PROSPECTUS
CLASS A COMMON SHARES
SAND TECHNOLOGY INC.
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission using a "shelf" registration process. This
means:
- 2,900,000 Class A common shares may be offered and sold from time to
time by the selling shareholders identified in this prospectus who
originally purchased these shares from us in a private placement
transaction in Canada;
- 263,150 Class A common shares may be offered and sold from time to
time by Lakeside Financial Services who received these shares from us
in a private placement transaction; and
- 342,500 Class A common shares may be offered and sold from time to
time by Sprott Securities Inc. who will originally receive these
shares upon the exercise of warrants.
We will not receive any proceeds from the sale of shares by the selling
shareholders. We will receive proceeds from any exercise by Sprott Securites
Inc. of the warrants held by it.
Our Class A common shares are listed on the NASDAQ National Market under
the symbol "SNDT." On December 20, 2000, the last sale price of our Class A
common shares on the NASDAQ National Market was US$6 13/16.
INVESTING IN OUR CLASS A COMMON SHARES INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL YOU
OTHERWISE.
The date of this prospectus is December 21, 2000.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY.......................................................... 3
ABOUT THIS PROSPECTUS....................................................... 3
SAND TECHNOLOGY INC......................................................... 3
THE OFFERING................................................................ 3
RISK FACTORS................................................................ 4
Risks Associated With Our Financial Results.............................. 4
Risks Associated With Our Business And Operations........................ 5
Risks Which May Affect The Value Of Your Shares.......................... 11
WHERE YOU CAN GET MORE INFORMATION.......................................... 12
FORWARD-LOOKING STATEMENTS.................................................. 13
ENFORCEMENT OF LEGAL PROCESS................................................ 14
SERVICE OF PROCESS.......................................................... 14
NOTE REGARDING CURRENCY..................................................... 14
RECENT DEVELOPMENTS......................................................... 15
USE OF PROCEEDS............................................................. 16
SELLING SHAREHOLDERS........................................................ 16
PLAN OF DISTRIBUTION........................................................ 17
DESCRIPTION OF SECURITIES................................................... 18
LEGAL MATTERS............................................................... 19
EXPERTS..................................................................... 19
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PROSPECTUS SUMMARY
THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. BEFORE MAKING YOUR INVESTMENT DECISION, YOU SHOULD READ
THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING US
AND THE CLASS A COMMON SHARES THAT ARE BEING SOLD IN THIS OFFERING. SUCH
INFORMATION APPEARS ELSEWHERE IN THIS PROSPECTUS AND IN SELECTED PORTIONS OF OUR
ANNUAL REPORT ON FORM 20-F AND OTHER DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION THAT WE HAVE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION PROVIDED IN THIS
PROSPECTUS IS IN CANADIAN DOLLARS.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the
United States Securities and Exchange Commission. You should rely only on the
information provided in this prospectus or incorporated by reference into this
prospectus. We have not authorized anyone to provide you with information
different from that contained in or incorporated by reference into this
prospectus. The selling shareholders are offering to sell, and seeking
offers to buy, Class A common shares only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of Class A common shares. Applicable SEC rules
may require us to update this prospectus in the future.
SAND TECHNOLOGY INC.
We design, develop, market and support software products that enable users
to retrieve content-oriented information from enormous amounts of data, upon
demand and without having to design a system which accomplishes only
pre-specified requirements. Our software products, known as the "Nucleus
Series," are designed to provide an efficient and cost-effective way to make
inquiries of large databases. They facilitate the use of data mining, data
marts, data warehouses, and on-line analytical processing, thereby enabling
effective e-commerce, B2B, B2C, B2E, CRM, supply chain management and other
critical web-enabled systems. Our Nucleus products permit more timely and
accurate decision processing by desktop, workgroup, departmental and enterprise
computing systems turning "business intelligence" into "customer intelligence."
We were incorporated in 1983 under the Canada Business Corporations Act
under the name Sand Technology Systems (Canada) Inc. From 1988 until 1999 we
used the name Sand Technology Systems International Inc. On January 1, 2000, we
changed our name to Sand Technology Inc.
Our head office is located at 4141 Sherbrooke Street West, Suite 410,
Westmount, Quebec, Canada H3Z 1B8 and our telephone number is (514) 939-3477.
Our world-wide web address is www.sandtechnology.com. Information contained on
our website should not be considered part of this prospectus.
THE OFFERING
Shares Offered Up to 3,505,650 Class A common shares which we originally
issued to the selling shareholders or which Sprott
Securities Inc. may in the future purchase under warrants
it holds.
Class A Common 13,137,427 Class A common shares, which does not include
Shares Currently 1,524,495 Class A common shares issuable upon exercise of
Outstanding outstanding warrants and other purchase rights.
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NASDAQ National SNDT
Market Symbol
Risk Factors Investing in our Class A common shares involves certain
risks. You should carefully consider all the information
in this prospectus. In particular, you should read the
section entitled "Risk Factors" for a description of
certain of the risks you should consider before investing
in our shares.
RISK FACTORS
AN INVESTMENT IN OUR CLASS A COMMON SHARES INVOLVES A SIGNIFICANT DEGREE OF
RISK, INCLUDING THE RISKS DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE
RISK FACTORS AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES THAT MAY
EXIST. IF ANY OF THE FOLLOWING EVENTS DO OCCUR, OUR BUSINESS, OPERATING RESULTS
AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED. THIS PROSPECTUS ALSO CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING THE RISKS DESCRIBED
BELOW AND ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE SECTION ENTITLED
"FORWARD-LOOKING STATEMENTS" FOR A FURTHER DISCUSSION OF THESE FACTORS.
RISKS ASSOCIATED WITH OUR FINANCIAL RESULTS
WE HAVE NOT BEEN PROFITABLE IN OUR LAST THREE FISCAL YEARS AND WE HAVE SOLD
SOME OF OUR LIQUID INVESTMENTS AND NON-CORE ASSETS TO FUND OUR BUSINESS
OPERATIONS. WE MAY HAVE TO OBTAIN ADDITIONAL FINANCING TO FUND OUR FUTURE
OPERATIONS.
Because we have not been profitable in the past three years, we have had to
fund our losses through a combination of sales of our liquid investments and
non-core assets. We incurred losses of $906,722 in fiscal 1998, $4,960,964 in
fiscal 1999, and $2,866,907 for the fiscal year ended July 31, 2000. We expect
to continue to incur losses in the near future and possibly longer. If we are
not successful in increasing net revenues, or if there is a material increase in
our expenses, we may be unable to achieve profitability in the future. If we do
not achieve profitability in the future, we would have to obtain additional
financing to fund our operations.
We plan to increase our operating expenses significantly in the foreseeable
future and our operating results will be adversely affected if our revenues do
not increase. We must, among other things, obtain market awareness and
acceptance of our products, increase the scope of our operations, respond to
competitive developments, continue to attract, retain and motivate qualified
personnel and continue to commercialize products incorporating advanced
technologies. These efforts may prove more expensive than we currently
anticipate. We cannot assure you that we will be successful in addressing these
risks, and the failure to do so would have a material adverse effect on our
business, operating results and financial condition.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO RAISE ANY ADDITIONAL FUNDING
NEEDED TO FINANCE OPERATIONS.
On July 31, 1999, we had cash reserves of $1,009,518. Our cash reserves
were $2,387,112 on July 31, 2000. If we do not have sufficient capital to fund
our operations, we may be forced to discontinue product development, reduce our
sales and marketing efforts or forego attractive businesses opportunities. Any
of these outcomes could adversely impact our ability to
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respond to competitive pressures or prevent us from conducting all or a portion
of our planned operations. If our available cash and existing sources of revenue
are insufficient to fund our operations, we may need to raise additional funds,
and additional financing may not be available on acceptable terms, if at all. If
we issue additional equity securities to raise funds, your ownership percentage
of Sand will be reduced.
OUR INABILITY TO ACCURATELY FORECAST OUR RESULTS FROM QUARTER TO QUARTER
MAY AFFECT OUR CASH RESOURCES AND RESULT IN WIDE FLUCTUATIONS IN THE MARKET
PRICE OF OUR STOCK.
Our operating results have varied on a quarterly basis in the past and may
fluctuate significantly in the future as a result of a variety of factors
outside of our control. As a result, we may not be able to accurately predict
our necessary cash expenditures during each quarter or obtain timely financing
to cover any shortfalls. We also believe that period-to-period comparisons of
our operating results may not be meaningful and one should not rely on any such
comparisons as an indication of our future performance. In addition, it is
likely that in one or more future quarters, our operating results will fall
below the expectations of securities analysts and investors. In such event, the
trading price of our Class A common shares could be materially harmed.
THE MARKET PRICE OF OUR CLASS A COMMON SHARES IS LIKELY TO BE VOLATILE,
WHICH MAY RESULT IN LITIGATION THAT COULD BE COSTLY AND DIVERT RESOURCES.
Stock markets have recently experienced extreme price and volume
fluctuations, particularly for the shares of technology companies. These
fluctuations are often unrelated to the operating performance of particular
companies. The broad market fluctuations may adversely affect the market price
of our Class A common shares. When the market price of a company's stock drops
significantly, shareholders often institute securities class actions lawsuits
against that company. A lawsuit against us could cause us to incur substantial
costs and could divert the time and attention of our management and other
resources.
RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A DEVELOPER AND MARKETER OF
SOFTWARE, IT MAY BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND ITS
PROSPECTS.
Your evaluation of our business will be more difficult because of our
limited operating history as a developer and marketer of software. Our prospects
are difficult to predict and may change rapidly. When making your investment
decision, you should consider the risks, expenses and difficulties that we may
encounter or incur as a company now operating in a new and rapidly evolving
market, including our substantial dependence on a single line of products and
our need to manage expanding operations. Our business strategy may not be
successful, and we may not successfully address these risks.
WE PLAN TO INCREASE OUR DIRECT SALES FORCE.
We have historically sold our products primarily through a distribution
network of value-added resellers, resellers and distributors located in the
United States, Canada and the United Kingdom. Direct sales have not played a
large role in our past. We intend to increase our direct sales force. This will
require additional personnel which will increase our expenses. Competition for
sales personnel qualified for these positions is intense. Many of our
competitors have substantially greater resources than we do or have dedicated
greater resources to hiring qualified sales personnel. In addition, we may
experience a significant turnover of our sales force. Turnover tends to slow
sales efforts until replacement personnel are recruited and trained. We cannot
assure you that we will be able to attract and retain adequate sales and
marketing personnel, even after spending significant resources to do so, and the
failure to do so could have a material adverse effect on our business, operating
results and financial condition.
5
WE DEPEND ON KEY PERSONNEL AND THE HIRING OF ADDITIONAL PERSONNEL.
Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing personnel,
many of whom would be difficult to replace. We have an employment contract with
and maintain "key person" life insurance on only one employee, Arthur G.
Ritchie, our Chairman of the Board, President and Chief Executive Officer. We do
not believe the proceeds of Mr. Ritchie's life insurance would adequately
compensate us for his loss. We believe our future success will also depend in
large part upon our ability to attract and retain highly skilled managerial,
engineering, sales and marketing, and finance personnel. Competition for such
personnel is intense, and there can be no assurance that we will be successful
in attracting and retaining such personnel. We have in the past experienced
difficulties in hiring highly qualified sales and engineering personnel, and we
believe that we may have difficulty in attracting such personnel with equity
incentives given that we are a public company. For example, as a result of
market forces, companies in the enterprise software industry have historically
experienced significant fluctuations in their market valuations. To the extent
that our Class A common shares trade at a premium relative to historical
industry averages or to other companies in the enterprise software industry, we
may experience difficulty in attracting qualified personnel. The loss of the
services of any of our key personnel, the inability to attract or retain
qualified personnel in the future or delays in either hiring required personnel
or the rate at which new people become productive, particularly sales personnel
and engineers, could have a material adverse effect on our business, operating
results and financial condition.
OUR PRODUCT SALES CYCLE IS LENGTHY.
The purchase of our products often requires significant, executive-level
investment and system design decisions by our customers. Sales take a long time
to conclude because we must provide a significant level of education about the
use and benefits of our products. We believe that most companies currently are
not yet aware of the benefits of enterprise-wide business intelligence solutions
or of our products and capabilities, nor have such companies deployed business
intelligence solutions on an enterprise-wide basis. Accordingly, the sales cycle
associated with the purchase of our enterprise business intelligence products is
typically three to nine months in length. During this period, a potential sale
is subject to a number of significant risks over which we have little or no
control, including customers' budgeting constraints and internal acceptance
review procedures. Additionally, the sales cycle for our products in the United
Kingdom has historically been, and is expected to continue to be, shorter than
the sales cycle in the United States and Canada. However, as we expand into
Europe, we expect that the sales cycle will be longer than it has been in the
United Kingdom. Based in part upon, among other things, our lengthy sales cycle,
we believe that our quarterly revenues and operating results could vary
significantly in the future, and that excessive delay in product sales could
have a material adverse effect on our business, operating results and financial
condition.
WE MUST CONTINUE TO DEVELOP OUR INDIRECT SALES CHANNELS
Although we plan to expand our direct sales force, our success in
maintaining our indirect channels, value-added resellers, resellers and
distributors will determine our ability to achieve revenue growth and improved
operating margins on product sales, as well as increased worldwide sales, in the
future. Despite the fact that we continue to invest significant resources to
develop our indirect channels, we cannot assure you that we will be able to
continue to attract and retain additional companies in our indirect channels
that will be able to market our products effectively and will be qualified to
provide timely and cost-effective customer support and services. We also cannot
assure you that we will be able to manage conflicts within our indirect channels
or that increasing sales through our indirect channels will not divert
management resources and attention from direct sales. In addition, our
agreements with companies in our indirect channels do not restrict such
companies from distributing competing products, and in many cases may be
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terminated by either party without cause. We cannot assure you that we will be
able to successfully expand our indirect channels or that any such expansion
will result in an increase in revenues, and failure to do so could have a
material adverse effect on our business, operating results and financial
condition.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET.
Our market is developing and intensely competitive. It is highly fragmented
and characterized by rapidly changing technology and evolving standards. Our
current and potential competitors offer a variety of software solutions and
generally fall within four categories:
- vendors of business intelligence software such as Brio Technology,
Inc., Cognos, Business Objects, S.A., Seagate, and Andyne;
- vendors offering alternative approaches to delivering analysis
capabilities to users, such as MicroStrategy, Cognos and Business
Objects S.A.;
- database vendors that offer products which operate specifically with
their proprietary database, such as Microsoft, IBM, Oracle Corporation
or Arbor; and
- other companies that may in the future announce offerings of
enterprise business intelligence solutions.
Our competitive position in our market is uncertain, due principally to the
variety of current and potential competitors and the emerging nature of the
market. We have experienced and we expect to experience increased competition
from current and potential competitors, many of whom have significantly greater
financial, technical, marketing and other resources than we do. Our competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or devote greater resources to the development,
promotion and sales of products than we can. We expect additional competition as
other established and emerging companies enter into the business intelligence
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles and loss of market share, any of which could
have a material adverse effect on our business, operating results and financial
condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Our current or future indirect channel partners may
establish cooperative relationships with our current or potential competitors
and limit our ability to sell products through particular distribution channels.
Accordingly, it is possible that new competitors or alliances among current and
new competitors may emerge and rapidly gain significant market share. Such
competition could have a material adverse effect on our ability to enter into
new licenses, and maintenance and support renewals for existing licenses, of our
products on favorable terms. Competitive pressures may also require us to reduce
the price of our products, which could have a material adverse effect on our
business, operating results and financial condition.
We compete primarily on the basis of product features, time to market, ease
of use, product performance, product quality, analytical capability, user
scalability, open architecture, customer support and price. While we believe we
presently compete favorably with respect to each of these factors, our market is
evolving at a rapid pace.
We cannot assure you that we will be able to compete successfully against
current and future competitors, and the failure to do so could have a material
adverse effect on our business, operating results and financial condition.
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AS WE EXPAND BEYOND NORTH AMERICA, WE WILL BE EXPOSED TO CERTAIN RISKS
INHERENT IN DOING BUSINESS ON AN INTERNATIONAL LEVEL.
Sales to customers outside of the United States and Canada, including sales
generated by our U.K. subsidiary, represented 0%, 6% and 67% of our total
revenue for fiscal 1998, 1999 and 2000, respectively. We have a direct sales
office in the United Kingdom.
A key component of our strategy is our planned expansion into additional
international markets. To facilitate this international expansion, we need to
localize our products for the additional foreign markets. If the revenues
generated by these expanded international operations do not offset the expense
of establishing and maintaining these foreign operations, there could be a
material adverse effect on our business, operating results and financial
condition. To date, we have only limited experience in developing localized
versions of our products and marketing and distributing our products
internationally. We cannot assure you that we will be able to successfully
localize, market, sell and deliver our products in these markets.
There are also additional risks in doing business on an international
level, such as increased difficulty in controlling operating expenses,
unexpected changes in regulatory requirements, tariffs and other trade
barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, seasonal reductions in
business activity, and potentially adverse tax consequences. These risks
could adversely impact the success of our international operations. It is
important to realize that our international sales are generally denominated
and collected in foreign currencies, and we have not historically undertaken
foreign exchange hedging transactions to cover the potential foreign currency
exposure. In fiscal 2000, we incurred a gain on foreign currency translations
from our foreign subsidiaries in an amount of approximately $47,753. We
cannot assure you that one or more of these factors will not have a material
adverse effect on our future international operations and, consequently, on
our business, operating results and financial condition.
WE CURRENTLY DEPEND ON THE SALE OF THE NUCLEUS PRODUCTS TO GENERATE MOST OF
OUR REVENUE AND IF WE ARE UNABLE TO SELL THESE PRODUCTS WE MAY NEVER BECOME
PROFITABLE.
We expect the sale of our Nucleus products to constitute most of our
revenue for the foreseeable future. If customers do not purchase these products,
we do not currently offer any other products or services that would enable us to
become profitable.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO DEVELOP NEW PRODUCTS THAT MEET
CHANGING CUSTOMER REQUIREMENTS RESULTING FROM RAPID TECHNOLOGICAL CHANGE
AND EVOLVING INDUSTRY STANDARDS.
The market for our products is characterized by rapidly changing
technology, evolving industry standards and customer requirements, emerging
competition and frequent new product introductions. Our products incorporate a
number of advanced technologies, including a proprietary data analysis engine, a
distributed architecture, as well as Web access and delivery technology. As a
result, we may be required to change and improve our products in response to
changes in operating systems, applications, networking and connectivity
software, computer and communications hardware, programming tools and computer
language technology. As a result, the life cycle of our products is difficult to
estimate. Our ability to make such changes and improvements will be affected by
our ability to hire and retain highly qualified engineering personnel. In
addition, we attempt to establish and maintain partner alliances with
influential companies in a variety of core technology areas. Our failure to
establish such alliances with leading companies in particular technology areas
could have a material adverse effect on our business, operating results and
financial condition. We cannot assure you that we can successfully respond to
changing technology, identify new product opportunities or develop and bring new
products to market in a timely and cost-effective manner.
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We have in the past experienced delays in software development and there
can be no assurance that we will not experience delays in connection with our
current or future product development activities. In particular, development
efforts in the UNIX server environment are complex, and we have in the past
encountered delays in developing products for this environment. Delays and
difficulties associated with new product introductions or product enhancements
could have a material adverse effect on our business, operating results and
financial condition. Our failure, for technological or other reasons, to develop
and introduce new products and product enhancements on a timely basis that are
compatible with industry standards and that satisfy customer requirements would
have a material adverse effect on our business, operating results and financial
condition.
In addition, we or our competitors may announce enhancements to existing
products, or new products embodying new technologies, industry standards or
customer requirements that have the potential to supplant or provide lower cost
alternatives to our existing products. The introduction of such enhancements or
new products could render our existing products obsolete and unmarketable. We
cannot assure you that the announcement or introduction of new products by us or
our competitors or any change in industry standards will not cause customers to
defer or cancel purchases of existing products, which could have a material
adverse effect on our business, operating results and financial condition.
Furthermore, introduction by us of products with reliability, quality or
compatibility problems could result in reduced orders, delays in collecting
accounts receivable and additional service costs. The failure to introduce a new
product or product enhancement on a timely basis could delay or hinder market
acceptance. Research and development efforts may require us to expend
significant capital and other resources. Any such event could have a material
adverse effect on our business, operating results and financial condition.
WE DEPEND ON THE EMERGING MARKET FOR ENTERPRISE BUSINESS INTELLIGENCE AND
WE CANNOT BE ASSURED OF MARKET ACCEPTANCE OF ENTERPRISE BUSINESS
INTELLIGENCE PRODUCTS.
We are focusing our selling efforts increasingly on larger, enterprise-wide
implementations of our products, and we expect such sales to constitute an
increasing portion of our future revenue growth, if any. To date, our selling
efforts have resulted in limited enterprise-wide implementations of our
products. We believe that most companies currently are not yet aware of the
benefits of enterprise-wide business intelligence solutions or of our products
and capabilities, nor have such companies deployed business intelligence
solutions on an enterprise-wide basis. While we have devoted resources to
promoting market awareness of our products and the needs our products address
(including training our sales personnel and demonstrating our products at
industry conferences and trade shows), we cannot assure you that these efforts
will be sufficient to build market awareness of the need for enterprise business
intelligence or acceptance of our products. Failure of a significant market for
enterprise business intelligence products to develop, or failure of
enterprise-wide implementations of our products to achieve broad market
acceptance, would have a material adverse effect on our business, operating
results and financial condition.
AS A RESULT OF THEIR COMPLEXITY, OUR PRODUCTS MAY CONTAIN UNDETECTED
ERRORS, FAILURES OR VIRUSES AND WE MAY BE SUBJECT TO PRODUCT LIABILITY
CLAIMS FOR SUCH DEFECTS.
Despite our testing of new products and their use by current and potential
customers when first introduced or new enhancements are released, we cannot
assure you that there will be no defects or errors in new products or
enhancements after we commence commercial shipments. Although we have not
experienced material adverse effects resulting from any such defects and errors
to date, we cannot assure you that defects and errors will not be found in new
products or enhancements after we commence commercial shipments, resulting in
loss of revenues, delay in market acceptance or damage to our reputation, which
could have a material adverse effect upon our business, operating results and
financial condition. While our license agreements with our customers typically
contain provisions designed to limit our exposure for potential claims based on
9
errors or malfunctions of our products, it is possible, however, that these
provisions may not be effective under the laws of certain jurisdictions.
Although we have not experienced any product liability claims to date, the sale
and support of our products entails the risk of such claims. Although we carry
insurance against product liability risks, we cannot assure you that such
insurance would be adequate to cover a potential claim. A product liability
claim brought against us could have a material adverse effect on our business,
operating results and financial condition.
THERE IS LIMITED PROTECTION OF OUR PROPRIETARY RIGHTS.
We currently rely primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect our proprietary rights. We also believe that factors such as the
technological and creative skills of our personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining a technology leadership position.
We seek to protect our software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection. We
currently have five United States patents and one patent application. We cannot
assure you that our patent application will result in the issuance of a patent,
or that our patents or our patents applications, if granted, will not be
invalidated, circumvented or challenged, or that the rights granted thereunder
will provide competitive advantages to us or that any of our future patent
applications, if any, will be issued with the scope of the claims sought by us,
if at all. Furthermore, we cannot assure you that others will not develop
technologies that are similar or superior to our technology or design around any
patent that may come to be owned by us. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult, and while we are unable
to determine the extent to which piracy of our software products exists, we can
expect software piracy to be a persistent problem.
In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States and Canada.
There can be no assurance that our means of protecting our proprietary rights in
North America or abroad will be adequate or that competitors will not
independently develop similar technology. We have entered into source code
escrow agreements with a number of our customers and indirect channel partners
requiring release of source code under certain conditions. Such agreements
provide that such parties will have a limited, non-exclusive right to use such
code in the event that there is a bankruptcy proceeding by or against us, if we
cease to do business or, in some cases, if we fail to meet our contractual
obligations. The provision of source code escrows may increase the likelihood of
misappropriation by third parties.
Although we are not currently aware of any claims asserted by third parties
that we infringe on their intellectual property, in the future, we expect that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to license the infringed or
similar technology, our business, operating results and financial condition
would be materially adversely affected.
Finally, in the future, we may rely upon certain software that we may
license from third parties, including software that may be integrated with our
internally developed software and used in our products to perform key functions.
We cannot assure you that these third-party software licenses will be available
to us on commercially reasonable terms or indeed that their suppliers will
remain in business. Our inability to obtain or maintain any such software
10
licenses could result in shipment delays or reductions until equivalent software
could be developed, identified, licensed and integrated, which could have a
material adverse effect on our business, operating results and financial
condition.
RISKS WHICH MAY AFFECT THE VALUE OF YOUR SHARES
SHARES ELIGIBLE FOR FUTURE SALE.
Sales of a substantial number of shares of our Class A common shares and
Class B shares in the public market following this offering could adversely
affect the market price for our shares.
THE EXERCISE OF EXISTING OUTSTANDING WARRANTS AND OPTIONS AND THE NUMBER OF
SHARES AVAILABLE FOR FUTURE ISSUANCE MAY SUBSTANTIALLY DILUTE THE VALUE OF
OUR CLASS A COMMON SHARES.
We are authorized to issue an unlimited number of Class A common shares,
of which 13,137,427 shares were outstanding on December 20, 2000, and we have
reserved an additional 1,524,495 Class A common shares for future issuance.
The issuance of these authorized or reserved shares could substantially
dilute the equity interest of our existing shareholders and could result in a
significant decrease to the market price of our Class A common shares. As of
December 20, 2000, we have issued warrants and granted options and rights to
purchase:
- 589,995 Class A common shares upon exercise of warrants at a
prices ranging from US$5.678 to US$10.00 per share; and
- 934,500 Class A common shares to directors, officers, employees and
consultants upon exercise of options and similar arrangements at
prices ranging from US$0.66 to US$8.63 per share.
We are also authorized to issue an unlimited number of Class B shares,
without par value, none of which are outstanding as of the date of this
prospectus.
THE PRICE OF OUR CLASS A COMMON SHARES ON THE NASDAQ NATIONAL MARKET HAS
BEEN AND CONTINUES TO BE VOLATILE.
The trading price of our Class A common shares on the NASDAQ National
Market has been and continues to be volatile. During the past twelve months our
stock price has ranged from a high of US$12 to a low of US$3.125. The market
price may be affected by, among other things, announcements of new products by
our competitors, fluctuations in our operating results and changes in our
financial position.
OUR CLASS A COMMON SHARES HAVE A LIMITED MARKET AND MAY BE ADVERSELY
AFFECTED BY THE INFLUX INTO THE MARKET OF THE SHARES COVERED BY THIS
PROSPECTUS.
The trading market for our Class A common shares may be adversely affected
by the influx into the market of the Class A common shares covered by this
prospectus. Although it is impossible to predict market influences and
prospective values for securities, it is possible that, in and of itself, the
increase in the number of shares available for public sale could have a
depressive effect on the market and the price of our Class A common shares.
INVESTORS MAY HAVE DIFFICULTY STARTING LEGAL PROCEEDINGS AND ENFORCING
JUDGMENTS AGAINST US AND OUR DIRECTORS AND OFFICERS.
We are incorporated in Canada, a majority of our directors and officers
live in Canada, and most of our assets are located in Canada. As a result, it
may be more difficult for investors to serve legal documents, including claims
upon non-United States resident directors and officers or to enforce judgements
of United States courts. Accordingly, investors may be unable to subject us, or
our non United States directors or officers or experts named in this prospectus
to liability based upon the civil liability provisions of the federal securities
11
laws of the United States, in actions in Canadian courts.
EXISTING STOCKHOLDERS WILL CONTINUE TO EXERCISE EFFECTIVE CONTROL OVER US.
Upon consummation of this offering, our executive officers and
directors, together with entities affiliated with such individuals, will
beneficially own approximately 25.8% of our Class A common shares. Arthur G.
Ritchie, our Chairman of the Board, President and Chief Executive Officer and
a director of Sand, will beneficially own approximately 15.2% of Sand's Class
A common shares, and his wife, Susan Waxman will beneficially own
approximately 0.6% of Sand's Class A common shares. Jerome Shattner,
President of one of our United States subsidiaries, will beneficially own
7.8% of our Class A common shares. These shareholders may, as a practical
matter, continue to be able to control the election of a majority of Sand's
directors and the determination of all corporate actions after this offering.
This concentration of ownership could have the effect of delaying or
preventing a change in control of Sand.
OUR ABILITY TO ISSUE CLASS B SHARES COULD MAKE IT MORE DIFFICULT FOR A
THIRD PARTY TO ACQUIRE US TO THE DETRIMENT OF HOLDERS OF CLASS A
COMMON SHARES.
Our articles of incorporation authorize our board of directors to issue,
at its discretion, an unlimited number of Class B shares. If issued, the
Class B shares may make it difficult for a third party to acquire control of
us, even if a change in control would be beneficial to our shareholders. Our
board has the authority to attach special rights, including voting or
dividend rights, to the Class B shares. However, the voting rights of a Class
B share cannot exceed those of a Class A common share. Class B shareholders
who possess these rights could make it more difficult for a third party to
acquire our company.
WHERE YOU CAN GET MORE INFORMATION
We file annual reports and other information with the SEC. You may read and
copy any of these documents at the SEC's Public Reference Room at 450 Fifth
Street NW, Washington, D.C. 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at (800) SEC-0330. The SEC
maintains an internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. The address of that site is http://www.sec.gov.
We have filed with the SEC a registration statement on Form F-3 to register
the Class A common shares being offered. This prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all the information included in the registration statement. For further
information about us and our Class A common shares, you should refer to the
registration statement and to the exhibits and schedules filed as part of the
registration statement, as well as the documents discussed below.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update or supersede that information.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.
We incorporate by reference the documents listed below:
- Annual report on Form 20-F for the fiscal year ended July 31,
2000, as amended by our Form 20-F/A dated September 29, 2000;
- Form 6-K Report dated December 21, 2000; and
- All annual reports on Form 20-F, any reports on Forms 10-Q and
8-K and certain reports on Form 6-K (which shall state that they
are being incorporated by referenced into this Prospectus) which
we file with the SEC after the date of this Prospectus and prior
to the sale of all of the shares offered hereunder.
The information incorporated by reference is an important part of this
prospectus. We will provide to each person, including any beneficial owner, to
whom a prospectus is delivered, a copy of any or all of the information that has
been incorporated by reference in this prospectus but not delivered
12
with this prospectus. You may request a copy of any of these filings, orally
or in writing, by contacting Peter A. Sampson, our Chief Financial Officer,
at 4141 Sherbrooke Street West, Suite 410, Westmount, Quebec, Canada H3Z 1B8,
telephone (514) 939-3477. Copies will be provided at no cost to you.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. We use words like "believe," "anticipate," "expect," "may," "will,"
"should," "plan," "estimate," "predict," "potential," "continue," and similar
expressions to help identify these forward-looking statements. These statements
are only predictions. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including the risks we face described in "Risk Factors" and elsewhere in this
prospectus.
Forward-looking statements contained in this prospectus include, for
example, statements concerning our plans to market the Nucleus product suite;
plans for on-going research and development; our plans for funding our future
capital requirements and the amounts of those capital requirements; developments
with respect to market conditions and their impact on our existing or planned
product offerings; our estimates of the investments required to realize the
potential of the markets in which we operate and the manner in which we plan to
finance those investments; our strategic goals; our planned product offerings
and partnerships, our expectations about the availability of funds to meet our
funding requirements on favorable terms; our expectations as to the timely and
successful conclusion of negotiations regarding new credit facilities and the
impact of those credit facilities on our financial condition; our expectations
regarding the exchange rate for U.S. dollars and British pounds, the currencies
in which our subsidiaries will generate revenue; and other discussions of our
future plans and strategies, anticipated developments and other matters that
involve predictions of future events.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors described
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our shares, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, operating results and financial
condition. These risks and uncertainties, some of which may be beyond our
control, include the following:
- our ability to successfully market our products,
- our results of our ongoing research and development activities,
- our ability to obtain debt or equity financing as needed and on
favorable terms,
- our ability to receive dividends and other inter-company cash flows
from our subsidiaries,
- political, economic, legal or regulatory changes that negatively
affect our operations,
- our ability to compete effectively in a rapidly evolving marketplace
characterized by intense competition,
- our ability to attract and retain key personnel,
- the impact of technological changes,
- the potential for equipment failure or the occurrence of a natural
disaster, foreign exchange risks, and
13
- a change of control of Sand.
This list is only an example of some of the risks, uncertainties and
assumptions that may affect the forward-looking statements contained in this
prospectus. Before you invest in our shares, you should carefully consider the
information provided in the "Risk Factors" section and the other information in
this prospectus. You should be aware that the occurrence of the events described
in these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
Except as required by applicable laws, we do not intend to publish updates or
revisions of any forward-looking statement we make to reflect new information,
future events or otherwise.
ENFORCEMENT OF LEGAL PROCESS
We are incorporated under the laws of Canada. A majority of our directors
and officers and our independent chartered accountants named in this prospectus
are non-residents of the United States. Most of our assets are located outside
of the United States. As a result, it may be difficult for you to effect service
of legal process within the United States upon those people who are not
residents of the United States predicated upon civil liabilities under the
federal securities laws of the United States. We have been advised by Lavery, de
Billy, general partnership, our Canadian counsel, that (a) in Quebec, where our
principal office is located and where our independent chartered accountants, as
well as some of our officers and directors are domiciled, a Quebec court of
competent jurisdiction will, other than in certain limited circumstances,
recognize and declare enforceable a final and enforceable judgment of a United
States court having jurisdiction as determined under the Civil Code of Quebec
which declares such a liability of Sand or of any of our directors, officers or
independent chartered accountants for a sum of money assessed as compensatory
damages and which is sought to be enforced in Quebec; and (b) an original action
predicated upon civil liabilities contemplated by the federal securities laws of
the United States against Sand or our directors, officers or independent
chartered accountants domiciled in Quebec could be instituted in Quebec, except
where the exclusive jurisdiction of another court or arbitrator has been agreed
upon by the parties, or the Quebec court, upon application of a party, declares
jurisdiction on the ground that it considers the courts of another jurisdiction
to be in a better position to decide the issue. Although we have been advised by
counsel that, as a general rule, in any such original action, a Quebec court of
competent jurisdiction would apply the law of the place where the injurious act
occurred or the law of the place where the person who committed the injurious
act should have foreseen that the damage would occur, counsel is unable to
affirm that, in all circumstances, all provisions of the federal securities laws
of the United States would be applied by the Quebec court.
SERVICE OF PROCESS
We have irrevocably appointed our United States subsidiary, Sand Technology
Systems, Inc., as our agent for service of process in any suit, action or
proceeding with respect to the Class A common shares and for actions brought
under the federal or state securities laws. Its address is 555 Woodbridge
Towers, Route 1, South Iselin, New Jersey 08830 and its telephone number is
(732) 750-4848.
14
NOTE REGARDING CURRENCY
Unless otherwise noted, financial information in this prospectus is
expressed in Canadian dollars. The following table sets forth the high and low
noon exchange rates, the average rates (average of the exchanges rates on the
last day of each month during the period) and the end period rates for Canadian
dollars, expressed in United States dollars (the number of Canadian dollars
needed to purchase one United States dollar), during the indicated periods, as
reported by the Federal Reserve Bank of New York.
YEAR ENDED JULY 31
- -------------------------------------------------------------------------------
1996 1997 1998 1999 2000
High.................. 1.3822 1.3995 1.5112 1.5770 1.5079
Low................... 1.3285 1.3310 1.3713 1.4512 1.4350
Average............... 1.3612 1.3690 1.4336 1.5120 1.4726
Period End............ 1.3747 1.3820 1.5112 1.5070 1.4880
On December 20, 2000, the inverse of the noon buying rate was US$0.6570 = $1.00.
RECENT DEVELOPMENTS
TERMINATION OF EQUITY LINE OF CREDIT
We signed a heads of agreement dated November 6, 2000 with Ladenburg
Thalmann & Co. Inc., Sundowner Investments Limited, and AMRO International S.A..
The agreement
- provided for a final issuance of our Class A common shares
under the equity line of credit provided by our common share
purchase agreement with Sundowner Investments Limited and for
the termination of the equity line of credit upon the closing
of the Canadian private placement described below;
- provided a mutual release of all obligations the parties
had under the common share purchase agreement dated May 26,
2000 with Sundowner Investments Limited (which provided us
with the equity line of credit), the common shares and
warrants purchase agreement dated May 24, 2000 with AMRO
International Limited (under which we issued 451,345 of our
Class A common shares in a private placement transaction),
and our engagement agreement with Ladenburg Thalmann & Co.
Inc. and the termination of those agreements; and
- provided for the payment to Ladenburg Thalmann & Co. Inc. of
$250,000.
We entered into the heads of agreement to terminate the restrictions
in the agreements with Sundowner Investments Limited and Ladenburg Thalmann &
Co. Inc. which was a condition to the completion of the Canadian private
placement transaction described below.
CANADIAN PRIVATE PLACEMENT
Pursuant to a letter agreement dated November 6, 2000 and a purchase
agreement dated November 22, 2000, we have sold to the selling shareholders
described in this prospectus (other than Nucleus International Corporation
and Sprott Securities, Inc.) 2,900,000 Class A common shares for a purchase
price of US$6.00 per share. Sprott Securities Inc. received a cash commission
of US$1,044,000 and warrants to purchase 342,500 Class A common shares
exercisable for a two year period at an exercise price of US$6.00 per share.
15
Sprott Securities Inc. and the selling shareholders are entitled to
customary indemnification from us for any losses or liabilities suffered by them
based upon material misstatements or omissions from the registration statement
or prospectus, except as they relate to information supplied by them to us for
inclusion in the registration statement or prospectus.
We have filed a registration statement, of which this prospectus forms
a part, to permit the selling shareholders to resell the shares they purchased
from us.
USE OF PROCEEDS
The proceeds from the sale of the Class A common shares will be received
directly by the selling shareholders. We will not receive any of those proceeds.
However, we will receive the proceeds, if any, from the exercise of the warrants
granted to Sprott Securities Inc.
SELLING SHAREHOLDERS
The Class A common shares offered under this prospectus are being sold for
the account of the selling shareholders named in the following table. The table
also contains information relating to the selling shareholders' beneficial
ownership of our Class A common shares as of November 30, 2000, and as
adjusted to give effect to the sale of the shares. To our knowledge, except for
Lakeside Financial Services, the selling shareholders have not held any position
or office and have not had any material relationship or material arrangement
with us or any parties related to us within the past three years.
The "Number of Shares to be Sold" and "Shares Owned After Offering" columns
assume no sales are effected by the selling shareholders during the offering
period other than those registered under this registration statement.
Number of Shares
Number of Shares Issuable from Number of
Owned Prior to Exercise of Shares to Shares Owned
Name of Selling Shareholder Offering Warrants be Sold(1) After Offering
- --------------------------- -------- -------- ---------- --------------
GGOF Investment Management Company 30,000 30,000 0
London Life Insurance Company 61,200 61,200 0
The Great-West Life Assurance Company 138,800 138,800 0
Galileo Investment Management, Inc. 330,000 330,000 0
Fallingbrook Fund Ltd. 17,000 17,000 0
RT Capital Management Inc. 185,000 185,000 0
Vertex One Asset Management 17,000 17,000 0
AIG Global Investment Corp. 110,000 110,000 0
TD Asset Management Inc. 250,000 250,000 0
Royal Trust Corporation of Canada in 166,887 166,887 0
Trust for Canadian Equity Growth Fund
Royal Trust Corporation of Canada in 34,928 34,928 0
Trust for Marquest Balanced Fund
Royal Trust Corporation of Canada in 3,256 3,256 0
Trust for Nadal Financial Corp. Equity
Growth
Royal Trust Corporation of Canada in 4,929 4,929 0
Trust for Burnac Corp. Canadian Equity
Growth
CIBC Mellon Trust Co. as Trustee for 150,000 150,000 0
Knight Bain Seath & Holbrook Cap CDN
Fund
Rosseau Limited Partnership 75,000 75,000 0
Working Ventures Canadian Fund, Inc. 304,000 204,000 0
G. Mark Curry 35,000 35,000 0
16
Casurina Limited Partnership 190,000 190,000 0
Synergy Asset Management Inc. 250,000 250,000 0
J. Zechner Associates 17,000 17,000 0
O'Donnell Canadian Emerging Growth Fund 110,000 110,000 0
Strategic Value Global Balanced RSP 50,000 50,000 0
Fund
Selecte Growth Fund 72,000 72,000 0
Montrusco Bolton Inv. Ltd. 18,000 18,000 0
Elliott and Page Generation Wave Fund 45,000 45,000 0
Roland Keiper 17,500 17,500 0
Brian Chapman 17,500 17,500 0
YMG Capital Management Inc. 200,000 200,000 0
Sprott Securities Inc. 342,500 342,500 0
Lakeside Financial Srvices 263,150 263,150 0
The Class A common shares held by Lakeside Financial Services were
acquired by it pursuant to a modification of a July 15, 1994 agreement we
entered into with Nucleus International Corporation under which we acquired
all of the rights in the Nucleus System software, hardware, and intellectual
property. On July 31, 2000, Nucleus International Corporation agreed to
modify the terms of our agreement by permitting us to defer the payment of
US$350,038 until November 15, 2000 and by accepting 263,150 Class A common
shares in lieu of future payments in the amount of US$1,250,000. We issued
263,150 Class A common shares to Lakeside Financial Services, a nominee of
Nucleus international Corporation on July 31, 2000. George Wicker, a director
of Sand, is the Chief Operating Officer and Secretary of Nucleus
International Corporation and an officer, director and shareholder of
Lakeside Financial Services.
The warrants held by Sprott Securities Inc. were issued to it as
part of its compensation for its services in the Canadian private placement
described above.
PLAN OF DISTRIBUTION
The selling shareholders and their pledgees, donees, transferees and other
subsequent owners, may offer their shares at various times in transactions on
the NASDAQ National Market System or in privately negotiated transactions. Sales
may be made at prevailing market prices at the time of sale, at prices related
to those prevailing market prices, at negotiated prices or at fixed prices. The
selling shareholders may also sell the shares under Rule 144 instead of under
this prospectus if Rule 144 is available for those sales. If any Class A common
shares are transferred to any pledgee or donee, such person will be named in a
supplement to this prospectus as a selling shareholder.
The transactions in the Class A common shares covered by this prospectus
may be effected by one or more of the following methods:
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- purchases by a broker or dealer as principal, and the resale by
that broker or dealer for its account under this prospectus,
including resale to another broker or dealer;
- block trades in which the broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of the
block as principal in order to facilitate the transaction; or
- negotiated transactions between selling shareholders and
purchasers without a broker or dealer.
17
The selling shareholders and any broker-dealers or other persons acting
on the behalf of parties that participate in the distribution of the shares may
also be deemed to be underwriters. Any commissions or profits they receive on
the resale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.
As of the date of this prospectus, there is no agreement, arrangement or
understanding between any broker or dealer and any of the selling shareholders
with respect to the offer or sale of the common shares registered under this
prospectus.
We have advised the selling shareholders that during the time they are
engaged in distributing shares covered by this prospectus, they must comply with
the requirements of the Securities Act and Rule 10b-5 and Regulation M under the
Exchange Act. Under those rules and regulations, they:
- may not engage in any stabilization activity in connection with
our securities;
- must furnish each broker which offers common shares covered by
this prospectus with the number of copies of this prospectus which
are required by each broker; and
- may not bid for or purchase any of our securities or attempt to
induce any person to purchase any of our securities other than
as permitted under the Securities Exchange Act of 1934.
We have agreed to bear the expenses incident to the registration of the
shares, other than selling discounts and commissions.
DESCRIPTION OF SECURITIES
Our equity capital consists of two classes of stock - Class A common
shares, without par value, and Class B shares, without par value. We are
authorized to issue an unlimited number of Class A common shares. On December
20, 2000, we had issued and outstanding 13,137,427 Class A common shares and
no Class B shares. On that date, there were additional 1,524,495 Class A
common shares reserved for the following possible future issuances:
- 589,995 Class A common shares upon exercise of warrants at a
prices ranging from US$5.68 to US$10.00 per share; and
- 934,500 Class A common shares upon exercise of options and similar
arrangements held by directors, officers, employees and
consultants at prices ranging from US$0.66 to US$8.63 per share.
Our articles of incorporation authorize our board of directors to
issue, at its discretion, an unlimited number of Class B shares. Our
directors are entitled at any time to issue the Class B shares in series and
to fix the rights, privileges, conditions and restrictions attaching to each
series of Class B shares. Each series of Class B shares will rank on a parity
with all other series of Class B shares and will have priority over Class A
common shares for the payment of dividends and for the distribution of our
assets upon our liquidation, dissolution, winding up, or upon any other
distribution of our assets to our shareholders. In the event of our
liquidation, dissolution, winding up or other distribution of our assets to
our shareholders, the holders of the Class B shares will be entitled to
receive the amount paid up of such shares and all accrued and unpaid
dividends before any amount may be paid to the holders of Class A common
shares.
Subject to any prior rights of the holders of Class B shares, the holders
of our Class A common shares are entitled to receive dividends
18
if, as and when declared by our board of directors out of funds legally
available therefor.
The holders of our Class A common shares are entitled to one vote for
each Class A common share held at all meetings of our shareholders. Our board
of directors has the authority to attach voting rights to the Class B shares.
However, the voting rights of a Class B share cannot exceed those of a Class
A common share. The CANADA BUSINESS CORPORATIONS ACT provides that the rights
and provisions attached to any class of shares may not be modified, amended
or varied unless consented to by special resolution passed by a majority of
not less than two-thirds of the votes cast in person or by proxy by holders
of shares of that class. Our By-laws provide that a quorum of shareholders is
present at our annual or special meeting of shareholders, irrespective of the
number of persons actually present at the meeting, if the holders of not less
than ten per cent (10%) in number of the outstanding shares of Sand carrying
voting rights are present in person or represented by proxy.
There are no limitations on the right of non-resident or foreign owners to
hold or vote our shares under Canadian legislation or our organizational
documents. Under the CANADA BUSINESS CORPORATIONS ACT, a majority of our
directors must be Canadian residents.
We are a resident of Canada under the INCOME TAX ACT (Canada) and any
dividends paid by us to non-residents of Canada are subject to withholding. The
general rate of withholding tax on dividends paid by a company to non-residents
is 25% unless reduced by tax treaty.
Under the present Canada-United States Income Tax Convention (1980), as
amended, if the non-resident does not carry on business in Canada through a
permanent establishment or if our shares are not effectively connected with a
permanent establishment, the rate of withholding tax is reduced to:
- 5% if the beneficial owner is a company residing in the United
States which owns at least 10% of our voting stock; and
- 15% in all other cases.
Upon consummation of this offering, our executive officers and
directors, together with entities affiliated with such individuals, will
beneficially own approximately 25.8% of our Class A common shares. Arthur G.
Ritchie, our Chairman of the Board, President and Chief Executive Officer and
a director of Sand, will beneficially own approximately 15.2% of Sand's Class
A common shares, and his wife, Susan Waxman will beneficially own
approximately 0.6% of Sand's Class A common shares. Jerome Shattner,
President of one of our United States subsidiaries, will beneficially own
approximately 7.8% of our Class A common shares. These shareholders may, as a
practical matter, continue to be able to control the election of a majority
of Sand's directors and the determination of all corporate actions after this
offering. This concentration of ownership could have the effect of delaying
or preventing a change in control of Sand.
LEGAL MATTERS
The validity of the Class A common shares offered in this prospectus will
be passed upon for us by Lavery, de Billy, General Partnership, Montreal,
Quebec, Canada. Georges Dube, a partner in Lavery, de Billy, is the Corporate
Secretary of Sand and beneficially owns 19,000 Class A common shares.
EXPERTS
The consolidated financial statements, including the related notes to those
statements, as of, and for the fiscal years ended July 31, 2000, 1999 and 1998
have been incorporated by reference in this prospectus and elsewhere in the
registration statement in reliance on the report of Deloitte & Touche,
independent chartered accountants, and upon the authority of said firm as
experts in accounting and auditing.
19
The Reconciliation of Financial Statements to United States Generally
Accepted Accounting Principles in Accordance with Item 18 of Form 20-F has been
included herein in reliance upon the report of Deloitte & Touche, independent
chartered accountants, appearing below, and upon the authority of said firm as
experts in accounting and auditing.
20
CLASS A COMMON SHARES
SAND TECHNOLOGY INC.
PROSPECTUS
December 21, 2000