EXHIBIT 2.7
COMMON SHARES AND WARRANTS PURCHASE AGREEMENT
BETWEEN
SAND TECHNOLOGY INC.
AND
AMRO INTERNATIONAL, S.A.
COMMON SHARES AND WARRANTS PURCHASE AGREEMENT dated as of May 24, 2000 (the
"Agreement"), between AMRO International, S.A. (the "Investor"), and Sand
Technology Inc., a corporation organized under the Canada Business
Corporations Act (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor
shall purchase from the Company (i) One Million Five Hundred Thousand Dollars
($1,500,000) of Common Shares (as defined below) and (ii) Warrants (as
defined below) to purchase up to 32,609 Common Shares.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities
Act of 1933 and/or Regulation D ("Regulation D") and the other rules and
regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the investments in securities
to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1.1.
Certain Definitions
Section 1.2. "BID PRICE" shall mean the closing bid price (as reported by
Bloomberg L.P.) of Common Shares on the Principal Market on the date in
question.
Section 1.3. "CAPITAL SHARES" shall mean the Common Shares and any shares of
any other class of common shares whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.4. "CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights,
or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any Warrants,
options or other rights to subscribe for or purchase Capital Shares or any
such convertible or exchangeable securities.
Section 1.5. "CLOSING" shall mean the closing of the purchase and sale of
the Common Shares and Warrants pursuant to Section 2.1.
Section 1.6. "CLOSING DATE" shall mean the date on which all conditions to
the Closing have been satisfied (as defined in Section 2.1 (b) hereto) and
such Closing shall have occurred.
Section 1.7. "COMMON SHARES" shall mean the Company's Class A Common Shares
of no par value.
Section 1.8. "DAMAGES" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and
expenses of expert witnesses and investigation).
Section 1.9. "EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "ESCROW AGENT" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "ESCROW AGREEMENT" shall mean the Escrow Agreement in
substantially the form of EXHIBIT A hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.13. "INITIAL SHARES" shall mean the $1,500,000 of Common Shares
purchased at the initial Closing.
Section 1.14. "LEGEND" shall mean the legend set forth in Section 10.1.
Section 1.15. "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects 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 interfere with the ability of the
Company to enter into and perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement or the
Warrants in any material respect.
Section 1.16. "OUTSTANDING" when used with reference to common shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; PROVIDED, HOWEVER, that "Outstanding" shall not mean any such
Shares then directly or indirectly owned or held by or for the account of the
Company.
Section 1.17. "PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
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Section 1.18. "PRINCIPAL MARKET" shall mean the American Shares Exchange, the
New York Stock Exchange, the NASDAQ National or SmallCap Markets or the OTC
Bulletin Board whichever is at the time the principal trading exchange or
market for the Common Shares, based upon share volume.
Section 1.19. "PURCHASE PRICE" shall be equal to $4.75 (U.S.) per Common
Share (adjusted for any splits, reverse splits and the like).
Section 1.20. "REGISTRABLE SECURITIES" shall mean the Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by
the SEC, and all Shares and Warrant Shares have been disposed of pursuant to
the Registration Statement, (ii) all Shares and Warrant Shares have been sold
under circumstances under which all of the applicable conditions of Rule 144
(or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) all Shares and Warrant Shares have been otherwise
transferred to holders who may trade such shares without restriction under
the Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend,
(iv) such time as, in the opinion of counsel to the Company, all Shares and
Warrant Shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act, or (v) all Shares and Warrant Shares held by the Investor may
be sold pursuant to Rule 144 in any 90-day period.
Section 1.21. "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, if necessary, entered into between the Company and
the Investor as of the Closing Date in the form annexed hereto as EXHIBIT B.
Section 1.22. "REGISTRATION STATEMENT" shall mean a registration statement on
Form F-2 (or on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate, and
which form shall be available for the resale by the Investor of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for
the registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
Section 1.23. "REPRICED SHARES" shall mean the First, Second and Third
Repriced Shares as defined in Section 2.1(a)(iii), (iv) and (v),
respectively, of this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.26. "SEC DOCUMENTS" shall mean the Company's latest Form 10 or Form
20-F, as of the time in question, and all Forms 6-K and 8-K filed thereafter
until the initial Closing.
Section 1.27. "SHARES" shall mean the Initial Shares and the Repriced Shares
purchased pursuant to this Agreement.
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Section 1.28. "TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
Section 1.29. "WARRANTS" shall mean the Warrants substantially in the form of
EXHIBIT C to be issued to the Investor at the initial Closing hereunder.
Section 1.30. "WARRANT SHARES" shall mean all common shares or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II ARTICLE II
PURCHASE AND SALE OF COMMON SHARES AND WARRANTS
Section 2.1. INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investor agrees to purchase, the
Shares together with the Warrants as follows:
(i) INITIAL CLOSING. Upon satisfaction by the Company of the
Closing conditions set forth in Section 2.1(b), the Investor
shall purchase One Million Five Hundred Thousand Dollars
($1,500,000) of Common Shares at the Purchase Price. The
Investor shall deliver to the Escrow Agent immediately
available funds in the amount of the Purchase Price and
the Company shall deliver the Common Shares certificates
representing the Common Shares so purchased and the Warrant to
the Escrow Agent, each to be held by the Escrow Agent pursuant
to the Escrow Agreement. Upon satisfaction of the conditions
set forth in Section 2.1(b), the initial Closing shall occur
at the offices of the Escrow Agent at which the Escrow Agent
(x) shall release the Common Shares and the Warrants to the
Investor and (y) shall release the Purchase Price (after all
fees have been paid as set forth in the Escrow Agreement),
pursuant to the terms of the Escrow Agreement.
(ii) FIRST REPRICE CLOSING. During the period on or after the
91st day after the initial Closing Date and up to and
including the 120th day after the initial Closing Date (the
"First Repricing Period"), if on any date during the First
Repricing Period the average of the Bid Prices for the Common
Shares for the twenty (20) consecutive Trading Days
immediately preceding such date (the "First Repricing Price")
is less than one hundred twenty-five percent (125%) of the
Purchase Price, then the Investor may request that up to
fifty percent (50%) of its Initial Shares still beneficially
owned by the Investor on the date of the repricing notice be
repriced at the First Repricing Price. The Investor shall
provide facsimile notice to the Company within seventy-two
(72) hours of the end of the Repricing
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Period concerning the number of Initial Shares, if any, that
the Investor wishes to reprice. Upon receipt of facsimile
notice that Investor wishes to reprice some or all of the
Initial Shares, the Company will issue within five (5)
Trading Days to Investor the number of additional requested
Common Shares (the "First Repriced Shares") as determined
according to the following formula:
((1.25 x Purchase Price) - First Repricing Price) x (no. of
shares to be repriced)) / First Repricing Price
or the Company shall pay the Investor the cash value of the
First Repriced Shares (valued at the First Repricing Price)
at the Company's option.
(iii) SECOND REPRICE CLOSING. During the period on or after the
121st day after the initial Closing Date and up to and
including the 150th day after the initial Closing Date (the
"Second Repricing Period"), if on any date during the Second
Repricing Period the average of the Bid Prices for the Common
Shares for the twenty (20) consecutive Trading Days
immediately preceding such date (the "Second Repricing
Price") is less than one hundred twenty-five (125%) of the
Purchase Price, then the Investor may request that up to
twenty-five percent (25%) of its Initial Shares not repriced
at the First Repricing Price and still beneficially owned by
the Investor on the date of the second repricing notice be
repriced at the Second Repricing Price. The Investor shall
provide facsimile notice to the Company within seventy-two
(72) hours of the end of the Second Repricing Period
concerning the number of Initial Shares, if any, that the
Investor wishes to reprice. Upon receipt of facsimile notice
that Investor wishes to reprice some or all of the Initial
Shares, the Company will issue within five (5) Trading Days
to the Investor the number of additional requested Common
Shares (the "Second Repriced Shares") as determined according
to the following formula:
((1.25xPurchase Price) - Second Repricing Price) x (number of
shares to be repriced)) / Second Repricing Price
or the Company shall pay the Investor the cash value of the
Second Repriced Shares (valued at the Second Repricing Price)
at the Company's option.
(iv) THIRD REPRICE CLOSING. During the period on or after the
151st day after the initial Closing Date and up to and
including the 180th day after the initial Closing Date (the
"Third Repricing Period"), if on any date during the Third
Repricing Period the average of the Bid Prices for the Common
Shares for the twenty (20) consecutive Trading Days
immediately preceding such date (the "Third Repricing Price")
is less than one hundred twenty-five (125%) of the Purchase
Price, then the Investor may request that up to twenty-five
percent (25%) of its Initial Shares not repriced at the
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First and Second Repricing Price and still beneficially owned
by the Investor on the date of the third repricing notice be
repriced at the Third Repricing Price. The Investor shall
provide facsimile notice to the Company within seventy-two
(72) hours of the end of the Third Repricing Period
concerning the number of Initial Shares, if any, that the
Investor wishes to reprice. Upon receipt of facsimile notice
that Investor wishes to reprice some or all of the Initial
Shares, the Company will issue within five (5) Trading Days
to the Investor the number of additional requested Common
Shares (the "Third Repriced Shares") as determined according
to the following formula:
((1.25xPurchase Price) - Third Repricing Price) x (number of
shares to be repriced)) / Third Repricing Price
or the Company shall pay the Investor the cash value of the
Third Repriced Shares (valued at the Third Repricing Price)
at the Company's option.
Notwithstanding anything contained in this Agreement to the
contrary, in no event shall the Company be required to issue any
Repriced Shares if, after giving effect to such issuance, the number of
Common Shares, Repriced Shares, and Warrant Shares would exceed ten
percent (10%) of the number of Common Shares outstanding immediately
preceding the initial Closing. In the event that the Company would
otherwise be required to issue any Repriced Shares but for the
provisions of the foregoing sentence, the Company may, in lieu thereof,
pay the Investor the cash value of such Repriced Shares (at the
relevant repricing price).
(b) The Closing is subject to the satisfaction or waiver by the party
sought to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the Investor,
of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by the Investor of immediately available
funds in the amount of the Purchase Price of the Common
Shares and the Warrants, as applicable to each Closing, as
more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investor contained
herein shall remain true and correct as of each Closing Date
(as a condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of each Closing Date
(as a condition to the Investor' obligations);
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(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale
of the Common Shares and Warrants, or shall have the
availability of exemptions therefrom;
(vi) the sale and issuance of the Common Shares and Warrants
hereunder, and the proposed issuance by the Company to the
Investor of the Common Shares underlying the Warrants upon
the conversion or exercise thereof shall be legally permitted
by all laws and regulations to which the Investor and the
Company are subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions contemplated
by this Agreement;
(vii) delivery of the applicable original fully executed Common
Share certificates and the Warrant certificates to the Escrow
Agent;
(viii) delivery to the Escrow Agent of an opinion of Xxxxxxxx
Ingersoll, P.C., Professional Corporation and Xxxxxx deBilly,
counsel to the Company, in the form of EXHIBIT D; and
(ix) delivery to the Escrow Agent of the Irrevocable Instructions
to Transfer Agent in the form attached hereto as EXHIBIT E.
Section 2.2. COMPANY REDEMPTION. During the period from Effective Date until
one hundred eighty (180) days after the date of the initial Closing, if the
Bid prices for the Common Shares is $4.75 (adjusted for stock splits and the
like) or below for seven (7) consecutive Trading Days, the Company shall have
the right, by delivering written notice to the Investor (the "Redemption
Notice") to redeem at one hundred ten percent (110%) of the Purchase Price
any or all of the Common Shares held by the Investor which have not been
repriced pursuant to Section 2.1 of this Agreement. The Common Shares subject
to the Redemption Notice will be redeemed on the fifth (5th) Trading Day
after the date of the Redemption Notice.
ARTICLE III
Section 3.1. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree
that the sums payable pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
the Registration Rights Agreement bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be
incurred by the Investors in connection with the failure by the Company to
timely cause the registration of the Registrable Securities and (c) the
parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
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Investor represents and warrants to the Company that:
Section 4.1. INTENT. The Investor is entering into this Agreement and is
acquiring the Shares and the Warrants for its own account with the Investor's
own funds and not with a view to or for sale in connection with any
distribution of the Shares or Warrants. The Investor has no present
arrangement (whether or not legally binding) at any time to sell the Shares,
the Warrants or the Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold such securities for any minimum or other specific term
and reserves the right to dispose of the Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2. SOPHISTICATED INVESTOR. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an
accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such knowledge and experience in business and financial matters that it
has the capacity to protect its own interests in connection with this
transaction and is capable of evaluating the merits and risks of an
investment in the Common Shares and Warrants and it is able financially to
bear the risks thereof, including a complete loss of its investment therein.
The Investor acknowledges that an investment in the Common Shares is
speculative and involves a high degree of risk.
Section 4.3. AUTHORITY. Investor has full corporate or other power and
authority to enter into and perform this Agreement and each agreement
attached as an Exhibit hereto which is required to be executed by Investor.
This Agreement and each agreement attached as an Exhibit hereto which is
required to be executed by Investor has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement
of the Investor enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4. NOT AN AFFILIATE. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.5. ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and
executed by the Investor in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof by the Investor, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding
on Investor or (a) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material
default thereunder; (c) result in the creation or imposition of any lien
pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third
party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any
of its assets, operations or management may be subject.
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Section 4.6. DISCLOSURE; ACCESS TO INFORMATION. The Investor has received
all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested
by the Investor. The Company is subject to the periodic reporting
requirements of the Exchange Act, and the Investor has reviewed copies of all
SEC Documents deemed relevant by Investor. The Investor has had an
opportunity satisfactory to the Investor to discuss the Company's business,
management and financial affairs with the Company's management and to obtain
all additional information which the Investor deems necessary to make an
informed decision regarding the risks and merits of making an investment in
the Company. The Investor has made an independent examination of the
investment, tax, and accounting aspects of an investment in the Shares and
Warrant having relied solely on the advice of its counsel, accountants, and
business advisors with regard to the various considerations involved in
making an investment in the Company.
Section 4.7. MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as set forth
in the SEC Documents or the Disclosure Schedule prepared by the Company and
attached hereto:
Section 5.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated and existing in good standing under the Canada Business
Corporations Act and has all requisite corporate authority to own its properties
and to carry on its business as now being conducted. The Company does not have
any active subsidiaries and does not own more that 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.
Section 5.2. AUTHORITY. (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 the
Warrants and to issue the Shares, the Warrants and the Warrant Shares pursuant
to their respective terms, (ii) the execution, issuance and delivery of this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the Common
Shares certificates and the Warrants 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, the Escrow Agreement, the Common
Shares certificates representing the Shares and the Warrants have been duly
executed and delivered by the Company and at the Closing shall constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such
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enforceability may be limited by applicable bankruptcy, insolvency, 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 shares of Common Shares sufficient in number for exercise of the
Warrants and the reprice of the Initial Shares.
Section 5.3. CAPITALIZATION. The capitalization of the Company is as set forth
in the SEC Documents. Except for (i) outstanding options and warrants as set
forth in the SEC Documents, and (ii) as set forth in the Disclosure Schedule,
there are no outstanding Capital Shares Equivalents nor any agreements or
understandings pursuant to which any Capital Shares Equivalents may become
outstanding. The Company is not a party to any agreement granting registration
or anti-dilution rights to any person with respect to any of its equity or debt
securities. All of the outstanding shares of Common Shares of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 5.4. COMMON SHARES. The Company has registered its
Common Shares pursuant to Section 12(b) or (g) of the Exchange Act and is in
full compliance with all reporting requirements of the Exchange Act, and the
Company is in compliance with all requirements for the continued listing or
quotation of its Common Shares, and such Common Shares are currently listed or
quoted on, the Principal Market. As of the date hereof, the Principal Market is
the National Market System and, except as described in the Disclosure Schedule,
the Company has not received any notice regarding, and to its knowledge there is
no threat, of the termination or discontinuance of the eligibility of the Common
Shares for such listing.
Section 5.5. SEC DOCUMENTS. The Company has made available to the Investors
true and complete copies of the SEC Documents. The Company has not provided
to the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act, and rules and regulations of the SEC
promulgated thereunder and the SEC Documents did not contain any untrue
statement of a material fact or omit 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 SEC Documents complied in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto at the time of such inclusion. Such
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments). Neither the
Company nor any of its subsidiaries has any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent
or otherwise, and whether due or to become due) that would have been required
to be reflected in, reserved against or otherwise described in the financial
statements or in the notes thereto in accordance with
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Canadian generally accepted accounting principles, which was not fully
reflected in, reserved against or otherwise described in the financial
statements or the notes thereto included in the SEC Documents or was not
incurred in the ordinary course of business consistent with the Company's
past practices since the last date of such financial statements.
Section 5.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the
accuracy of the Investor's representations in Article IV, the sale of the
Shares, the Warrants and the Warrant Shares will not require registration
under the Securities Act and/or any applicable state securities law. When
issued and paid for in accordance with the Warrants, the Warrant Shares will
be duly and validly issued, fully paid, and non assessable. Neither the sales
of the Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the
Registration Rights Agreement, the Escrow Agreement or the Warrants will (i)
result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon the Shares, the Warrants or the Warrant
Shares or, except as contemplated herein, any of the assets of the Company,
or (ii) entitle the holders of Outstanding Capital Shares to preemptive or
other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Shares, the Warrants and the Warrant Shares
shall not subject the Investors to personal liability to the Company or its
creditors by reason of the possession thereof.
Section 5.7. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor, to the
knowledge of the Company, any person acting on its or their behalf (i) has
conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale
of the Shares or the Warrants, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Shares, the Warrants or the Warrant
Shares under the Securities Act.
Section 5.8. NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance
of the Shares, the Warrants and the Warrant Shares, do not and will not (i)
result in a violation of the Company's Articles of Incorporation or By-Laws
or (ii) conflict with, or constitute a material default (or an event that
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 material agreement, indenture or instrument, or any "lock-up" or
similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which
any material property or asset of the Company is bound or affected, nor is
the Company otherwise in violation of, conflict with or default under any of
the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not have, individually or in the aggregate, a Material Adverse Effect).
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would 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
11
or issue and sell the Shares or the Warrants in accordance with the terms
hereof (other than any SEC or state securities filings that may be required
to be made by the Company subsequent to the Closing or, any registration
statement that may be filed pursuant to the Registration Rights Agreement);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
Section 5.9. NO MATERIAL ADVERSE CHANGE. Since January 31, 2000, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 5.10. 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.
Section 5.11. NO INTEGRATED OFFERING. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance
or exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the
Company has not issued, offered or sold its Common Shares, or any securities
convertible into or exchangeable or exercisable for Common Shares within the
six-month period next preceding the date hereof, and the Company shall not
permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Shares or Warrants), so as to make unavailable the exemption
from Securities Act registration being relied upon by the Company for the
offer and sale to Investors of the Shares or the Warrants (and the Warrant
Shares) as contemplated by this Agreement.
Section 5.12. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any subsidiary,
nor has the Company received any written or oral notice of any such action,
suit, proceeding or investigation, which could reasonably be expected to have
a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or,
to the knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
Section 5.13. NO MISLEADING OR UNTRUE COMMUNICATION. The Company and, to
the knowledge of the Company, any person representing the Company, or any
other person selling or offering to sell the Shares or the Warrants in
connection with the transaction contemplated by this Agreement, have not
made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements,
in the light of the circumstances under which they were made, not misleading.
Section 5.14. MATERIAL NON-PUBLIC INFORMATION. The Company has not
disclosed to the Investors any material non-public information that (i) if
disclosed, would reasonably be expected to have a material effect on the
price of the Common Shares or (ii) according to applicable law,
12
rule or regulation, should have been disclosed publicly by the Company prior
to the date hereof but which has not been so disclosed.
Section 5.15. INSURANCE. The Company and each subsidiary maintains property
and casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound
and reputable insurers that is adequate, consistent with industry standards
and the Company's historical claims experience. The Company has not received
notice from, and has no knowledge of any threat by, any insurer (that has
issued any insurance policy to the Company) that such insurer intends to deny
coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 5.16. TAX MATTERS.
(a) 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.
(b) 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 ss. 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 ss. 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 ss. 897(c)(2)
of the Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 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. ss.
1.1502-6 (or comparable provisions of state, local or foreign
13
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 not obligated to make payments and is
not a party to an agreement that could obligate it to make any payments that
would not be deductible under ss. 280G of the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"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.
Section 5.17. PROPERTY. Neither the Company nor any of its subsidiaries
owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property, mineral or water rights, and buildings held
under lease by the Company as tenant are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and intended to be made of such property, mineral
or water rights, and buildings by the Company.
Section 5.18. INTELLECTUAL PROPERTY. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures) and other similar rights
and proprietary knowledge (collectively, "Intangibles") necessary for the
conduct of its business as now being conducted. To the Company's knowledge,
except as disclosed in the SEC Documents neither the Company nor any of its
subsidiaries is infringing upon or in conflict with any right of any other
person with respect to any Intangibles. Except as disclosed in the SEC
Documents, no adverse claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
Section 5.19. REGULATORY COMPLIANCE. The Company has all necessary permits
and licenses and has made all filings to such regulatory bodies to conduct
its business as it is now being conducted, and is not in material violation
of any thereof.
14
Section 5.20. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books
and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is
a party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated
assets is compared with existing assets at regular intervals; (iii) access to
the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are recorded
as necessary to permit preparation of the financial statements of the Company
in accordance with Canadian generally accepted accounting principles.
Section 5.21. PAYMENTS AND CONTRIBUTIONS. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment of
Company funds to any foreign or domestic government official or employee;
(iii) violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other similar payment to any person with
respect to Company matters.
Section 5.22. NO MISREPRESENTATION. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any 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, in light of the
circumstances under which they were made, not misleading.
ARTICLE VI
COVENANT OF THE INVESTOR
The Investor covenants with the Company that the Investor's trading
activities with respect to Shares, the Warrants and the Warrant Shares of the
Company's Common Shares will be in compliance with all applicable state and
federal securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Shares are listed.
15
ARTICLE VII
COVENANTS OF THE COMPANY
Section 7.1. REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof and shall use best efforts to
timely prepare and file the Registration Statement.
Section 7.2. RESERVATION OF COMMON SHARES. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Shares
for the purpose of enabling the Company to issue Warrant Shares pursuant to
any exercise of the Warrants. The number of shares so reserved from time to
time, as theretofore increased or reduced as hereinafter provided, may be
reduced by the number of shares actually delivered pursuant to any exercise
of the Warrants or reprice by an Investor and the number of shares so
reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be obligated to
issue by reason of adjustments to the Warrants or adjustments to the
Investor's rights to demand Repriced Shares.
Section 7.3. LISTING OF COMMON SHARES. The Company hereby agrees to
maintain the listing of the Common Shares on a Principal Market, and to list
the Shares and Warrant Shares on the Principal Market in accordance with the
terms of the Registration Rights Agreement. The Company further agrees, if
the Company applies to have the Common Shares traded on any other Principal
Market, it will include in such application the Shares and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Investors to cause the Shares and Warrant Shares to be listed
on such other Principal Market as promptly as possible. The Company will
exercise all commercially reasonable efforts to continue the listing and
trading of its Common Shares on a Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market and shall provide the Investor
with copies of any correspondence to or from such Principal Market which
questions or threatens delisting of the Common Shares, within three (3)
Trading Days of the Company's receipt thereof, until the Investor has
disposed of all of its Registrable Securities.
Section 7.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common
Shares to continue to be registered under Section 12(b) or (g) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take
any action or file any document (whether or not permitted by the Exchange Act
or the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under said Act
until the Investors has disposed of all of its Registrable Securities.
Section 7.5. LEGENDS. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX. If
the Transfer Agent requires an opinion of counsel from the Company's counsel
pursuant to the Instructions to Transfer Agent attached hereto as EXHIBIT E
to issue new certificates free of a legend and Company's counsel fails to
deliver such
16
opinion within five (5) days from such a request, then the Company will pay
the Investor (pro rated on a daily basis), as liquidated damages for such
failure and not as a penalty, ten percent (10%) of the market value of shares
of Common Stock purchased from the Company and surrendered by the Investor to
the Transfer Agent for removal of the legend for each week until such opinion
is provided, notwithstanding the fact that the Company has instructed the
Transfer Agent to accept such an opinion from Investor's counsel.
Section 7.6. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will
take all steps necessary to preserve and continue the corporate existence of
the Company. The Company shall not enter into any agreement, the terms of
which agreement would restrict or impair the right or ability of the Company
to perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 7.7. 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 Investors
such shares of stock and/or securities as the Investors are entitled to
receive pursuant to this Agreement.
Section 7.8. ISSUANCE OF COMMON SHARES AND WARRANT SHARES. Subject to the
continued accuracy of the representations and warranties of the Investor set
forth in Article III, the sale of the Shares and the Warrants and the
issuance of the Warrant Shares pursuant to exercise of the Warrants shall be
made in accordance with the provisions and requirements of Section 4(2), 4(6)
or Regulation D and any applicable state securities law. The Company shall
make any necessary SEC and "blue sky" filings required to be made by the
Company in connection with the sale of the Securities to the Investors as
required by all applicable laws, and shall provide a copy thereof to the
Investors promptly after such filing.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
Section 8.1. SURVIVAL. The representations, warranties and covenants made by
each of the Company and the Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the initial Closing Date.
Section 8.2. INDEMNITY. (a) The Company hereby agrees to indemnify and hold
harmless the Investor, Affiliates and their respective officers, directors,
partners and members (collectively, the "Investor Indemnitees"), from and
against any and all Damages, and agrees to reimburse the
17
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Company pursuant to
this Agreement; or
(ii) any failure by the Company to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of them,
by any stockholder of the Company who is not an Affiliate of an Investor,
with respect to any of the transactions contemplated by this Agreement,
other than an action for which the Investor is obligated to indemnify
the Company under Section 8.2(b).
(b) Investor hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all
Damages, and agrees to reimburse the Company Indemnitees for reasonable all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Company Indemnitees and to
the extent arising out of or in connection with any misrepresentation,
omission of fact, or breach of any of the Investor's representations or
warranties contained in this Agreement, the annexes, schedules or exhibits
hereto or any instrument, agreement or certificate entered into or delivered
by the Investor pursuant to this Agreement, or any failure by the Investor to
perform in any material respect any of its covenants, agreements undertakings
or obligations set forth in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered into or
delivered by the Investor pursuant to this Agreement. Notwithstanding
anything to the contrary herein, the Investor shall not be liable under this
Section 7.2(b) for any amount in excess of the net proceeds to such Investor
as a result of the sale of Registrable Securities pursuant to the
Registration Statement.
Section 8.3. NOTICE. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified
Party promptly shall notify the party from whom indemnification pursuant to
Section 7.2 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not
relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is actually
prejudiced by such omission or delay. In connection with any Claim as to
which both the Indemnifying Party and the Indemnified Party are parties, the
Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the
Indemnifying Party, the Indemnified Party shall have the right to employ
separate
18
legal counsel and to participate in the defense of such Claim, and
the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified
Party, potentially differing interests between such parties in the conduct of
the defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available
to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within
a reasonable period of time after notice of the commencement of such Claim.
If the Indemnified Party employs separate legal counsel in circumstances
other than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in
connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent
shall not unreasonably be withheld), settle or compromise any Claim or
consent to the entry of any judgment that does not include an unconditional
release of the Indemnified Party from all liabilities with respect to such
Claim or judgment.
All fees and expenses of the Indemnified Party (including reasonable costs of
defense and investigation in a manner not inconsistent with this Section and
all reasonable attorneys' fees and expenses) shall be paid to the Indemnified
Party, as incurred, within ten (10) Trading Days of written notice thereof to
the Indemnifying Party; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses
to the extent it is finally judicially determined that such Indemnified Party
is not entitled to indemnification hereunder.
Section 8.4. DIRECT CLAIMS. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver
notice of such claim to the Indemnifying Party. If the Indemnified Party
disputes the claim, such dispute shall be resolved by mutual agreement of the
Indemnified Party and the Indemnifying Party or by binding arbitration
conducted in accordance with the procedures and rules of the American
Arbitration Association as set forth in Article XI. Judgment upon any award
rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
ARTICLE IX
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 9.1. DUE DILIGENCE REVIEW. Subject to Section 9.2, the Company
shall make available for inspection and review by the Investors, advisors to
and representatives of the Investors (who may or may not be affiliated with
the Investors and who are reasonably acceptable to the
19
Company), any underwriter participating in any disposition of the Registrable
Securities on behalf of the Investors pursuant to the Registration Statement,
any such registration statement or amendment or supplement thereto or any
blue sky, Principal Market or other filing, all SEC Documents and other
filings with the SEC, and all other publicly available corporate documents
and properties of the Company as may be reasonably necessary for the purpose
of such review, and cause the Company's officers, directors and employees to
supply all such publicly available information reasonably requested by the
Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response
to all questions and other inquiries reasonably made or submitted by any of
them), prior to and from time to time after the filing and effectiveness of
the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
Section 9.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment
letters received from the SEC staff with respect to the Registration
Statement, the Company may, as a condition to disclosing any non-public
information hereunder, require the Investor's advisors and representatives to
enter into a confidentiality agreement in form and content reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or
to omit a material fact required to be stated therein in order to make the
statements, therein in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section 9.2 shall be construed to
mean that such persons or entities other than the Investors (without the
written consent of the Investors prior to disclosure of such information as
set forth in Section 9.2(a)) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by
such persons or entities, that the Registration Statement contains an
20
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE X
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 10.1. LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS
EXEMPT FROM SUCH REGISTRATION.
Section 10.2. TRANSFER AGENT INSTRUCTIONS. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Shares
(and to any substitute or replacement transfer agent for its Common Shares
upon the Company's appointment of any such substitute or replacement transfer
agent) instructions substantially in the form of EXHIBIT C hereto. Such
instructions shall be irrevocable by the Company from and after the date
hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be.
Section 10.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 9.1 has been or shall be placed on
the share certificates representing the Registrable Securities and no
instructions or "stop transfer orders," "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer
agent with respect thereto other than as expressly set forth in this
Article X.
Section 10.4. INVESTORS' COMPLIANCE. Nothing in this Article shall affect
in any way the Investor's obligations to comply with all applicable
securities laws upon resale of the Common Shares.
ARTICLE XI
CHOICE OF LAW; ARBITRATION
21
Section 11.1. GOVERNING LAW/ARBITRATION. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York
City and without regard to its principles of conflicts of laws. Any dispute
under this Agreement 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 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
unless the matter at issue is the corporation law of the Company's country of
incorporation, in which event the corporation law of such jurisdiction shall
govern such issue. 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. 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 Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment
against any party failing to participate in any proceeding hereunder within
the time periods set forth in the AAA rules. 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.
ARTICLE XII
ASSIGNMENT
Section 12.1. ASSIGNMENT. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any permitted
transferee of all of the Shares or Warrants purchased or acquired by the
Investor hereunder with respect to the Shares or Warrants held by such
person, and (b) upon the prior written consent of the Company, which consent
shall not unreasonably be withheld or delayed, the Investor's interest in
this Agreement may be assigned at any time, in whole but not in part, to any
other person or entity (including any Affiliate of the Investor) who agrees
to make the representations and warranties contained in Article IV and who
agrees to be bound by the terms of this Agreement.
ARTICLE XIII
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NOTICES
Section 13.1. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) hand delivered, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with
charges prepaid, or (iv) transmitted by facsimile, addressed as set forth
below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, 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 first business day following the
date of sending by reputable courier service, fully prepaid, addressed to
such address, or (c) upon actual receipt of such mailing, if mailed. The
addresses for such communications shall be:
If to the Company:
Sand Technology Inc.
0000 Xxxxxxxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX X0X 0X0, Xxxxxx
Attention: Xxxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to (shall not constitute notice)
Xxxxxxxx Ingersoll Professional Corporation
0000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. North
Telephone: (000) 000-0000
Fax: (000) 000-0000
if to the Investors: As set forth on the signature pages hereto
with a copy to: Xxxxxx X. Xxxxxxx, Esq.
(shall not Xxxxxxx Xxxxxx & Green, P.C.
constitute notice) 000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
23
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 13.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 13.1.
ARTICLE XIV
MISCELLANEOUS
Section 14.1. COUNTERPARTS/FACSIMILE/AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument.
Except as otherwise stated herein, in lieu of the original documents, a
facsimile transmission or copy of the original documents shall be as
effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Section 14.2. ENTIRE AGREEMENT. This Agreement, the agreements attached as
Exhibits hereto, which, include but are not limited to the Warrants, the
Escrow Agreement, and the Registration Rights Agreement, set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior and contemporaneous agreements, negotiations
and understandings between the parties, both oral and written relating to the
subject matter hereof and thereof. The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and shall
constitute part of this Agreement as is fully set forth herein.
Section 14.3. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement
to any party.
Section 14.4. HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 14.5. NUMBER AND GENDER. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to a singular Investor shall apply equally to plural Investors if
there are more than one Investor, and all references to an Investor as "it"
shall apply equally to a natural person.
Section 14.6. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Shares or Warrants or any
Warrant Shares and (ii) in the case of any such loss, theft or destruction of
such certificate, upon delivery of an indemnity agreement or security
reasonably satisfactory in form to the Company (which shall not include the
posting of any bond) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense
will execute and deliver, in lieu thereof, a new certificate of like tenor.
24
Section 14.7. FEES AND EXPENSES. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall reimburse the Investor for the fees,
expenses and disbursements of Xxxxxxx Xxxxxx & Green, P.C., counsel to the
Investor, in an amount equal to $5,000.
Section 14.8. BROKERAGE. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party, except
Ladenburg Xxxxxxx & Co. Inc. whose fees shall be paid by the Company. The
Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 14.9. PUBLICITY. The Company agrees to provide the Investor with a
copy of any press release or other public announcement of the transactions
contemplated by this Agreement prior to the dissemination thereof and to
consider comments made by the Investor with respect thereto. 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. No release shall
name the Investor without its express consent.
25
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
this __ day of May, 2000.
SAND TECHNOLOGY INC.
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------
Xxxxxx X. Xxxxxxx, Chairman &
Chief Executive Officer
AMRO INTERNATIONAL, S.A.
By: /s/ X. X. Xxxxxxxx
-----------------------------
X. X. Xxxxxxxx, Director
c/o Ultra Finanz AG
Xxxxxxxxxxxxxxxxxx 0
Xxxxxx XX-0000 Xxxxxxxxxxx
Fax: 000-000-000-0000
26
DISCLOSURE SCHEDULE
This is the Disclosure Schedule referred to in Section 5 of the Common
Shares and Warrants Purchase Agreement dated May 24, 2000 (the "Purchase
Agreement") by and between Sand Technology Inc. and AMRO International, S.A.
Capitalized terms used in this Disclosure Schedule and not otherwise defined
in this Disclosure Schedule shall have the meanings assigned to such terms in
the Purchase Agreement.
5.1 ORGANIZATION OF THE COMPANY
The following wholly owned subsidiaries of the Company are inactive and
are not listed in the SEC Documents:
M3 Networking Inc. - Canada
Nucleus Exploration Mart - Canada
5.3 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 Xxxxxxxx warrants to
purchase 32,609 Common Shares in connection with the transactions
contemplated by the Purchase Agreement.
5.4 COMMON SHARES
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 the 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.
5.5 SEC Documents
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.
2