laws of Canada applicable therein.
20.3 Time shall be of the essence of this agreement.
20.4 This agreement may be executed in one or more counterparts and by
facsimile each of which so executed shall constitute an original and all
of which together shall constitute one and the same agreement.
20.5 This agreement represents the entire agreement of the parties hereto
relating to the subject matter hereof and there are no representations,
warranties, covenants or other agreements relating to the subject matter
hereof except as stated or referred to herein.
20.6 It is understood that the terms and conditions of this agreement
supersede any previous verbal or written agreement between Sprott and
the Corporation.
- 29 -
If the foregoing is in accordance with your understanding and is agreed to by
you, please confirm your acceptance by signing the enclosed copies of this
letter at the place indicated and by returning the same to Sprott's counsel.
SPROTT SECURITIES INC.
Per: /s/ Xxxx Xxxxxxx
------------------------------------------------------
ACCEPTED AND AGREED to this 22 day of November, 2000.
--
SAND TECHNOLOGY INC.
Per: /s/ Xxxxxx X. Xxxxxxx
------------------------------------------------------
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 give notice by no later than November 30, 2000 to purchase at anytime from
time to time by no later than December 7, 2000 in whole or in part 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. Sprott 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 Sprott may agree upon (the
"Closing Date").
ESCROW An amount (the "Escrowed Funds") equal to 66 2/3% of the aggregate Issue Price will be held
TERMS: 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
- 2 -
occur of (i) the effective date of a Registration Statement filed with the
United States Securities Exchange Commission registering the resale from time to
time of Common Shares issued and (ii) the common shares of the Corporation
(including the Common Shares issued) being listed on the NASDAQ Stock Markets.
The satisfaction of each of the conditions referred to in items (i) and (ii)
above being hereinafter referred to as the "Release Conditions".
FILING OF The Corporation will use its best efforts to satisfy both Release
REGISTRATION Conditions as soon as possible but in any event on or prior to the
STATEMENT: date which is 90 days following the last Closing Date or such later
date as Sprott and the Corporation may agree upon.
In the event that the Release Conditions have 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 the prior
SHARE ISSUANCES: 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 Closing 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 CREDIT: The Corporation undertakes that prior to Closing, it will use its best efforts
- 3 -
to 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 Sprott's satisfaction, then the Corporation agrees that it shall not
issue and exercise a draw down under the Line of Credit without first obtaining
Sprott's 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 Closing Date.
TSE LISTING: The Corporation shall use its best efforts to have its common shares listed and posted
on The Toronto Stock Exchange.
