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EXHIBIT 2.1
COMMON SHARE PURCHASE AGREEMENT
This COMMON SHARE PURCHASE AGREEMENT (this "Agreement") is dated as of May
26, 2000 by and between Sand Technology Inc., a corporation organized and
existing under the federal laws of Canada (the "Company"), and Sundowner
Investments Limited (the "Purchaser"), a British Virgin Islands corporation.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions.
(a) "AVERAGE DAILY PRICE" shall be the price based on the VWAP of the
Company on the Nasdaq National Market or, if the Nasdaq National Market is not
the Principal Market, on the Principal Market.
(b) "DRAW DOWN" shall have the meaning assigned to such term in Section
6.1(a) hereof.
(c) "DRAW DOWN EXERCISE DATE" shall have the meaning assigned to such term
in Section 6.1(b) hereof.
(d) "DRAW DOWN PRICING PERIOD" shall mean a period of twenty-two (22)
consecutive Trading Days preceding a Draw Down Exercise Date.
(e) "EFFECTIVE DATE" shall mean the date the Registration Statement of the
Company covering the Shares being subscribed for hereby is declared effective.
(f) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole and/or any condition, circumstance, or situation that would prohibit
or otherwise materially interfere with the ability of the Company to perform any
of its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other material agreement.
(g) "PRINCIPAL MARKET" shall mean initially the Nasdaq National Market,
and shall include the Nasdaq SmallCap Market, the American Stock Exchange or
the New York Stock Exchange if the Company is listed and trades on such
market or exchange. Principal Market shall not include the OTC Bulletin Board
without the express written consent of the Purchaser.
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(h) "REGISTRATION STATEMENT" shall mean the registration statement under
the Securities Act of 1933, as amended, to be filed with the Securities and
Exchange Commission for the registration of the Shares pursuant to the
Registration Rights Agreement attached hereto as EXHIBIT A.
(i) "SEC DOCUMENTS" shall mean the Company's latest Form 20-F as of the
time in question, all Forms 6-K filed thereafter until such time as the Company
no longer has an obligation to maintain the effectiveness of a Registration
Statement as set forth in the Registration Rights Agreement.
(j) "SHARES" shall mean, collectively, the Common Shares of the Company
being subscribed for hereunder.
(k) "THRESHOLD PRICE" is the lowest Average Daily Price at which the
Company will sell its Common Shares with respect to this Agreement.
(l) "TRADING DAY" shall mean any day on which the Principal Market is open
for business.
(m) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Share on the Nasdaq National Market or on any Principal Market
as reported by Bloomberg Financial using the AQR function.
ARTICLE II
PURCHASE AND SALE OF COMMON SHARES
Section 2.1 Purchase and Sale of Shares. Subject to the terms and
conditions of this Agreement, the Company may issue and sell to the Purchaser
and the Purchaser shall purchase from the Company up to Thirty Million Dollars
($30,000,000) of the Company's Common Shares, no par value per share (the
"Common Shares"), based on up to twelve (12) Draw Downs of up to three Million
Dollars ($3,000,000) per Draw Down.
Section 2.2 The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of shareholders, a sufficient number of its authorized but
unissued shares of its Common Shares to cover the Shares to be issued in
connection with all Draw Downs requested under this Agreement. Anything in this
Agreement to the contrary notwithstanding, at no time will the Company request a
Draw Down which would result in the issuance of a number of Common Shares
pursuant to this Agreement which exceeds 19.9% of the number of shares of Common
Shares issued and outstanding on the Closing Date without obtaining shareholder
approval of such excess issuance. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities and Exchange Act of 1934, as amended.
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Section 2.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchaser and, in consideration of and in express reliance upon the
representation, warranties, covenants, terms and conditions of this Agreement,
the Purchaser agrees to purchase that number of the Shares to be issued in
connection with each Draw Down. The closing under this Agreement shall take
place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York,
New York 10177 (the "Closing") at 10:00 a.m. E.S.T. on (i) May 30, 2000, or (ii)
such other time and place or on such date as the Purchaser and the Company may
agree upon (the "Closing Date"). Each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser
subject to the Disclosure Schedules attached to this Agreement:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a corporation
duly incorporated validly existing and in good standing under the Canada
Business Corporations Act and has all requisite corporate authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not own
more than fifty percent (50%) of or control any other business entity except as
set forth in the SEC Documents. The Company is duly qualified and is in good
standing as a foreign corporation to do business in every jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect on the Company's financial condition.
(b) AUTHORIZATION, ENFORCEMENT. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Escrow Agreement and to issue the Draw Down Shares pursuant to their
respective terms, (ii) the execution, issuance and delivery of this
Agreement, the Registration Rights Agreement and the Escrow Agreement by the
Company and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
shareholders is required, and (iii) this Agreement, the Registration Rights
Agreement and the Escrow Agreement have been duly executed and delivered by
the Company and at the initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance Common Shares sufficient in number for
the issuance of the Draw Down Shares.
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(c) CAPITALIZATION. As of May 9, 2000, the authorized share capital of the
Company consisted of an unlimited number of Common Shares, no par value, of
which 9,024,206 shares are issued and outstanding. All of the outstanding shares
of the Company's Common Shares have been duly and validly authorized and are
fully-paid and non-assessable. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the SEC Documents, or on
SCHEDULE 3.1(c) hereto, no shares of Common Shares are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth in the SEC Documents or on SCHEDULE 3.1(c), there are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. The Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt securities. The
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the capital stock of the Company. Except
as set forth in the SEC Documents or on SCHEDULE 3.1(c) hereto, the offer and
sale of all share capital, convertible securities, rights, warrants, or options
of the Company issued prior to the Closing complied with all applicable federal
and state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect on the
Company's financial condition or operating results. The Company has made
available to the Purchaser true and correct copies of the Company's Articles of
Incorporation as in effect on the date hereof (the "Articles of Incorporation"),
and the Company's Bylaws as in effect on the date hereof (the "Bylaws"). The
Principal Market for the Common Shares in the United States is the Nasdaq
National Market, and the Company has not received any notice from such market
questioning or threatening the continued inclusion of the Common Shares on such
market.
(d) ISSUANCE OF SHARES. The Shares to be issued under this Agreement have
been duly authorized by all necessary corporate action and, when paid for or
issued in accordance with the terms hereof, the Shares shall be validly issued
and outstanding, fully paid and non-assessable, and the Purchaser shall be
entitled to all rights accorded to a holder of Common Shares.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any
provision of the Company's Article of Incorporation, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is
bound or by which any of its respective properties or assets are bound, or
(iv) result in a violation of any federal, state, local or other foreign
statute, rule, regulation, order, judgment or decree (including any federal
and state or securities laws and regulations) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries are
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bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which singularly or in the aggregate do not and will not
have a Material Adverse Effect. The Company is not required under any federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, or issue and sell the Shares in accordance with the terms
hereof (other than any filings which may be required to be made by the Company
with the Securities and Exchange Commission (the "Commission") or state
securities administrators subsequent to the Closing and any registration
statement which may be filed pursuant hereto); provided that, for purpose of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchaser
herein.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common Shares of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, except as disclosed in the SEC
Documents or on SCHEDULE 3.1(f) hereto, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "Commission Documents"). The Company has
delivered or made available to the Purchaser true and complete copies of the
Commission Documents filed with the Commission since December 31, 1998. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such documents, and, as of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
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(g) SUBSIDIARIES. The SEC Documents or SCHEDULE 3.1(g) hereto sets forth
each subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such subsidiary. For the purposes of
this Agreement, "subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interests having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and non-assessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is a party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
(h) NO MATERIAL ADVERSE EFFECT. Since January 31, 2000, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents or on SCHEDULE 3.1(h) hereof.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the SEC
Documents or on SCHEDULE 3.1(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would be required to be disclosed on a balance
sheet of the Company or any subsidiary (including the notes thereto) in
conformity with GAAP which are not disclosed in the Commission Documents,
other than those incurred in the ordinary course of the Company's or its
subsidiaries respective businesses since such date and which, individually or
in the aggregate, do not or would not have a Material Adverse Effect on the
Company or its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since January 31, 2000, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
(k) INDEBTEDNESS. The SEC Documents or SCHEDULE 3.1(k) hereto sets
forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts
owed in excess of $250,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and contingent
obligations in respect of Indebtedness of others, whether or not the same are
or should be reflected in the Company's balance sheet (or
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the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $250,000
due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries has good and
marketable title to, or a valid leasehold interest in, all of its real and
personal property reflected in the Commission Documents, free of any mortgages,
pledges, charges, liens, security interests or other encumbrances, except for
those indicated in the SEC Documents or on SCHEDULE 3.1(l) hereto or such that
do not cause a Material Adverse Effect on the Company's financial condition or
operating results. All said leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the SEC Documents or on SCHEDULE
3.1(m) hereto, there is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets,
which, if adversely determined, would have a Material Adverse Effect. There are
no outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
subsidiary.
(n) COMPLIANCE WITH LAW. The business of the Company and the subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the SEC Documents or on SCHEDULE 3.1(n) hereto or such
that do not cause a Material Adverse Effect. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of their respective businesses as now being conducted by them unless the
failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) TAXES. The Company and each subsidiary has filed all Tax Returns which
it is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since July 31, 1999, the charges, accruals and reserves
for Taxes with respect to the Company (including any provisions for deferred
income taxes) reflected on the books of the Company are adequate to cover any
Tax liabilities of the Company if its current tax year were treated as ending on
the date hereof.
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No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that the Company or any subsidiary is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to Section 481(a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
The Company has not made an election under Section 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under Section 280G of the
Internal Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 3.1(P) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary with respect to the transactions contemplated by
this Agreement.
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(q) DISCLOSURE. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(r) OPERATION OF BUSINESS. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents and
on SCHEDULE 3.1(r) hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without
any conflict with the rights of others.
(s) REGULATORY COMPLIANCE. The Company has all necessary licenses,
registrations and permits to conduct its business as now being conducted in all
states where the Company conducts its business.
(t) BOOKS AND RECORDS. The records and documents of the Company and its
subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any subsidiary.
(u) MATERIAL AGREEMENTS. Except as set forth in the SEC Documents, or on
SCHEDULE 3.1(u) hereto, neither the Company nor any subsidiary is a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or other applicable form
(collectively, "Material Agreements") if the Company or any subsidiary were
registering securities under the Securities Act of 1933, as amended (the
"Securities Act"). The Company and each of its subsidiaries has in all material
respects performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default and, to the
best of the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which could cause a Material Adverse Effect. No
written or oral contract, instruments, agreement, commitment, obligation, plan
or arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company's Common Shares.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC Documents
or on SCHEDULE 3.1(v) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediately family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
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(w) SECURITIES ACT OF 1933. The Company has complied and will comply with
all applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares under the registration provisions
of the Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
(x) GOVERNMENTAL APPROVALS. Except as set forth in the SEC Documents or on
SCHEDULE 3.1(x) hereto, and except for the filing of any notice prior or
subsequent to the Closing that may be required under applicable federal or state
securities laws (which if required, shall be filed on a timely basis), including
the filing of a registration statement or statements pursuant to this Agreement,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares, or for the
performance by the Company of its obligations under this Agreement.
(y) EMPLOYEES. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth in the SEC Documents or on SCHEDULE 3(y) hereto. Except as set forth
in the SEC Documents or on SCHEDULE 3(y) hereto, neither the Company nor any
subsidiary is in breach of any employment contract, agreement regarding
proprietary information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since July 31, 1999, no
officer, consultant or key employee of the Company or any subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any subsidiary.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in SEC
Documents or in SCHEDULE 3.1(z) hereto, since January 31, 2000 neither the
Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the
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ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the Company's or
such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(xii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Shares will be used
by the Company and its subsidiaries for general corporate purposes.
(bb) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF SHARES. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the
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Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereunder and any advice given by the Purchaser or any
of its representatives or agents in connection with this Agreement and the
transactions contemplated hereunder is merely incidental to the Purchaser's
purchase of the Shares. The Company further represents to the Purchaser that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its own representatives and counsel.
Section 3.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) ORGANIZATION AND STANDING OF THE PURCHASER. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the British Virgin Islands.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Shares
being sold to it hereunder. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
(c) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of such Purchaser's Articles of Incorporation documents or bylaws
or (ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which the Purchaser is a party, or
result in a violation of any law, rule, or regulation, or any order, judgment
or decree of any court or governmental agency applicable to the Purchaser or
its properties (except for such conflicts, defaults and violations as would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or to purchase the Shares in accordance
with the terms hereof, provided that for purposes of the representation made
in this sentence, the Purchaser is assuming and relying upon the accuracy of
the relevant representations and agreements of the Company herein.
(d) FINANCIAL RISKS. The Purchaser acknowledges that it is able to bear
the financial risks associated with an investment in the Shares and that it
has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it
has deemed necessary or appropriate to conduct its due diligence
investigation. The Purchaser is capable of evaluating the risks and merits of
an investment in the Shares by virtue of its experience as an investor and
its knowledge, experience, and sophistication in financial and business
matters and the Purchaser is capable of bearing the entire loss of its
investment in the Shares. The Purchaser acknowledges that an investment in
the Common Shares is speculative and involves a high degree of risk.
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(e) ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) COMPLIANCE WITH LAW. The Purchaser's trading and distribution
activities with respect to the Shares will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the Principal Market.
(g) GENERAL. The Purchaser understands that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order
to determine the suitability of the Purchaser to acquire the Shares.
(h) DISCLOSURE; ACCESS TO INFORMATION. The Purchaser has received all
documents, records, books and other publicly available information pertaining to
Purchaser's investment in the Company that have been requested by the Purchaser.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Purchaser has reviewed public copies of all SEC documents deemed
relevant by the Purchaser. The Purchaser has had an opportunity satisfactory to
the Purchaser to discuss the Company's business, management and financial
affairs with the Company's management and to obtain all additional information
which the Purchaser deems necessary to make an informed decision regarding the
risks and merits of making an investment in the Company. The Purchaser has made
an independent examination of the investment, tax, and accounting aspects of an
investment in the Shares having relied solely on the advice of its counsel,
accountants, and business advisers with regard to the various considerations
involved in making an investment in the Company.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows:
Section 4.1 Securities Compliance.
The Company shall notify The NASD, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Shares to the Purchaser or subsequent holders.
Section 4.2 Registration and Listing. The Company will cause its Common
Shares to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company will use
its best efforts to continue the listing or trading of its Common
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Shares on the Nasdaq National Market or another Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and The Nasdaq Stock Market.
Section 4.3 Registration Statement. The Company shall cause to be filed
the Registration Statement, which Registration Statement shall provide for
the sale of the Shares to the Purchaser and resale by the Purchaser to the
public in accordance with this Agreement. The Company shall use its best
efforts to cause such Registration Statement to be declared effective by the
Commission as expeditiously as practicable. Before the Purchaser shall be
obligated to accept a Draw Down request from the Company, the Company shall
have caused a sufficient number of shares of Common Shares to be registered
to cover the Shares to be issued in connection with such Draw Down.
Section 4.4 Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow
Agent") in the Form of EXHIBIT B hereto respecting payment against delivery of
the Shares.
Section 4.5 Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 4.6 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account,
in which complete entries will be made in accordance with Canadian generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and its subsidiaries, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
Section 4.7 Amendments. The Company shall not amend or waive any provision
of the Articles of Incorporation of Bylaws of the Company in any way that would
adversely affect the dividend rights or voting rights of the holders of the
Shares.
Section 4.8 Other Agreements. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the right
to perform of the Company or any subsidiary under this Agreement or the Articles
of Incorporation of the Company.
Section 4.9 Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. The Company will immediately notify the
Purchaser upon the occurrence of any of the following events in respect of
the Registration Statement or related prospectus in respect of the Shares:
(i) receipt of any request for additional information from the Commission or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would
require any amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the Commission or any other federal
or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any
of the Shares for sale in any jurisdiction or the initiation or
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threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Purchaser any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the foregoing events.
Section 4.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 4.11 Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the current market price until the earlier of (i) twelve
(12) months from the effective date of the Registration Statement or (ii) sixty
(60) days after the number of Shares the Purchaser is required to purchase
hereunder has been purchased by Purchaser and the Company can no longer make
Draw Downs under this Agreement. The foregoing shall not prevent or limit the
Company from engaging in any sale of securities (i) in a registered public
offering by the Company which is underwritten by one or more established
investment banks, (ii) in one or more private placements where the purchasers do
not have registration rights, (iii) pursuant to any presently existing or future
employee benefit plan which plan has been or is approved by the Company's
stockholders, (iv) pursuant to any compensatory plan for a full-time employee or
key consultant, (v) in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise money, or
(vi) to which Purchaser gives its written approval.
ARTICLE V
CONDITIONS TO CLOSING AND DRAW DOWNS
Section 5.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell
the Shares to the Purchaser is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below.
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These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing and as of each
Draw Down Exercise Date as though made at that time, except for representations
and warranties that speak as of a particular date.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing and as of each Draw
Down Exercise Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to enter this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
at that time (except for representations and warranties that speak as of a
particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
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(e) OPINION OF COUNSEL, ETC. At the Closing, the Purchaser shall have
received an opinion of counsel to the Company, dated the date of Closing, in the
form of EXHIBIT C hereto, and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to the Closing.
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before each Draw Down Exercise
Date, of each of the conditions set forth below. The conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) SATISFACTION OF CONDITIONS TO CLOSING. The Company shall have
satisfied, or the Purchaser shall have waived, the conditions set forth in
Section 5.2 hereof.
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall remain effective on each Draw Down Exercise Date.
(c) NO SUSPENSION. Trading in the Company's Common Shares shall not have
been suspended by the Commission or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to each Draw Down request), and, at any
time prior to such request, trading in securities generally as reported on the
Principal Market shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported on the
Principal Market.
(d) MATERIAL ADVERSE EFFECT. No Material Adverse Effect and no
Consolidation Event shall have occurred.
(e) OPINION OF COUNSEL The Purchaser shall have received a "down-to-date"
letter from the Company's counsel, confirming that there is no change from the
counsel's previously delivered opinion, or else specifying with particularity
the reason for any change.
ARTICLE VI
DRAW DOWN TERMS
Section 6.1 Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and exercise a draw
down (a "Draw Down") during each Draw Down Pricing Period, which Draw Down the
Purchaser will be obligated to accept.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing Period.
The price per share paid by the Purchaser shall be based on the Average Daily
Price on each separate Trading Day during the Draw Down Pricing Period. The
number of shares of
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Common Shares purchased by the Purchaser with respect to each Draw Down shall be
determined on a daily basis during each Draw Down Pricing Period and settled at
the election of the Purchaser on a weekly basis or on the Draw Down Exercise
Date, which shall be the first Trading Day following the end of the Draw Down
Pricing Period. In connection with each Draw Down Pricing Period, the Company
may set an Average Daily Price below which the Company will not sell any Shares
(the "Threshold Price"). If the Average Daily Price on any day within the Draw
Down Pricing Period is less than the Threshold Price, the Company shall not sell
and the Purchaser shall not be obligated to purchase the Shares otherwise to be
purchased for such day.
(c) There shall be a maximum of twelve (12) Draw Downs during the term of
this Agreement. The Company shall have the right to issue and exercise a Draw
Down of up to $3,000,000 of the Company's Common Shares per Draw Down, subject
to the limitations set forth immediately below. The minimum Draw Down shall be
$250,000, unless otherwise agreed by Purchaser.
(d) The maximum dollar amount of each Draw Down during any Draw Down
Pricing Period shall be limited pursuant to the following formula: Average Stock
Price: Average of the Average Daily Prices for the 22 Trading Days prior to the
Draw Down Notice date. Average Trading Volume: Average daily trading volume for
the 45 Trading Days prior to the Draw Down Notice date. Maximum dollar amount of
each Draw Down: 20% of (Average Stock Price X (Average Trading Volume X 22)) the
number of Shares of Common Shares to be issued in connection with each Draw Down
shall be equal to the sum of the quotients (for each trading day within the Draw
Down Pricing Period) of (x) 1/22nd of the Draw Down amount and (y) 90% of the
Average Daily Price of the Common Shares on each Trading Day within the Draw
Down Pricing Period. If the Average Daily Price on a given Trading Day is less
than the Threshold Price, then the Purchaser's Draw Down will be reduced by
1/22nd and that day shall be withdrawn from the Draw Down Pricing Period.
(e) The Company must inform the Purchaser by delivering a Draw Down
Notice, in the form of EXHIBIT D hereto, via facsimile transmission as to the
amount of the Draw Down the Company wishes to exercise before the first day
of the Draw Down Pricing Period (the "Draw Down Notice"). The Company may set
the Threshold Price, if any, prior to each Draw Down request. At no time
shall the Purchaser be required to purchase more than the scheduled Draw Down
amount for a given Draw Down Pricing Period so that if the Company chooses
not to exercise the maximum permitted Draw Down in a given Draw Down Pricing
Period the Purchaser is not obligated to purchase more than the scheduled
maximum amount in a subsequent Draw Down Pricing Period.
(f) On or before three Trading Days after each Draw Down Exercise Date,
the Shares purchased by the Purchaser shall be delivered to The Depository
Trust Company ("DTC") on the Purchaser's behalf. The Shares shall be credited
by the Company to the DTC account designated by the Purchaser upon receipt by
the Escrow Agent of payment for the Draw Down into the Escrow Agent's trust
account as provided in the Escrow Agreement. The Escrow Agent shall be
directed to pay 94% of the purchase price to the Company, net of One Thousand
Five Hundred Dollars ($1,500) as escrow expenses to the Escrow Agent, and 6%
to the
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placement agent. The delivery of the Shares into the Purchaser's DTC account in
exchange for payment therefor shall be referred to herein as "Settlement".
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. The term of this Agreement
shall be twelve (12) months from the Effective Date. This Agreement may be
terminated at any time by mutual consent of the parties.
Section 7.2 Other Termination. The Purchaser may terminate this
Agreement upon one (1) Trading Day's notice if (i) an event resulting in a
Material Adverse Effect has occurred, (ii) the Common Shares are de-listed
from the Nasdaq National Market unless such de-listing is in connection with
the listing of the Common Shares on the Nasdaq SmallCap Market, the New York
Stock Exchange or American Stock Exchanges, (iii) the Company files for
protection from creditors under any applicable law, (iv) the Company
completes any financing prohibited by Section 4.11, (v) the Registration
Statement is not effective by September 30, 2000 or (vi) in the event that
the officers and directors of the Company shall own, control or direct less
than 10% of the outstanding Common Shares of the Company.
(b) The Company may terminate this Agreement upon one (1) Trading Day's
notice if the Purchaser shall fail to fund more than one properly noticed Draw
Down within three (3) Trading Days of the date payment for such Draw Down is
due.
Section 7.3 Effect of Termination. In the event of termination by the
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights to the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein. The Purchaser agrees to indemnify and hold
harmless
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the Company and its directors, officers, affiliates, agents, successors and
assigns from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys fees,
charges and disbursements) incurred by the Company as result of any inaccuracy
in or breach of the representations, warranties or covenants made by the
Purchaser herein. Notwithstanding anything to the contrary herein, the Purchaser
shall be liable under this Section 8.1 for only that amount as does not exceed
the net proceeds to such Purchaser as a result of the sale of Shares pursuant to
the Registration Statement.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, within ten (10) Trading Days of written notice
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thereof to the indemnifying party so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar rights of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. The Company shall pay all fees and expenses
related to the transactions contemplated by this Agreement; provided, that each
party shall pay its own legal fees in connection with the preparation,
negotiation, execution and delivery of this Agreement and the transactions
contemplated hereunder. In addition, the Company shall pay all reasonable fees
and expenses incurred by the Purchaser in connection with any amendments,
modifications or waivers of this Agreement or the Registration Rights Agreement
requested by the Company or incurred in connection with the enforcement of this
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys fees and expenses. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
Section 9.2 Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
Section 9.3 Entire Agreement; Amendment. This Agreement, together with the
Registration Rights Agreement and the Escrow Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual
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receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: 4141 Sherbrooke St. W. St. 410
Westmount, Quebec H3Z 1B8 Canada
Telephone: (514) 939-3477
Fax: (514) 939-2042
Attention: Arthur G. Ritchie
With copies to: Lavery de Billy
1 Place Ville Marie, Suite 4000
Montreal, Quebec H3B 4M4
Attention: Georges Dube
Telephone: (514) 871-1522
Fax: (514) 871-8977
If to Purchaser: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz
Liechtenstein
Telephone Number: 011-075-236-0404
Fax: 011-075-236-0405
Attention: Hans Gassner
with copies to: Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Telephone Number: (212) 351-3771
Fax: (212) 661-0989
Attention: Robert F. Charron
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 9.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the
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Company and each Purchaser to be affected by the amendment. After Closing, the
assignment by a party to this Agreement of any rights hereunder shall not affect
the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. Any dispute under this
Agreement or any Exhibit attached hereto shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
Section 9.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 9.11 Publicity. Prior to the Closing, neither the Company nor the
Purchaser shall issue any press release or otherwise make any public statement
or announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement. After the Closing, the Company may
issue a press release or otherwise make a public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement; provided, that prior to issuing any such press
release, making any such public statement or announcement, the Company obtains
the prior
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consent of the Purchaser, which consent shall not be unreasonably withheld or
delayed. Nothing contained in this Agreement shall preclude the Company from
making such press release or public announcement it in good faith concludes is
required by applicable law or the regulations of the Principal Market.
Section 9.12 Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement 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 or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.
Section 9.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the
Company and the Purchaser shall execute and deliver such instruments,
documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as this ___ day of May,
2000.
SAND TECHNOLOGY INC.
By: /s/ Arthur G. Ritchie
----------------------------------
Arthur G. Ritchie, President & CEO
SUNDOWNER INVESTMENTS LIMITED
By: /s/ Hans Gassner
----------------------------------
Name: Hans Gassner
Title: Authorized Signatory
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FINAL
DISCLOSURE SCHEDULES
These are the Disclosure Schedules referred to in Section 3.1 of the
Common Share Purchase Agreement dated May 26, 2000 (the "Purchase Agreement")
by and between Sand Technology Inc. and Sundowner Investments Limited.
Capitalized terms used in these Disclosure Schedules and not otherwise
defined in these Disclosure Schedules shall have the meanings assigned to such
terms in the Purchase Agreement.
SCHEDULE 3.1(a) ORGANIZATION, GOOD STANDING, AND POWER
The following wholly owned subsidiaries of the Company are inactive and
are not listed in the SEC Documents:
M(3) Networking Inc. - Canada
Nucleus Exploration Mart - Canada
SCHEDULE 3.1(c) CAPITALIZATION
(1) Since November 9, 1999, 62,250 options have been granted in
the ordinary course to employees of the Company pursuant to the 1996 Stock
Incentive Plan and 306,500 outstanding stock options have been cancelled
pursuant to the said Plan.
(2) Since November 9, 1999, 147,000 options have been granted in
the ordinary course to employees of the Company pursuant to the 1996 Stock
Option Plan and 45,500 outstanding options have been cancelled pursuant to
the said Plan.
(3) Since January 31, 2000, the Company has issued in the ordinary
course 56,000 Common Shares to employees who have exercised stock options
pursuant to the 1996 Stock Incentive Plan and the 1996 Stock Option Plan.
(4) The Company has agreed to issue to Ladenburg Thalmann warrants
to purchase 32,609 Common Shares in connection with the transactions
contemplated by the Purchase Agreement.
(5) The Company has filed a Form 6-K/A dated May 17, 2000 which
amended the Form 6-K dated March 15, 2000 reporting the Company's financial
condition and results of operations for the period ended January 31, 2000.
(6) On February 8, 2000, the staff of NASDAQ/AMEX notified the
Company that it no longer met the $4,000,000 net tangible assets requirement
for continued listing on the Nasdaq National Market as set forth in
Marketplace Rule 4450(a)(5) (the "Rule") based upon a review of the Company's
Form 20-F for the period ending July 31, 1999. Based upon a subsequent review
of the Company's submission to the effect that the Company met the
requirement for the period ended October 31, 1999, NASDAQ/AMEX determined
that the Company had demonstrated compliance with the Rule and, accordingly,
the matter was closed.
<PAGE>
SCHEDULE 3.1(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS
The Company has filed a Form 6-K/A dated May 17, 2000 which amended the
Form 6-K dated March 15, 2000 reporting the Company's financial condition and
results of operations for the period ended January 31, 2000.
SCHEDULE 3.1(g) SUBSIDIARIES
The following wholly owned subsidiaries of the Company are inactive and
are not listed in the SEC Documents:
M(3) Networking Inc. - Canada
Nucleus Exploration Mart - Canada
SCHEDULE 3.1(h) NO MATERIAL ADVERSE EFFECT
None
SCHEDULE 3.2(i) NO UNDISCLOSED LIABILITIES
None
SCHEDULE 3.1(k) INDEBTEDNESS
None
SCHEDULE 3.1(l) TITLE TO ASSETS
None
SCHEDULE 3.1(m) ACTIONS PENDING
None
SCHEDULE 3.1(n) COMPLIANCE WITH LAW
None
SCHEDULE 3.1(p) CERTAIN FEES
Fees are payable to Landenberg Thalmann & Co. and others in connection
with the transactions contemplated by the Purchase Agreement.
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SCHEDULE 3.1(r) OPERATION OF BUSINESS
Attached is a list of United States and Foreign patents and a list of
United States and Foreign trademarks of the Company.
SCHEDULE 3.1(u) MATERIAL AGREEMENTS
None
SCHEDULE 3.1(v) TRANSACTIONS WITH AFFILIATES
On May 17, 1990, Arthur Ritchie was granted 440,000 (as adjusted to
reflect the share subdivision on a two-for-one basis on December 31, 1996)
stock options under the Share Option Plan entitling him to purchase one (1)
Class A Common Share of the Company at an exercise price of US$0.25 per
share. Arthur Ritchie exercised all of his outstanding options under the
Share Option Plan on November 11, 1999. The Board of Directors of the Company
approved a loan in the amount of US$110,000 in favour of Arthur Ritchie upon
exercise of his options within the limits established by the Plan and Mr.
Ritchie pledged the shares subscribed for by him as security for repayment of
the loan.
SCHEDULE 3.1(x) GOVERNMENTAL APPROVALS
None
SCHEDULE 3.1(y) EMPLOYEES
Kevin Horigan, Executive Vice President of the Company's wholly owned
United States subsidiary, has indicated verbally that he may want to
terminate his employment with the Company.
Mr. Jerry Shattner joined the Company as President of its wholly owned
United States subsidiary as of February 1, 2000.
SCHEDULE 3.1(z) ABSENCE OF CERTAIN DEVELOPMENTS
(l) Since November 9, 1999, 62,250 options have been granted in
the ordinary course to employees of the Company pursuant to the 1996 Stock
Option Incentive Plan and 306,500 outstanding stock options have been
cancelled pursuant to the said Plan.
(2) Since November 9, 1999, 147,000 options have been granted in
the ordinary course to employees of the Company pursuant to the 1996 Stock
Option Plan and 45,500 outstanding options have been cancelled pursuant to
the said Plan.
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(3) Since January 31, 2000, the Company has issued in the ordinary
course 56,000 Common Shares to employees who have exercised stock options
pursuant to the 1996 Stock Incentive Plan and the 1996 Stock Option Plan.
4
