Document:

aethlon_8k-ex1001.htm

 

Exhibit 10.1

 

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is entered into as of November 22, 2010 by and between AETHLON MEDICAL, INC., a corporation organized under the laws of the State of Nevada (“Company”), and Gemini Master Fund, Ltd. (“Investor”).

W I T N E S S E T H:

 

WHEREAS, the Company and the Investor entered into that certain Securities Purchase Agreement dated as of February 12, 2010 (“SPA”), pursuant to which the Company issued to the Investor (a) that certain Convertible Promissory Note of the Company dated as of February 12, 2010 in the original principal amount equal to $660,000 (“Note”), and (b) that certain Warrant to purchase 660,000 Warrant Shares (“Warrant”), in consideration for $600,000, half of which was paid in cash on the Closing Date and half of which was paid by the Investor delivering to the Company that certain Secured Promissory Note in the original principal amount of $300,000 (“Investor Note”); each initially capitalized term used but not defined in this Agreement shall have the meaning ascribed thereto in the SPA, Note or Investor Note, as applicable;

WHEREAS, On July 15, 2010 the Company issued a Secured Convertible Promissory Note (“Tonaquint Note”) and warrants to purchase Common Stock to Tonaquint, Inc. (“Tonaquint Transaction”);

 WHEREAS, on each of September 8, 2010, October 28, 2010 and November 2, 2010, Gemini delivered a Notice of Conversion under the Note (collectively, the “Conversion Notices”) for an aggregate of 447,233 shares of Common Stock, of which 160,750 shares have been delivered to date pursuant to the October 28, 2010 Notice of Conversion;

WHEREAS, a dispute has arisen (a) under the Note as to the applicable adjustment to the Conversion Price, if any, under the Note due to the Tonaquint Transaction, (b) under the Conversion Notices previously delivered by the Investor to the Company under the Note, (c) under the Investor Note as to whether any prepayments are due, and (d) damages with respect to all of the foregoing (collectively, the “Dispute”); and

WHEREAS, the parties wish to resolve the Dispute in accordance with the terms hereof.

NOW THEREFORE, in consideration of the foregoing premises and the covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor agree as follows:

1. Note Modifications.

	
(a)

	
Conversion Price.  Section 2.1(b) of the Note is hereby modified such that the Conversion Price formula under the Note is changed to equal eighty percent (80%) of the average of the three lowest closing bid prices of the Common Stock as reported by Bloomberg L.P. on the Principal Market for the twenty (20) trading days preceding the Conversion Date in lieu of the ten (10) trading days preceding the Conversion Date, provided that in no event will the Conversion Price be greater than the Max Price and there shall no longer be any Floor Price.

  

1

  

	
(b)

	
Common Stock Issuance Limitation.  Notwithstanding anything to the contrary in the Note or in any other Transaction Document, the number of shares of Common Stock that may be issued to the Investor pursuant to a conversion of the Note, combined with an exercise of the Exchange Warrant (as defined below), shall not exceed a cap determined by (a) dividing the sum of (i) the face amount of the Note, plus (ii) an amount equal to all interest that would accrue under the Note during its term (assuming no payments of principal or interest are made prior to the Maturity Date), by a price per share of Common Stock equal to $0.20 (subject to adjustment pursuant to Section 2.1(c) of the Note) and (b) then adding the sum calculated pursuant to the foregoing clause (a) to the maximum number of Warrant Shares (as defined in the Exchange Warrant) that may be acquired by the holder thereof upon exercise of the Exchange Warrant (regardless of whether such exercise is a cashless exercise).

	
(c)

	
Maximum Ownership Percentage.  The Maximum Ownership Percentage under the Note is hereby increased to 9.99%.

2. Warrant Exchange.  The Warrant is hereby terminated and exchanged for a new warrant to purchase 2,727,272 shares of Common Stock in the form of Exhibit A attached hereto (“Exchange Warrant”).  The Company shall duly and validly issue and deliver the original executed Exchange Warrant to the Investor within three (3) business days following the date hereof.  Upon the Investor’s receipt of the Exchange Warrant it shall promptly surrender and return the original Warrant to the Company.

3. Investor Note Payment.  Upon execution hereof, and as a condition to the effectiveness of this Agreement and the issuance of the Exchange Warrant, the Investor shall deliver to the Company $253,794.09 by wire transfer in full payment, accord and satisfaction of all amounts due under the Investor Note, which represents the outstanding principal balance thereof plus all accrued but unpaid interest thereon less the origination fee due to the Investor under Section 4 of the SPA less reimbursement of Investor legal expenses.

4. Conversion Shares.  Upon execution hereof the Company shall deliver to the Investor 286,483 freely tradable shares of Common Stock in full satisfaction of the remaining number of shares of Common Stock due under the Conversion Notices.  The Company shall duly and validly issue and deliver such shares to the Investor by DWAC within three (3) business days following the date hereof.

5. Mutual Release; Recession of Notices of Event of Default.  In consideration of the terms and provisions of this Agreement,  each party, on behalf of itself and its related entities, including, but not limited to, any predecessors, successors, assignors, assigns, owners, partnerships, partners, limited partnerships, limited partners, limited liability companies, members, affiliates, parent corporations, subsidiaries (whether or not wholly owned), divisions, attorneys, officers, directors, employees, stockholders and agents and each of them, shall and do hereby forever relieve, release and discharge the other party each of its related entities, including, but not limited to, any predecessors, successors, assigns, owners, partnerships, partners, limited partnerships, limited partners, limited liability companies, members, affiliates, parent corporations, subsidiaries (whether or not wholly owned), divisions, assignors, assigns, attorneys, officers, directors, employees, stockholders, agents and representatives, from any and all claims, demands, actions, suits, causes of action, debts, costs, expenses, attorneys' fees, damages, and liabilities of any kind or nature, in law, equity or otherwise, including without limitation, any statutory, civil, or administrative claim, whether known or unknown, suspected or unsuspected, fixed or contingent, apparent or concealed (hereafter, the “Claims”), arising out of, related to or connected in any way with the Dispute, provided, however, that nothing herein releases any Claims or rights of any party to enforce the provisions of this Agreement.  The Investor hereby revokes and rescinds any Notice(s) of Default sent to the Company by the Investor prior to the date hereof.  The Investor acknowledges and agrees that as of the date hereof to its knowledge there exists no Default or Event of Default under the Note.  The Company hereby revokes and rescinds any Notice(s) of Default sent to the Investor by the Company prior to the date hereof.  The Company acknowledges and agrees that as of the date hereof there exists no Default or Event of Default under the Investor Note, and upon the Company’s receipt of the payment pursuant to Section 3 above all obligations outstanding under the Investor Note shall have been satisfied.

 

  

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6. Miscellaneous.

 

	
(a)

	
Company Authorization.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and the Exchange Warrant and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of this Agreement and the Exchange Warrant by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith.  This Agreement and the Exchange Warrant have been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms.

 

	
(b)

	
Investor Authorization.  The Investor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.  The execution and delivery of this Agreement by the Investor and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Investor and no further action is required by the Investor, its board of directors or its stockholders in connection therewith.  This Agreement has been duly executed by the Investor and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms.

 

	
(c)

	
No Novation; Rule 144.  The Note as amended hereby shall not constitute a novation or satisfaction and accord of the Note.  The Company hereby acknowledges and agrees that the Note is merely amended hereby and that the Investor has not given any consideration to the Company in connection with such amendment, and this Agreement shall not extinguish or release the Company under any Transaction Document (other than the prior Warrant upon issuance of the Exchange Warrant) or otherwise constitute a novation of its obligations thereunder.  For purposes of Rule 144 promulgated under the Securities Act, the holding period of the Note shall not be affected by this Agreement, and the holding period of the Exchange Warrant shall tack back to February 12, 2010 (the original issue date of the Warrant).  The Company agrees to take all actions necessary to issue all shares of Common Stock issuable upon conversion of the Note without restriction and not containing any restrictive legend.  The Company agrees not to take any position contrary to this paragraph.

 

  

3

  

	
(d)

	
Disclosure.  The Company shall publicly disclose the material terms of this Agreement and the transactions contemplated hereby within three (3) business days following the date hereof. The Company and the Investor shall consult with each other in issuing any press release or the filing or disclosure of any other document with respect to the transactions contemplated hereby, provided however, that the Company may make such disclosures regarding this Agreement and the transactions contemplated hereby as it shall deem necessary in its sole discretion with respect to the content of any current, periodic or annual report filed by it with the Securities and Exchange Commission, including the filing of this Agreement as an exhibit thereto and the financial statements contained in such reports.

 

	
(e)

	
Full Force and Effect.  Except as specifically waived and amended hereby, the Transaction Documents shall remain in full force and effect in accordance with their respective terms.  Except for the waiver and amendment contained herein, this Agreement shall not in any way waive or prejudice any of the rights or obligations of the Investor or the rights or obligations of the Company under the Transaction Documents, or under any law, in equity or otherwise, and such waiver and amendment shall not constitute a waiver or amendment of any other provision of the Transaction Documents nor a waiver or amendment of any subsequent default or breach of any obligation of the Company or the Investor, or of any subsequent right of the Investor or of the Company.  As used in the Transaction Documents, the term “Warrant” or “Warrants” shall refer to the Exchange Warrant in lieu of the Warrant.

 

	
(f)

	
No Representations.  Except for statements expressly set forth in this Agreement, no party has made any statement or representation to any other party regarding a fact relied upon by the other party in entering into this Agreement and no party has relied upon any statement, representation, or promise of any other party, or of any representative or attorney for any other party, in executing this Agreement or in making the settlement provided for in this Agreement.

 

	
(g)

	
Factual Investigation.  Each of the parties has read the Agreement carefully, knows and understands the contents of this Agreement, and has made such investigation of the facts pertaining to the settlement and this Agreement and of all matters pertaining to this Agreement as it deems necessary or desirable.  Each of the parties enters into this agreement without duress and of its own free will.

 

	
(h)

	
Independent Legal Advice.  Each of the parties, by their execution of this Agreement, acknowledges that it has received prior independent legal advice from legal counsel of such party's choice with respect to the advisability of making the settlement provided for in this Agreement and with respect to the advisability of executing this Agreement, or that having been advised of its right to same has knowingly and voluntarily elected not to seek such advice.

 

	
(i)

	
Applicable Law.  This Agreement shall be deemed to have been executed and delivered within the State of New York, and the laws of the State of New York shall apply to the interpretation and enforcement of this Agreement.  The sole and exclusive venue for any dispute arising under this Agreement shall be the state courts located in the County of New York, State of New York or the federal courts located in the Southern District of New York, and the parties agree to submit to the personal jurisdiction of those courts and expressly waive any objections based on forum non conveniens or any other objections to those courts exercising personal jurisdiction over them.

 

  

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(j)

	
Disputed Rights.  The parties explicitly acknowledge and covenant that this Agreement represents a settlement and compromise of disputed rights, Claims and defenses, and that except as specifically set forth in this Agreement, by entering into this Agreement, no party admits or acknowledges any liability, wrongdoing, or negligence, all such liability, wrongdoing or negligence being expressly denied.

 

	
(k)

	
Indemnification and Attorneys' Fees.  In the event that any action, cross-action, suit, arbitration, or other proceeding is instituted to remedy, prevent or obtain relief from a breach of this Agreement, or arising out of a breach of this Agreement, the prevailing party shall recover all of such party's reasonable attorneys' fees and costs incurred in each and every such action, suit, arbitration, or other proceeding, including any and all enforcement proceedings, appeals or petitions.

 

	
(l)

	
Waiver. Modification. Amendment.  No modification, amendment, or waiver of any of the provisions contained in this Agreement, or any future representations, promise, or condition in connection with the subject matter of this Agreement, shall be binding upon any party to this Agreement unless made in writing and signed by such party or by a duly authorized officer or agent of such party.

 

	
(m)

	
Negotiated Agreement.  This Agreement is the result of negotiation and no party shall have the Agreement interpreted against it because it was the drafting party

 

	
(n)

	
Entire Agreement.  This Agreement constitutes an integrated written contract expressing the sole and entire agreement and understanding of the parties to this Agreement with respect to the subject matter hereof, and supersedes any and all prior and contemporaneous discussions, negotiations, agreements and understandings, whether oral or written, with respect to the subject matter hereof.

 

	
(o)

	
Further Assurances.  The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

 

	
(p)

	
Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.  This Agreement may be executed and delivered by facsimile transmission or by email of a digital image format file.

 

 [Signature Page Follows]

 

 

  

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IN WITNESS WHEREOF, as of the date first written above, the parties hereto have duly executed, or caused their authorized officers to duly execute, this Agreement.

AETHLON MEDICAL, INC.

By: /s/ James B. Frakes                             

Name: James B. Frakes

Title:  Chief Financial Officer

GEMINI MASTER FUND, LTD.

By:           GEMINI STRATEGIES, LLC, as investment manager

By: /s/ Steven Winters                                         

  Steven Winters, Managing Member

  

6

  

Exhibit A

FORM OF EXCHANGE WARRANT

(see attached)Sand Technology Inc.: Exhibit 4.12 - Filed by newsfilecorp.com

THE CORPORATION IS NOT A "REPORTING ISSUER" AS THAT TERM IS
DEFINED UNDER APPLICABLE SECURITIES LAWS. THERE IS NO ASSURANCE THAT THE
CORPORATION WILL BECOME A "REPORTING ISSUER". THE COMMON SHARES OF THE
CORPORATION ARE LISTED ON THE OTC BULLETIN BOARD UNDER THE SYMBOL SNDTF.OB. THE
SECURITIES OF THE CORPORATION SUBSCRIBED FOR HEREUNDER WILL BE SUBJECT TO RESALE
RESTRICTIONS UNDER APPLICABLE SECURITIES LAWS. THE CORPORATION HAS NOT
COVENANTED, AND IS UNDER NO OBLIGATION, TO FILE A PROSPECTUS OR COMPLETE A
TRANSACTION WHICH WOULD RESULT IN THE CORPORATION OR ANY SUCCESSOR THERETO
BECOMING A "REPORTING ISSUER". INVESTORS ARE URGED TO CONSULT WITH THEIR
PROFESSIONAL ADVISORS WITH RESPECT TO RESALE RESTRICTIONS APPLICABLE TO
SECURITIES OF THE CORPORATION.

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION.

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF
THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A
DAY AFTER THE LATER OF (i) THE DATE WHICH IS THE CLOSING DATE, AND (ii) THE DATE
SAND TECHNOLOGY INC. BECAME A REPORTING ISSUER IN ANY PROVINCE OR
TERRITORY.

SAND TECHNOLOGY INC.

NON-BROKERED PRIVATE PLACEMENT 
SUBSCRIPTION AGREEMENT FOR
UNITS

TO:      SAND TECHNOLOGY
INC.

The undersigned (the “Subscriber”) hereby irrevocably
subscribes for and agrees to purchase from Sand Technology Inc. (the
“Corporation”) that number of units (the “Units”) set out below at
a price of $900 per Unit. Each Unit consists of one 8% Secured Convertible
Debenture (face value $900) due December 31, 2017, redeemable at the option of
the Corporation if the bid price of the stock has been above $1.50 for sixty
(60) consecutive trading days, and convertible into Class A common shares (a
“Common Share”) at $0.45 per share and one thousand share purchase
warrants (the “Warrants”) of the Corporation. Each Warrant entitles its
holder thereof to purchase one additional Common Share (a “Warrant
Share”) of the Corporation at a price of $0.70 per Warrant Share at any time
until the earlier of the close of business on the day which is thirty-six (36)
months from the Closing Date (as defined herein) or the sixtieth
(60th) consecutive trading day in which the bid price of the Common
Shares has been above $1.50. The Subscriber agrees to be bound by the terms and
conditions set forth in the attached “Terms and Conditions of Subscription for
Units” including without limitation the representations, warranties and
covenants set forth in the applicable schedules attached thereto. The Subscriber
further agrees, without limitation, that the Corporation may rely upon the
Subscriber’s representations, warranties and covenants contained in such
documents.

1

SUBSCRIPTION AND SUBSCRIBER INFORMATION

Please print all information (other than signatures), as
applicable, in the space provided below

	 	 	 	 
	 	 	 	Number of Units: _____________________________x $900
      
	(Name of Subscriber)    	  	 	 
	  	  	 	= 
	Account
      Reference (if applicable): ________________	 	 
	  	  	 	Aggregate Subscription Price: $
  ______________________
	By:
      _______________________________________	 	                 
                         
                         (the
      “Subscription Price”) 
	     
       Authorized Signature 	  	 	 	 
	 	 	 	 	 
	     	  	 	  	  
	(Official
      Capacity or Title – if the Subscriber is not an individual) 		If the Subscriber is signing as agent for a principal
      (beneficial purchaser) and is not purchasing as trustee or
      agent for accounts fully managed by it, complete the following:
    
	  	  	 
	  	     	 
	(Name of
      individual whose signature appears above if different than the name of the
      subscriber printed above.) 		 	 
	  	  	 	(Name of Principal) 	     
	     	  	 	  	  
	(Subscriber’s Address, including Municipality and Province) 	 	     	  
	 	(Principal’s Address) 	     
	  	  	 	  	  
	     	  	 	  	  
	S.I.N. or
      Taxation Account of Subscriber 	 	  	     
	     	  	 	  	  
	(Telephone Number)    	(Email Address) 	 	     	  
	  	  	 	  	  
	Register the Securities as set forth below:
      	 	Deliver the Securities as set forth below:
    
	  	  	 	  	  
	     	  	 	  	  
	(Name) 	  	 	(Name) 	     
	  	  	 	  	  
	     	  	 	  	  
	(Account Reference,
      if applicable) 	  	 	(Account Reference, if applicable) 	     
	  	  	 	  	  
	     	  	 	  	  
	(Address, including
      Postal Code) 	  	 	(Address) 	     
	  	  	 	  	  
	  	  	 	  	  
	  	  	 	(Contact Name) 	(Telephone Number) 
	 	 	 	 	 
	 	 	 	 	 
	Number and kind of securities of the Corporation held, directly
    or indirectly, if any: 		State whether Subscriber is an insider of the
      Corporation: 
	 	 	 
	 	 	Yes  [    
      ]                
      No  [     ]
	 	 	 
	 	 	 
	 	 	 

2

The Corporation hereby accepts the subscription for Units as
set forth in this Subscription Agreement on the terms and conditions contained
in this Subscription Agreement (including all applicable schedules) this
______day of _______________, 2008.

	 	SAND TECHNOLOGY
      INC. 
	 	 	  
	 	Per: 	
	 	 	Authorized Signing Officer 

3

TERMS AND CONDITIONS OF SUBSCRIPTION FOR UNITS

FOR VALUE RECEIVED, the Corporation promises to pay to the
subscriber or its registered assigns (the “Holder”, and together with the other
Holders of Debentures (as defined below), collectively the “Holders”)), or shall
have paid pursuant to the terms hereunder, the principal sum of $
________________ by December 31, 2017, or such earlier date as this Debenture is
required or permitted to be repaid as provided hereunder (the “Maturity Date”),
and to pay interest as Payment in Kind (Common Shares in lieu of cash) at a rate
of 8% on the aggregate unconverted and then outstanding principal amount of this
debenture in accordance with the provisions hereof. Interest will not begin to
accrue until January 1, 2009. This debenture is subject to the following
additional provisions:

ARTICLE 1 - INTERPRETATION 

1.1 Definitions

     Whenever used in this
Subscription Agreement, unless there is something in the subject matter or
context inconsistent therewith, the following words and phrases shall have the
respective meanings ascribed to them as follows:

“Bankruptcy Event” means any of the following events:
(a) the Corporation or any Significant Subsidiary thereof commences a case or
other proceeding under any bankruptcy, reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction relating to the Corporation or any Significant
Subsidiary thereof; (b) the Corporation or any Significant Subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (c) the Corporation or any
Significant Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not discharged or
stayed within sixty (60) calendar days after such appointment; (d) the
Corporation or any Significant Subsidiary thereof makes a general assignment for
the benefit of creditors; (e) the Corporation or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (f) the Corporation or any
Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

“Base Conversion Price” shall have the meaning set forth
in Article 4.2.

“Business Day” means a day other than a Saturday, Sunday
or any other day on which the principal chartered banks located in Montréal are
not open for business.

“Change of Control Transaction” means the occurrence
after the date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” of effective control (whether through
legal or beneficial ownership of capital stock of the Corporation, by contract
or otherwise) of in excess of 50% of the voting securities of the Corporation
(other than by means of conversion or exercise of the Debentures and the
Warrants), or (b) the Corporation merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Corporation and,
after giving effect to such transaction, the shareholders of the Corporation
immediately prior to such transaction own less than 50% of the aggregate voting
power of the Corporation or the successor entity of such transaction, or (c) the
Corporation sells or transfers all or substantially all of its assets to another
Person and the shareholders of the Corporation immediately prior to such
transaction own less than 50% of the aggregate voting power of the acquiring
entity immediately after the transaction, or (d) a replacement at one time or
within a three year period of more than one-half of the members of the
Corporation’s board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), or (v) the execution by the
Corporation of an agreement to which the Corporation is a party or by which it
is bound, providing for any of the events set forth in clauses (i) through (iv)
above.

4

“Closing” shall have the meaning ascribed to such term
in Article 10.

“Closing Date” shall have the meaning ascribed to such
term in Article 10. 

“Closing Time” shall have the meaning ascribed to such
term in Article 10. 

“Collateral” has the collective meanings set forth in
the Security Documents.

“Collateral Agent” shall mean the agent as appointed
pursuant to the Intercreditor Agreement.

“Common Shares” means the common shares, no par value,
of the Corporation and shares of any other class of securities into which such
securities may hereafter be reclassified or changed.

“Common Share Equivalents” means all Common Shares or
any securities of the Corporation which would entitle the holder thereof to
acquire at any time Common Shares (including without limitation, any debt,
preferred shares, rights, options, warrants or other instrument that is at any
time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Shares), whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued in
connection with such issuance, at an effective price per share which is less
than the Conversion Price then in effect. If the Corporation issues any
securities convertible or exchangeable into Common Shares, the maximum number of
shares of Common Shares issuable there under shall be deemed to be Common Share
Equivalents issued as of the time of such issue, if the consideration per share
of such Common Shares Equivalents (as hereinafter determined) is less than the
Conversion Price then in effect. Common Shares Equivalents, however, shall not
include the issuance of (a) shares of Common Shares or options to employees,
officers or directors of the Corporation pursuant to any share or option plan
duly adopted by a majority of the non-employee members of the Board of Directors
of the Corporation or a majority of the members of a committee of non-employee
directors established for such purpose (b) securities upon the conversion of any
securities issued hereunder or other securities sold as part of the same
offering, convertible securities, options or warrants issued and outstanding on
the date of this Debenture, provided that such securities have not been amended
since the date of this Debenture to increase the number of such securities, and
(c) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to an entity which is, itself or
through its subsidiaries, an operating corporation in a business synergistic
with the business of the Corporation and in which the Corporation receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Corporation is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.

“Conversion Date” shall have the meaning set forth in
Article 3.1.

“Conversion Price” shall have the meaning set forth in
Article 3.2.

“Conversion Shares” means, collectively, the Common
Shares issuable upon conversion of this Debenture in accordance with the terms
hereof.

“Corporation” means Sand Technology Inc. and includes
any successor corporation to or of the Corporation.

“Debenture” means one of the 8% Secured Convertible
Debenture (face value $900) of the Corporation due December 31, 2017 and
convertible into Common Shares at $0.45 per share issued to the Holders.

“Debenture Register” shall have the meaning set forth in
Article 2.2.

3

“Dilutive Issuance” shall have the meaning set forth in
Article 4.2.

“Dilutive Issuance Notice” shall have the meaning set
forth in Article 4.2.

“Event of Default” shall have the meaning set forth in
Article 6.

“Fundamental Transaction” shall have the meaning set
forth in Article 4.4.

“Indebtedness” shall mean all obligations and
liabilities of the Corporation, whether matured or unmatured, liquidated or
unliquidated, direct or indirect, absolute or contingent, joint or several, due
or to become due, now existing or hereafter arising, voluntary or involuntary,
known or unknown.

“Intellectual Property Security Agreement” means that
certain Intellectual Property Security Agreement dated as of the date hereof
among the Corporation and the Collateral Agent, as such Intellectual Property
Security Agreement may from time to time be amended, modified, supplemented or
restated pursuant to and in compliance with the terms thereof. 

“Intercreditor Agreement” means that certain
Intercreditor and Collateral Agency Agreement entered into as of the date hereof
among the Corporation, the Holders and the Collateral Agent, as such
Intercreditor Agreement may from time to time be amended, modified, supplemented
or restated pursuant to and in compliance with the terms thereof. 

“Inter-Creditor Priority Agreement” means that certain Inter-Creditor
  Priority Agreement entered into as of the date hereof among the Corporation,
  Arthur Ritchie and the Collateral Agent, as such Inter-Creditor Priority
  Agreement may from time to time be amended, modified, supplemented or restated
  pursuant to and in compliance with the terms thereof.

“Interest Payment Date” shall have the meaning
set forth in Article 2.1

“Late Fees” shall have the meaning set forth in Article
2.2 a).

“Lien” shall mean any valid and enforceable interest in
any property, whether real, personal or mixed, securing an indebtedness,
obligation or liability owed to or claimed by any Person other than the owner of
such property, whether such indebtedness is based on the common law or any
statute or contract and including, but not limited to, a security interest,
pledge, mortgage, assignment, conditional sale, trust receipt, lease,
consignment or bailment for security purposes.

“Majority Holders” means, at any time of determination,
the Holders holding a majority of the aggregate principal amount of the
Debentures outstanding.

“Notice of Conversion” shall have the meaning set forth
Article 3.1.

“Offering” means the offering of Units pursuant to this
Subscription Agreement. 

“Original Issue Date” shall mean the date of the first
issuance of the Debentures.

“Permitted Indebtedness” means (a) the Indebtedness
existing on the Original Issue Date and set forth on Schedule “G” of the
Subscription Agreement, (b) up to $750,000 in additional Indebtedness, (c) lease
obligations and purchase money indebtedness of up to $750,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets and (d) any
factoring of receivables, which the Corporation shall be entitled to do without
restriction.

“Permitted Lien” means the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes, assessments and
other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith judgment
of the management of the Corporation) have been established in accordance with
GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the
Corporation’s business, such as carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising in the ordinary
course of the Corporation’s business, and which (x) do not individually or in
the aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Corporation and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; and (c) Liens incurred in connection with Permitted
Indebtedness provided that such Liens are not secured by assets of the
Corporation or its Subsidiaries other than the assets so acquired or leased.

4

“Person” means any individual (whether acting as an
executor, trustee administrator, legal representative or otherwise),
corporation, firm, partnership, sole proprietorship, syndicate, joint venture,
trustee, trust, unincorporated organization or association, and pronouns have a
similar extended meaning.

“Securities Laws” means, as applicable, the securities
laws, regulations, rules, rulings and orders in each of the provinces of Canada,
the applicable policy statements or regulations issued by the securities
regulators in each of the provinces of Canada.

“Security Agreement” means that certain Deed of Hypothec
to secure payment of Debentures by the Corporation in favor of the Collateral
Agent dated as of the date hereof, as such Deed of Hypothec to secure payment of
Debentures may from time to time be amended, modified, supplemented or restated
pursuant to and in compliance with the terms thereof.

“Security Documents” means all security agreements,
pledge agreements, collateral assignments, and other documents, including the
Deed of Hypothec to secure payment of Debentures, the Intellectual Property
Security Agreement and the Inter-Creditor Priority Agreement, executed in
connection with this Agreement and granting to Holders a real right on or liens
and security interests in the Collateral, all renewals, amendments, supplements,
restatements, modifications or extensions of such documents, and any such
documents hereafter executed in favor of Holders to secure payment of all or any
part of the Debentures or the liabilities and obligations of the Corporation
hereunder, together with all financing statements and other documents necessary
to record or perfect the liens granted by any of the foregoing.

“Share Delivery Date” shall have the meaning set forth
in Article 3.3 b).

“Significant Subsidiary” means each of the following:
(i) Sand Technology Deutschland GmbH, an entity existing under the laws of
Germany, (ii) Sand Technology Limited, a company existing under the laws of
England, (iii) Sand Technology Corporation, a Delaware corporation, (iv) STSI
Licensing, LLC, a New Jersey limited liability company, and (v) Sand Technology
Ireland Limited, an entity existing under the laws of Ireland.

“Subscriber” means the subscriber for Units as set out
on the face page of this Subscription Agreement.

“Subscription Agreement” means this subscription
agreement (including any schedules hereto) and any instrument amending this
Subscription Agreement; “hereof”, “hereto”, “hereunder”,
“herein” and similar expressions mean and refer to this Subscription
Agreement and not to a particular Article or Section; and the expression
“Article” or “Section” followed by a number means and refers to the specified
Article or Section of this Subscription Agreement.

“Subscription Price” shall have the meaning ascribed to
such term on the face page of this Subscription Agreement.

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“Term Sheet” means the term sheet delivered to potential
purchasers of Units, a copy of which is attached hereto as Schedule “A”.

“Trading Market” means any of (i) a national securities
exchange; (ii) the NASDAQ National Market; or (iii) an established quotation
service for over the counter securities.

“Volume Weighted Average Trading Price” or
“VWAP”means the volume weighted average trading price of the listed
securities, calculated by dividing the total value by the total volume of
securities traded for the relevant period. 

1.2 Gender and Number

     Words importing the singular
number only shall include the plural and vice versa, words importing the
masculine gender shall include the feminine gender and words importing persons
shall include firms and corporations and vice versa.

1.3 Currency

     Unless otherwise specified, all
dollar amounts in this Subscription Agreement, including the symbol “$”,
are expressed in United States dollars.

1.4 Subdivisions, Headings and Table of Contents

     The division of this Subscription
Agreement into Articles, Sections, Schedules and other subdivisions, the
inclusion of headings and the provision of a table of contents are for
convenience of reference only and shall not affect the construction or
interpretation of this Subscription Agreement. The headings in this Subscription
Agreement are not intended to be full or precise descriptions of the text to
which they refer. Unless something in the subject matter or context is
inconsistent therewith, references herein to an Article, Section, Subsection,
paragraph, clause or Schedule are to the applicable article, section,
subsection, paragraph, clause or schedule of this Subscription Agreement.

ARTICLE 2 - INTEREST

2.1 Payment of Interest in kind (Common Shares in lieu of
cash)

The Corporation shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture at
the rate of 8% per annum, payable on each Conversion Date subsequent to January
1, 2009 (as to that principal amount then being converted), and on the Maturity
Date (except that, if any such date is not a Business Day, then such payment
shall be due on the next succeeding Business Day) (each such date, an
“Interest Payment Date”), in Common Shares at a rate of $0.45 per
share.

2.2 Interest Calculations

Interest shall be calculated on the basis of a 360-day year and
shall accrue daily commencing on the January 1, 2009 until payment in full of
the principal sum, together with all accrued and unpaid interest, liquidated
damages and other amounts which may become due hereunder, has been made.
Interest shall cease to accrue with respect to any principal amount converted,
provided that the Corporation actually delivers the Conversion Shares within the
time period required by Article 3.3 b). Interest paid in kind (Common Shares in
lieu of cash) hereunder will be paid to the Person in whose name this Debenture
is registered on the records of the Corporation regarding registration and
transfers of this Debenture (the “Debenture Register”).

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     A) Late Fee. All overdue
accrued and unpaid interest paid in kind (Common Shares in lieu of cash) to be
paid hereunder shall entail a late fee at an interest rate equal to the lesser
of 8% per annum or the maximum rate permitted by applicable law (“Late Fees”)
which shall accrue daily from the date such interest is due hereunder through
and including the date of payment in full.

Prepayment. Except as otherwise set forth in this
Debenture, the Corporation may not prepay any portion of the principal amount of
this Debenture without the prior written consent of the Holder. The Debentures
may be redeemable at the option of the Corporation if the bid price of the stock
has been above $1.50 for sixty (60) consecutive trading days,

ARTICLE 3 – CONVERSION

3.1 Voluntary Conversion. 

At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture shall be convertible, in whole or in
part, Common Shares at the option of the Holder, at any time and from time to
time. The Holder shall effect conversions by delivering to the Corporation a
Notice of Conversion, the form of which is attached hereto as Schedule B (a
“Notice of Conversion”), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion shall be
effected (a “Conversion Date”). If no Conversion Date is specified in a
Notice of Conversion, the Conversion Date shall be the date that such Notice of
Conversion is deemed delivered hereunder. To effect conversions hereunder, the
Holder shall not be required to physically surrender this Debenture to the
Corporation unless the entire principal amount of this Debenture plus all
accrued and unpaid interest thereon has been so converted. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture in an amount equal to the applicable conversion. The Holder and the
Corporation shall maintain records showing the principal amount(s) converted and
the date of such conversion(s). The Corporation may deliver an objection to any
Notice of Conversion within eight (8) Business Days of delivery of such Notice
of Conversion. In the event of any dispute or discrepancy, the records of the
Corporation shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on the
face hereof.

3.2 Conversion Price

The conversion price of the Debentures in effect on any
Conversion Date shall be equal to $0.45 (subject to adjustment herein) (the
“Conversion Price”).

3.3 Mechanics of Conversion.

     A) Conversion Shares Issuable
Upon Conversion of Principal Amount. The number of Common Shares issuable
upon a conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
by (y) the Conversion Price.

     B) Delivery of Certificate
Upon Conversion. Not later than three (3) trading days after each Conversion
Date (the “Share Delivery Date”), the Corporation shall deliver, or cause
to be delivered, to the Holder (a) a certificate or certificates representing
the Conversion Shares which, on or after the Effective Date, shall be free of
restrictive legends and trading restrictions (other than those which may then be
required by the Subscription Agreement) representing the number of Common Shares
being acquired upon the conversion of this Debenture and (b) Common Shares paid
in kind as interest (Common Shares in lieu of cash) in the amount of accrued and
unpaid interest. On or after the Effective Date, the
Corporation shall use its best efforts to deliver any certificate or
certificates required to be delivered by the Corporation under this Article 3
electronically through an established clearing corporation performing similar
functions. 

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     C) Failure to Deliver
Certificates. If in the case of any Notice of Conversion such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
third trading day after the Conversion Date, the Holder shall be entitled to
elect by written notice to the Corporation at any time on or before its receipt
of such certificate or certificates, to rescind such Notice of Conversion, in
which event the Corporation shall promptly return to the Holder any original
Debenture delivered to the Corporation and the Holder shall promptly return to
the Corporation the Common Shares any certificates representing the principal
amount and accrued and unpaid interest of this Debenture tendered for conversion
under such rescinded Notice of Conversion. 

     D) Obligation Absolute;
Partial Liquidated Damages. If the Corporation fails for any reason to
deliver to the Holder such certificate or certificates pursuant to Article 3.3
b) by the third Trading Day after the Conversion Date, the Corporation shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, for each
$900 of principal amount being converted, $10 per Trading Day (increasing to $20
per Trading Day after 5 trading days after such damages begin to accrue) for
each Trading Day after such third Trading Day until such certificates are
delivered. The exercise of any such rights shall not prohibit the Holder from
seeking to enforce damages pursuant to any other Article hereof or under
applicable law.

     D) Reservation of Shares
Issuable Upon Conversion. The Corporation covenants that it will at all
times reserve and keep available out of its authorized and unissued Common
Shares for the sole purpose of issuance upon conversion of this Debenture and
payment of interest on this Debenture, each as herein provided, free from
pre-emptive rights or any other actual contingent purchase rights of Persons
other than the Holder (and the other holders of the Debentures), not less than
such aggregate number of Common Shares as shall (subject to the terms and
conditions set forth in the Subscription Agreement) be issuable (taking into
account the adjustments and restrictions of Article 4) upon the conversion of
the outstanding principal amount of this Debenture and payment of interest
hereunder. The Corporation covenants that all Common Shares that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid and
non-assessable.

     E) Fractional Shares. No
fractional Common Shares shall be issued upon exercise of any Warrants and no
payments or adjustment shall be made upon any exercise on account of any cash
dividends on the Common Shares issued upon such exercise.

     F) Transfer Taxes. The
issuance of certificates for Common Shares on conversion of this Debenture shall
be made without charge to the Holder hereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificates, provided that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than that of
the Holder of this Debenture so converted and the Corporation shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.

ARTICLE 4 – CERTAIN ADJUSTMENTS

4.1 Share Dividends and Share Splits

If the Corporation, at any time while this Debenture is
outstanding: (a) pays a share dividend or otherwise makes a distribution or
distributions payable in Common Shares or any Common Shares Equivalents (which,
for avoidance of doubt, shall not include any Common Shares issued by the
Corporation upon conversion of, or payment of interest on, the Debentures); (b) subdivides
outstanding Common Shares into a larger number of shares; (c) combines
(including by way of a reverse share split outstanding Common Shares into a
smaller number of shares; or (d) issues, in the event of a reclassification
Common Shares, any shares of share capital of the Corporation, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Shares (excluding any treasury shares of the
Corporation) outstanding immediately before such event and of which the
denominator shall be the number of Common Shares outstanding immediately after
such event. Any adjustment made pursuant to this Article shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.

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4.2 Subsequent Equity Sales.

If the Corporation or any Subsidiary thereof, as applicable, at
any time while this Debenture is outstanding, sells or grants any option to
purchase or sells or grants any right to re-price its securities, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or
other disposition) any Common Shares Equivalents entitling any Person to acquire
Common Shares at an effective price per share that is lower than the then in
effect Conversion Price (such lower price, the “Base Conversion Price”
and such issuances collectively, a “Dilutive Issuance”) (if the holder of
the Common Shares Equivalents so issued shall at any time, whether by operation
of purchase price adjustments, reset provisions, floating conversion, exercise
or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive Common
Shares at an effective price per share that is lower than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price on such date of the Dilutive Issuance), then the Conversion Price shall be
reduced to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Shares Equivalents are issued. The Corporation shall notify
the Holder in writing, no later than the second Business Day following the
issuance of any Common Shares Equivalents subject to this Article 4.2,
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”). For purposes of clarification, whether or
not the Corporation provides a Dilutive Issuance Notice pursuant to this Article
4.2, upon the occurrence of any Dilutive Issuance, the Holder is entitled to
receive a number of Conversion Shares based upon the Base Conversion Price on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of Conversion.

4.3 Pro Rata Distributions

If the Corporation, at any time while this Debenture is
outstanding, distributes to all holders of Common Shares (and not to the
Holders) assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security (other than the Common Shares, which
shall be subject to Article 4.2, then in each such case the Conversion Price
shall be adjusted by multiplying such Conversion Price in effect immediately
prior to the record date fixed for determination of shareholders entitled to
receive such distribution by a fraction of which the denominator shall be the
VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then fair market value
at such record date of the portion of such assets so distributed applicable to
one (1) outstanding Common Share as determined by the Board of Directors of the
Corporation in good faith. In either case the adjustments shall be described in
a statement delivered to the Holder describing the portion of assets so
distributed or such subscription rights applicable to one (1) Common Shares.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

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4.4 Fundamental Transaction

If, at any time while this Debenture is outstanding, (A) the
Corporation effects any merger or consolidation of the Corporation with or into
another Person, (B) the Corporation effects any sale of all or substantially all
of its assets in one transaction or a series of related transactions, (C) any
tender offer or exchange offer (whether by the Corporation or another Person) is
completed pursuant to which holders of Common Shares are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the
Corporation effects any reclassification of the Common Shares or any compulsory
share exchange pursuant to which the Common Shares is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then, upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction. If holders of Common Shares are given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the alternate
consideration it receives upon any conversion of this Debenture following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Corporation or surviving entity in such
Fundamental Transaction shall issue to the Holder a new debenture consistent
with the foregoing provisions and evidencing the Holder’s right to convert such
debenture into alternate consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this Article
4.5 and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

4.5 Calculations

All calculations under this Article 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Article 4, the number of Common Shares deemed to be issued and
outstanding as of a given date shall be the sum of the number of Common Shares
(excluding any treasury shares of the Corporation) issued and outstanding.

4.6 Notice to the Holder.

     A) Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to any provision
of this Article 4, the Corporation shall promptly mail to each Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.

     B) Notice to Allow Conversion
by Holder. If (a) the Corporation shall declare a dividend (or any other
distribution in whatever form) on the Common Shares, (b) the Corporation shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Shares, (c) the Corporation shall authorize the granting to all holders of the
Common Shares of rights or warrants to subscribe for or purchase any shares of
share capital of any class or of any rights, (D) the approval of any
shareholders of the Corporation shall be required in connection with any
reclassification of the Common Shares, any consolidation or merger to which the
Corporation is a party, any sale or transfer of all or substantially all of the
assets of the Corporation, of any compulsory share exchange whereby the Common
Shares is converted into other securities, cash or property or (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, then, in each case,
the Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Debenture, and as it shall appear upon the
Debenture Register, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Shares of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Shares of
record shall be entitled to exchange their Common Shares for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver
such notice or any defect therein or in the delivery thereof shall not affect
the validity of the corporate action required to be specified in such notice.
The Holder is entitled to convert this Debenture during the 20-day period
commencing on the date of such notice through the effective date of the event
triggering such notice. 

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ARTICLE 5 – NEGATIVE COVENANTS

5.1 As long as more than 20% of the aggregate principal
amount of the Debentures issued on the Original Issue Date pursuant to the
Subscription Agreements between the Corporation and the investors signatory
thereto remain outstanding and unconverted, the Corporation shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, without the prior
written approval of the member of the Board of Directors of the Corporation
appointed by the Holders :

     A) other than Permitted
Indebtedness and only if the maximum amount of the Debenture is issued, enter
into, create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, on or
with respect to any of its property or assets now owned or hereafter acquired or
any interest therein or any income or profits there from.

     B) other than Permitted Liens,
enter into, create, incur, assume or suffer to exist any Liens of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from;

     C) amend its constating
documents, including without limitation, the certificate of incorporation and
bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     D) Without the prior written
consent of the member of the Board of Directors of the Corporation appointed by
the Holders, which shall not be unreasonably withheld, the Corporation will not
sell, transfer, assign, pledge, collaterally assign, exchange or otherwise
dispose of the Collateral, other than the sale of inventory in the ordinary
course of business and the sale of obsolete or worn out equipment. If the
Collateral, or any part thereof, is sold, transferred, assigned, exchanged, or
otherwise disposed of in violation of these provisions, the security interest of
the Holders shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, exchange or other disposition, and the
Corporation will hold the proceeds thereof for the benefit of the Holders, and
promptly transfer such proceeds to the Holders in kind.

5.2 Use of Funds

     Proceeds from the sale of the
Units shall be limited to general corporate purposes including increased
marketing / advertising efforts, normal working capital needs and company
expansion. No pay down of debt is allowed unless the amount of cash resources
after such pay down would be equal or superior to the outstanding amount
subscribed under this Subscription Agreement (excluding specifically monthly
payment of interests which the Corporation shall be entitled to pay at all
time). Salary and compensation structure of existing personnel shall remain
relatively constant including normal increases for the next 18 months.

ARTICLE 6 – EVENTS OF DEFAULT

6.1 “Event of Default” means, wherever used
herein, any of the following events (whatever the reason for such event and
whether such event shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):

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     A) any default in the payment of
(a) the principal amount of any Debenture or (b) interest, liquidated damages
and other amounts owing to a Holder on any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an interest
payment or other default under clause (b) above, is not cured within 10 trading
days;

     B) the Corporation shall fail to
observe or perform any other covenant or agreement contained in the Debentures
which failure is not cured, if possible to cure, within 10 trading days; 

     C) a default or event of default
(subject to any grace or cure period provided in the applicable agreement
document or instrument) shall occur under (a) any of the Security Documents or
(b) any other material agreement, lease, document or instrument to which the
Corporation or any Subsidiary is obligated (and not covered by clause (vi)
below);

     D) any representation or warranty
made in this Debenture, any Security Document, any written statement pursuant
hereto or thereto or any other report, financial statement or certificate made
or delivered to the Holder or any other holder of Debentures shall be untrue or
incorrect in any material respect as of the date when made or deemed made;

     E) the Corporation or any
Significant Subsidiary shall be subject to a Bankruptcy Event;

     F) the Corporation or any
Subsidiary shall default on any of its obligations under any mortgage, credit
agreement or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be secured or
evidenced, any indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement that (a) involves an obligation greater than
$750,000, whether such indebtedness now exists or shall hereafter be created,
and (b) results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable; 

     G) the Corporation shall provide
at any time notice to the Holder, including by way of public announcement, of
the Corporation’s intention to not honor requests for conversions of any
Debentures in accordance with the terms hereof; or

     H) the Common Shares shall not be
eligible for listing or quotation for trading on a Trading Market and shall not
be eligible to resume listing or quotation for trading thereon within five
trading days; or 

     I) the Corporation shall be party
to a Change of Control Transaction.

6.2 Remedies Upon Event of Default.

      A) If an Event of Default with
respect to the Corporation described in Section 6.1(A) has occurred and is
continuing, the Holder or Holders of the Debentures at the time outstanding
affected by such Event of Default may direct the Collateral Agent to declare, by
notice or notices to the Corporation, all the Debentures held by such Holder or
Holders to be immediately due and payable in cash without presentment, demand,
protest or further notice, all of which are hereby waived.

     B) If an Event of Default with
respect to the Corporation described in Section 6.1(E) has occurred and is
continuing, all the Debentures shall automatically be immediately due and
payable in cash without further actions of the Holder or the Collateral Agent
without presentment, demand, protest or further notice, all of which are hereby
waived.

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     C) If an Event of Default (other
than as described in Sections 6.1(A) and Section 6.1(E)) has occurred and is
continuing, the Majority Holders may at their option direct the Collateral Agent
to declare, by notice or notices to the Corporation, all of the Debentures then
outstanding to be immediately due and payable in cash without presentment,
demand, protest or further notice, all of which are hereby waived.

6.3 Other Remedies.

     Upon the payment in full the
Holder shall promptly surrender the Debenture to or as directed by the
Corporation. In connection with such acceleration described herein, the Holder
need not provide, and the Corporation hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
acceleration may be rescinded and annulled by Holder at any time prior to
payment hereunder and the Holder shall have all rights as a holder of the
Debenture until such time, if any, as the Holder receives full payment pursuant
to this Article 6.2. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent

ARTICLE 7 – SECURITY

     Payment of the Debentures and the
other obligations under this Agreement and the Security Documents, and the
performance of the covenants set forth herein and in the Security Documents,
will be secured by a hypothec in favor of the Collateral Agent for the benefit
of Holder and the other Holders, in and upon the Collateral, subject to the
terms and conditions provided for in the Inter-Creditor Priority Agreement. The
Corporation shall execute, acknowledge and deliver, and/or cause to be executed,
acknowledged and delivered, to the Collateral Agent for the benefit of the
Holder and the other Holders such certificates, Shares powers, control
agreements, instruments, security agreements, pledges, statements, assignments,
consents, lien waivers, UCC-1 forms or amendments thereof, guarantees and other
documents, including without limitation, the Security Documents, in form and
substance reasonably acceptable to the Collateral Agent, as in the Collateral
Agent’s good faith belief may be required to create, grant, enforce, perfect and
protect such security interest, assignments, liens and mortgages. The Subscriber
hereby irrevocably authorizes Agent to enter into the Inter-Creditor Priority
Agreement on its behalf and to take such action on its behalf to exercise all
powers under the Inter-Creditor Priority Agreement together with any and all
powers as are reasonably incidental thereto.

ARTICLE 8 - SCHEDULES

8.1 Description of Schedules

     The following are the Schedules
attached to and incorporated in this Subscription Agreement by reference and
deemed to be a part hereof:

	 	Schedule “A” 	- 	Term Sheet 
	 	Schedule “B” 	 - 	Notice of Conversion 
	 	Schedule “C” 	 - 	Conversion Schedule 
	 	Schedule “D” 	- 	Certificate – Additional Representations,
      Warranties and Covenants 
		Schedule “E” 	- 	Additional Representations, Warranties and
      Covenants for Non-Canadian Subscribers 
	 	Schedule “F” 	- 	U.S. Accredited Investors Certificate 
	 	Schedule “G” 	- 	 Existing Indebtedness

13

ARTICLE 9 - SUBSCRIPTION AND DESCRIPTION OF UNITS

9.1 Subscription for Units

     The Subscriber hereby confirms
its irrevocable subscription for and offer to purchase the Units from the
Corporation, on and subject to the terms and conditions set out in this
Subscription Agreement, for the Subscription Price which is payable as described
in Article 10 hereto.

9.2 Acceptance and Rejection of Subscription by the
Corporation

     The Subscriber acknowledges and
agrees that the Corporation reserves the right, in its absolute discretion, to
reject this subscription for Units, in whole or in part, at any time prior to
the Closing Time. If this subscription is rejected in whole, any cheques or
other forms of payment delivered to the Corporation representing the
Subscription Price will be promptly returned to the Subscriber without interest
or deduction. If this subscription is accepted only in part, a cheque
representing any refund of the Subscription Price for that portion of the
subscription for the Units which is not accepted, will be promptly delivered to
the Subscriber without interest or deduction.

ARTICLE 10 – CLOSING

10.1 Closing

     Delivery and sale of the Units
and payment of the Subscription Price will be completed (the “Closing”)
at the offices of the Corporation, located at 215 Redfern Avenue, Suite 410,
Montréal, Québec, at 12:00 pm (Montréal time) (the “Closing Time”) on
Friday, April 18, 2008 or such other place or date or time as the Corporation
may determine in its sole discretion (the “Closing Date”).

10.2 Corporation’s Conditions of Closing

     The Subscriber acknowledges and
agrees that the obligations of the Corporation hereunder are conditional on the
accuracy of the representations and warranties of the Subscriber contained in
this Subscription Agreement as of the date of this Subscription Agreement, and
as of the Closing Time as if made at and as of the Closing Time, and the
fulfillment of the following additional conditions as soon as possible and in
any event not later than the Closing Time:

A) payment by the Subscriber of the
Subscription Price by certified cheque, bank draft or wire transfer in United
States dollars payable to “Sand Technology Inc.”;

14

B) the Subscriber having properly
completed, signed and delivered this Subscription Agreement to the Corporation;
and

C) the subscriber having properly
completed, signed and delivered Schedule “D”, if applicable;

D) if the Subscriber is a non-Canadian
subscriber other than a United States subscriber, the Subscriber having properly
completed, signed and delivered Schedule “E”; and

E) if the Subscriber is a United States
subscriber, the Subscriber having properly completed, signed and delivered
Schedule “F”.

10.3 Subscriber’s Conditions of Closing

     The Corporation acknowledges and
agrees that the obligations of the Subscriber hereunder are conditional on the
accuracy of the representations and warranties of the Corporation contained in
this Subscription Agreement as of the date of this Subscription Agreement, and
as of the Closing Time as if made at and as of the Closing Time, and the
fulfillment of the following additional conditions as soon as possible and in
any event not later than the Closing Time:

A) the Corporation having properly
completed, signed and delivered this Subscription Agreement to the
Subscriber;

B) Subscriber shall have received all
applicable Security Documents and the Intercreditor Agreement, all duly
authorized, executed and delivered by the Corporation and each Security Document
and the Intercreditor Agreement shall be in full force and effect;

C) Subscriber shall have received the
certificates evidencing the Debentures, Common Shares and the Warrants
comprising the Units; and

D) the Subscriber and the other Holders
shall have entered into a voting agreement with the Corporation and certain
existing shareholders of the Corporation, in form and substance satisfactory to
the Majority Holders, which shall provide, among other things, that the Majority
Holders will have the right to designate one member of the Board of Directors of
the Corporation which initially shall be Thomas M. O’Donnell; and

E) the Board of Directors shall have
expanded the number of members of the Board of Directors by one (1) member and
shall have filled that vacancy by appointing Thomas M. O’Donnell as a member of
the Board of Directors.

ARTICLE 11 - REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION 

11.1 Representations, Warranties and Covenants of the
Corporation

     The Corporation hereby represents
and warrants to, and covenants with the Subscriber as follows and acknowledges
that the Subscriber is relying on such representations and warranties in
connection with the transactions contemplated herein:

A) the Corporation has been
incorporated and organized and is a valid and subsisting corporation under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to carry on its business as now conducted or proposed to be
conducted and to own or lease and operate the property and assets thereof and
the Corporation has all requisite corporate power and authority to enter into,
execute and deliver this Subscription Agreement and the Security Documents and
to carry out the obligations thereof hereunder;

15

B) the Corporation has full corporate
power and authority to enter into this Subscription Agreement and the Security
Documents and to do all acts and things and execute and deliver all documents as
are required hereunder to be done, observed, performed or executed and delivered
by it in accordance with the terms hereof and the Corporation has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Subscription Agreement and the Security Documents and to observe and
perform the provisions of this Subscription Agreement and the Security Documents
in accordance with the provisions hereof including, without limitation, the
issue of the Debentures, Common Shares and Warrants comprised of the Units to
the Subscriber for the consideration and upon the terms and conditions set forth
herein;

C) this Subscription Agreement and the
Security Documents have been authorized, executed and delivered by the
Corporation and constitute valid and legally binding obligation of the
Corporation enforceable against the Corporation in accordance with their
terms;

D) the Corporation is not in violation
of any term of the articles or bylaws thereof. The Corporation is not in
violation of any term or provision of any agreement, indenture or other
instrument applicable to it which would, or could, result in any material
adverse effect on the business, condition (financial or otherwise), capital,
affairs or operations of the Corporation, nor is the Corporation in default in
the payment of any obligation owed which is now due and there is no action,
suit, proceeding or investigation commenced, pending or, to the knowledge of the
Corporation after due inquiry, threatened which, either in any case or in the
aggregate, might result in any material adverse effect on the business,
condition (financial or otherwise), capital, affairs, prospects or operations of
the Corporation or in any of the material properties or assets thereof or in any
material liability on the part of the Corporation or which places, or could
place, in question the validity or enforceability of this Subscription
Agreement, the Security Documents or any document or instrument delivered, or to
be delivered, by the Corporation pursuant hereto; and

E) all obligations and liabilities of
the Corporation under the Debentures, the Security Documents and this Agreement
will, upon issuance of the Debentures, rank senior in right of payment and
security to all of the Corporation’s present and future indebtedness.

ARTICLE 12 - ACKNOWLEDGEMENTS, COVENANTS, REPRESENTATIONS
AND WARRANTIES OF THE SUBSCRIBER

12.1 Acknowledgements, Representations, Warranties and
Covenants of the Subscriber

     The Subscriber, on its own behalf
and, if applicable, on behalf of others for whom it is acting hereunder, hereby
represents and warrants to, and covenants with, the Corporation as follows and
acknowledges that the Corporation is relying on such representations and
warranties in connection with the transactions contemplated herein:

A) if the Subscriber is an individual,
the Subscriber is of the full age of majority and is legally competent to enter
into and execute this Subscription Agreement and take all action pursuant
hereto;

B) if the Subscriber is a corporation,
it is a valid and subsisting corporation, it has the necessary corporate
capacity to execute and deliver this Subscription Agreement and to observe and
perform its covenants and obligations hereunder and it has taken all necessary
corporate action in respect thereof;

C) if the Subscriber is a partnership,
syndicate or other form of unincorporated organization, it has the necessary
legal capacity and authority to execute and deliver this Subscription Agreement
and to observe and perform its covenants and obligations hereunder and has
obtained all necessary approvals in respect thereof;

16

D) this Subscription Agreement has been
duly and validly authorized, executed and delivered and constitutes a legal,
valid, binding and enforceable obligation of the Subscriber;

E) the Subscriber has such knowledge in
financial and business affairs as to be capable of evaluating the merits and
risks of an investment in Units, and is able to bear the economic risk of loss
of such investment;

F) the Subscriber complies with one of
the following:

	 	(i) 	
      the Subscriber is purchasing as principal and has
      purchased that number of Units having an acquisition cost of not less than
      $150,000 and was not created solely to purchase or hold securities in
      reliance on the registration and prospectus exemptions provided under
      Section 2.10 of National Instrument 45-106 Prospectus and Registration
      Exemptions

	 	 	 
	 		
      (Regulation 45-106 respecting Prospectus and
      Registration Exemptions in Québec), it pre-existed the Offering and
      has bona fide purpose other than investment in the Units; or

	 	 	 
	 	(ii) 	
      the Subscriber is an Accredited Investor (see Schedule
      “D” for the definition) purchasing Units as principal for its own account
      and not for the benefit of any other person, for investment and not with a
      view to any resale, distribution or other disposition of the Units in
      violation of Securities Laws;

G) the Subscriber is resident in the
state or province set forth in this Subscription Agreement as the "Subscriber's
Address" opposite its signature;

H) if required by Securities Laws, the
rules or policies of any stock exchange or other regulatory authority, the
Subscriber will execute, deliver, file and otherwise assist the Corporation in
filing such reports, undertakings and other documents with respect to the issue
of the Units, as the case may be;

12.2 Acknowledgments and Covenants of the Subscriber

     The Subscriber, on its own behalf
and, if applicable, on behalf of others for whom it is acting hereunder,
acknowledges, covenants and agrees as follows:

A) the Subscriber has received and
reviewed a copy of the Term Sheet setting out the principal terms of the
Offering.

B) no securities commission, agency,
governmental authority, regulatory body, stock exchange or similar regulatory
body has reviewed or passed on the merits of the Units.

C) the Subscriber has not received an
offering memorandum and has not received any other document describing the
business and affairs of the Corporation which has been prepared for delivery to,
and review by, prospective purchasers in order to assist the Subscriber in
making an investment decision in respect of the Units;

D) the Subscriber is aware that it is
purchasing the Units pursuant to an exemption under Securities Laws and, as a
consequence: (i) it is restricted from using most of the civil remedies
available under Securities Laws; (ii) it may not receive information that would
otherwise be required to be provided to it under Securities Laws; and (iii) the
Corporation is relieved from certain obligations that would otherwise apply
under Securities Laws;

17

E) the subscriber understands that the
Corporation is not a reporting issuer in any Canadian jurisdiction and there can
be no assurance that the Corporation will ever become a reporting issuer in any
Canadian jurisdiction.

F) there are restrictions on the
Subscriber's ability to resell the securities and it is the responsibility of
the Subscriber to find out what those restrictions are and to comply with them
before selling the securities and the Subscriber further acknowledges that it is
aware of the fact that it may not be able to resell the securities except in
accordance with limited exemptions under Securities Laws until expiry of the
applicable hold and restricted period and in compliance with certain other
requirements of Securities Laws.

G) the Common Shares comprised in the
Units shall be subject to statutory resale restrictions under the Securities
Laws of the jurisdiction in which the Subscriber resides and under other
applicable securities laws, and the Subscriber covenants that it will not resell
the Common Shares except in compliance with such laws and the Subscriber
acknowledges that it is solely responsible (and the Corporation is not in any
way responsible) for such compliance.

H) the certificates representing the
Debentures, Common Shares and the Warrants comprising the Units will bear, as of
the Closing Date, legends substantially in the following form and with the
necessary information inserted:

“THE CORPORATION IS NOT A
"REPORTING ISSUER" AS THAT TERM IS DEFINED UNDER APPLICABLE SECURITIES LAWS.
THERE IS NO ASSURANCE THAT THE CORPORATION WILL BECOME A "REPORTING ISSUER". THE
COMMON SHARES OF THE CORPORATION ARE LISTED ON THE OTC BULLETIN BOARD UNDER THE
SYMBOL SNDTF.OB. THE SECURITIES OF THE CORPORATION SUBSCRIBED FOR HEREUNDER WILL
BE SUBJECT TO RESALE RESTRICTIONS UNDER APPLICABLE SECURITIES LAWS. THE
CORPORATION HAS NOT COVENANTED, AND IS UNDER NO OBLIGATION, TO FILE A PROSPECTUS
OR COMPLETE A TRANSACTION WHICH WOULD RESULT IN THE CORPORATION OR ANY SUCCESSOR
THERETO BECOMING A "REPORTING ISSUER". INVESTORS ARE URGED TO CONSULT WITH THEIR
PROFESSIONAL ADVISORS WITH RESPECT TO RESALE RESTRICTIONS APPLICABLE TO
SECURITIES OF THE CORPORATION.”

“THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH
REGISTRATION.”

“UNLESS PERMITTED UNDER SECURITIES
LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE
DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER OF (i) THE DATE WHICH IS THE
CLOSING DATE, AND (ii) THE DATE SAND TECHNOLOGY INC. BECAME A REPORTING ISSUER
IN ANY PROVINCE OR TERRITORY. ”

I) the securities have not been
registered under the United States Securities Act or under any state "Blue Sky"
law in the United States. The Subscriber understands further that in absence of
an effective registration statement, the securities can only be sold pursuant to
some exemption from registration, such as Rule 144 promulgated by the SEC
under the United States Securities Act, which requires, among other conditions,
that the securities must be held for a minimum of one (1) year.

18

J) the Subscriber, and each beneficial
person for whom it is contracting hereunder, shall execute, deliver, file and
otherwise assist the Corporation with filing all documentation required by the
applicable Securities Laws to permit the subscription for Units.

K) the Corporation is relying on the
representations, warranties and covenants contained herein and in the applicable
Schedules attached hereto to determine the Subscriber’s eligibility to subscribe
for the Units under applicable Securities Laws and the Subscriber agrees to
indemnify the Corporation and each of its directors, officers, employees and
agents against all losses, claims, costs, expenses, damages or liabilities which
any of them may suffer or incur as a result of or arising from reliance thereon.
The Subscriber undertakes to immediately notify the Corporation of any change in
any statement or other information relating to the Subscriber set forth in such
applicable Schedules which takes place prior to the Closing Time.

L) the Corporation is relying on an
exemption from the requirement to provide the Subscriber with a prospectus under
the Securities Laws and, as a consequence of acquiring the Units pursuant to
such exemption, certain protections, rights and remedies provided by the
Securities Laws, including statutory rights of rescission or damages, will not
be available to the Subscriber.

M) the Subscriber, and each beneficial
person for whom it is contracting hereunder, is responsible for obtaining such
legal and tax advice as it considers appropriate in connection with the
execution, delivery and performance of this Subscription Agreement and the
transactions contemplated under this Subscription Agreement.

N) there is no government or other
insurance covering the Units.

O) there are risks associated with the
purchase of the Units.

P) the Corporation is collecting the
Subscriber’s personal information for the purpose of fulfilling this
Subscription Agreement. The Subscriber acknowledges and consents to the fact
that the Corporation may be required by the applicable Securities Laws to
provide the securities regulators or other authorities pursuant to the
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada)
with any personal information provided by the Subscriber, pursuant to this
Subscription Agreement. Notwithstanding that the Subscriber may be purchasing
the Units as agent on behalf of an undisclosed principal, the Subscriber agrees
to provide, on request, particulars as to the identity of such undisclosed
principal as may be required by the Corporation in order to comply with the
foregoing.

Q) the Subscriber understands that the
Corporation may be required to provide any one or more of the Canadian
securities regulators or other regulatory agencies with the name, residential
address, telephone number and e-mail address of the Subscriber as well as
information regarding the number, aggregate purchase price and type of
securities purchased under this subscription and the identities of any
beneficial purchasers of the Common Shares (collectively, the
"Information"), and may make any other filings of the Information as the
Corporation’s counsel deems appropriate. In addition, the information may be
used by the Corporation for the purposes of:

(i) completing the purchase of Units
pursuant to this Subscription Agreement;

(ii) complying with all corporate
governance and continuous disclosure requirements under applicable Securities
Laws; and 

19

(iii) contacting the Subscriber in its
capacity as an investor.

R) The Subscriber hereby consents to
and authorizes the foregoing use and disclosure of such Information and agrees
to provide, on request, all particulars required by the Corporation in order to
comply with the foregoing.

S) Furthermore, the Subscriber if
resident in the Province of Ontario is hereby notified that:

(i) the Corporation may deliver to the
Ontario Securities Commission certain personal information pertaining to the
Subscriber, including such Subscriber full name, residential address and
telephone number, the number of Units purchased by the Subscriber and the total
purchase price paid for such Units, the prospectus exemption relied on by the
Corporation and the date of distribution of the Units,

(ii) such information is being
collected indirectly by the Ontario Securities Commission under the authority
granted to it in securities legislation,

(iii) such information is being
collected for the purposes of the administration and enforcement of the
securities legislation of Ontario, and 

(iv) the Subscriber may contact the
following public official in Ontario with respect to questions about the Ontario
Securities Commission’s indirect collection of such information at the following
address and telephone number:

	 	Administrative Assistant to the Director of
      Corporate Finance 
	 	Ontario Securities Commission 
	 	Suite 1900, Box 55, 20 Queen Street West 
	 	Toronto, Ontario, M5H 3S8 
	 	Telephone: (416) 593-8086 

12.3 Reliance on Representations, Warranties, Covenants and
Acknowledgements

     The Subscriber acknowledges and
agrees that the representations, warranties, covenants and acknowledgements made
by the Subscriber in this Subscription Agreement are made with the intention
that they may be relied upon by the Corporation in determining the Subscriber’s
eligibility (and, if applicable, the eligibility of others for whom the
Subscriber is contracting hereunder) to purchase the Units under the Securities
Laws. The Subscriber further agrees that by accepting the Units, the Subscriber
shall be representing and warranting that such representations, warranties,
acknowledgements and covenants are true as at the Closing Time with the same
force and effect as if they had been made by the Subscriber at the Closing
Time.

ARTICLE 13 - SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS 

13.1 Survival of Representations, Warranties and Covenants
of the Corporation

     The representations, warranties
and covenants of the Corporation contained in this Subscription Agreement shall
survive the Closing and, notwithstanding such Closing or any investigation made
by or on behalf of the Subscriber with respect thereto, shall continue in full
force and effect for the benefit of the Subscriber.

13.2 Survival of Representations, Warranties and Covenants
of the Subscriber

     The representations, warranties
and covenants of the Subscriber contained in this Subscription Agreement shall
survive the Closing and, notwithstanding such Closing or any investigation made
by or on behalf of the Corporation with respect thereto and notwithstanding any
subsequent disposition by the Subscriber of any of the Debentures, Common Shares
and Warrants shall continue in full force and effect for the benefit of the
Corporation.

20

ARTICLE 14 - MISCELLANEOUS 

14.1 Further Assurances

     Each of the parties hereto upon
the request of each of the other parties hereto, whether before or after the
Closing Time, shall do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged and delivered all such further acts, deeds, documents,
assignments, transfers, conveyances, powers of attorney and assurances as may
reasonably be necessary or desirable to complete the transactions contemplated
herein and in the Security Documents.

14.2 Notices

A) Any notice, direction or other
instrument required or permitted to be given to any party hereto shall be in
writing and shall be sufficiently given if delivered personally, or transmitted
by facsimile tested prior to transmission to such party, as follows:

	 	(i) 	
      in the case of the Corporation, to:

	 	 	 
	 		
      Sand Technology Inc.

	 		
      215 Redfern Avenue, suite 410 
Montréal, Québec
      (Canada) H3Z 3L5

	 		
      Attention: Arthur G. Ritchie, President and Chief
      Executive Officer 
Fax: (514) 939-3477

	 	 	 
	 	(ii) 	
      in the case of the Subscriber, at the address specified
      on the face page hereof.

B) Any such notice, direction or other
instrument, if delivered personally, shall be deemed to have been given and
received on the day on which it was delivered, provided that if such day is not
a Business Day then the notice, direction or other instrument shall be deemed to
have been given and received on the first Business Day next following such day
and if transmitted by fax, shall be deemed to have been given and received on
the day of its transmission, provided that if such day is not a Business Day or
if it is transmitted or received after the end of normal business hours then the
notice, direction or other instrument shall be deemed to have been given and
received on the first Business Day next following the day of such
transmission.

C) Any party hereto may change its
address for service from time to time by notice given to each of the other
parties hereto in accordance with the foregoing provisions.

14.3 Time of the Essence

     Time shall be of the essence of
this Subscription Agreement and every part hereof.

14.4 Costs and Expenses

     All costs and expenses
(including, without limitation, the fees and disbursements of legal counsel)
incurred in connection with this Subscription Agreement and the transactions
herein contemplated shall be paid and borne by the party incurring such costs
and expenses.

21

14.5 Applicable Law

     This Subscription Agreement shall
be construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the Province of Québec and the laws of Canada
applicable therein. Any and all disputes arising under this Subscription
Agreement, whether as to interpretation, performance or otherwise, shall be
subject to the exclusive jurisdiction of the courts of the Province of Québec
and each of the parties hereto hereby irrevocably attorns to the jurisdiction of
the courts of such Province.

14.6 Entire Agreement

     This Subscription Agreement,
including the Schedules hereto, constitutes the entire agreement between the
parties with respect to the transactions contemplated herein and cancels and
supersedes any prior understandings, agreements, negotiations and discussions
between the parties. There are no representations, warranties, terms,
conditions, undertakings or collateral agreements or understandings, express or
implied, between the parties hereto other than those expressly set forth in this
Subscription Agreement or in any such agreement, certificate, affidavit,
statutory declaration or other document as aforesaid. This Subscription
Agreement may not be amended or modified in any respect except by written
instrument executed by each of the parties hereto.

14.7 Counterparts

     This Subscription Agreement may
be executed in two or more counterparts, each of which shall be deemed to be an
original and all of which together shall constitute one and the same
Subscription Agreement. Counterparts may be delivered either in original or
faxed form and the parties adopt any signature received by a receiving fax
machine as original signatures of the parties.

14.8 Assignment

     This Subscription Agreement may
not be assigned by either party except with the prior written consent of the
other party hereto.

14.9 Enurement

     This Subscription Agreement shall
enure to the benefit of and be binding upon the parties hereto and their
respective heirs, executors, successors (including any successor by reason of
the amalgamation or merger of any party), administrators and permitted
assigns.

14.10 Language

     Each of the Corporation and the
Subscriber hereby acknowledges that it has consented and requested that all
documents evidencing or relating in any way to the Debentures, Common Shares and
Warrants and this Subscription Agreement be drawn up in the English language
only. La société et le souscripteur reconnaissent par les présentes avoir
consenti et demandé que tous les documents faisant foi ou se rapportant de
quelque manière aux débentures, actions ordinaires et bons de souscription et à
la présente convention de souscription soient rédigés en anglais
seulement.

14.11 Absolute Obligation.

     Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligation of
the Corporation, which is absolute and unconditional, to pay the principal of,
liquidated damages and accrued interest, as applicable, on this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct debt obligation of the Corporation. This Debenture ranks
pari passu with all other Debentures now or hereafter issued under the
terms set forth herein.

22

14.12 Lost or Mutilated Debenture. 

     If this Debenture shall be
mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Debenture,
or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a
new Debenture for the principal amount of this Debenture so mutilated, lost,
stolen or destroyed, but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, reasonably
satisfactory to the Corporation and customary and reasonable indemnity, if
requested.

14.13 Severability.

     If any provision of this
Debenture is invalid, illegal or unenforceable, the balance of this Debenture
shall remain in effect, and if any provision is inapplicable to any Person or
circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount deemed
interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law. The
Corporation covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Corporation from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Corporation (to the
extent it may lawfully do so) hereby expressly waives all benefits or advantage
of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

14.14 Assumption.

     Any successor to the Corporation
or any surviving entity in a Fundamental Transaction shall (i) assume, prior to
such Fundamental Transaction, all of the obligations of the Corporation under
this Debenture and the Security Documents pursuant to written agreements in form
and substance satisfactory to the Holder (such approval not to be unreasonably
withheld or delayed) and (ii) issue to the Holder a new debenture of such
successor entity evidenced by a written instrument substantially similar in form
and substance to this Debenture, including, without limitation, having a
principal amount and interest rate equal to the principal amount and the
interest rate of this Debenture and having similar ranking to this Debenture,
which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 10(i) shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Debenture.

23

	SCHEDULE “A” 
	NON-BROKERED PRIVATE PLACEMENT 
	TERM SHEET 
	SAND TECHNOLOGY INC. 
	Offering of Units 
	April 2008 

	Issuer: 	
      Sand Technology Inc. (the “Corporation”)

	 	
       
	
       

	Offering: 	
      Up to 2,000 Units of the Corporation (the "Units")
      distributed by way of private placement to exempt purchasers or accredited
      investors. Each Unit consists of one Debenture (face value of $900) due
      December 31, 2017 and convertible into Class A common shares (the
      "Common Shares") at $0.45 per share and one thousand share purchase
      warrants (a "Warrant") of the Corporation. Each Warrant will
      entitle the holder, on exercise, to purchase one additional Common Share
      of the Issuer (a "Warrant Share") at a price of US$ 0.70 per
      Warrant Share at any time until the earlier of the close of business on
      the day which is thirty six (36) months from the Closing Date or the
      sixtieth (60th) consecutive trading day in which the bid price
      of the shares has been above US$1.50. 

	 	
       
	
       

	Total Offering: 	
      Up to US$1,800,000 (minimum: US$1,000,000) 

	 	
       
	
       

	Price: 	
      US$900 per Unit. 

	 	
       
	
       

	Debentures and Warrants:
    	
      The Debentures and Warrants will be transferable, but
      will be subject to restrictions on transfer imposed by applicable
      securities laws. 

	 	
       
	
       

		
      The certificates representing the Warrants will, among
      other things, include provisions for the appropriate adjustment in the
      class, number and price of the Warrant Shares issued upon exercise of the
      Warrants upon the occurrence of certain events, including any subdivision,
      consolidation or reclassification of the Corporation's common shares, the
      payment of dividends in shares and the amalgamation of the Corporation.
      

	 	
       
	
       

	 	
       
	
       

	 	
       
	
       

	Exemptions: 	
      The offering will be made in accordance with the
      following exemptions from prospectus requirements: 

	 	
       
	
       

		
      A) 
	
      The "accredited investor" exemption found in section 2.3
      of National Instrument 45-106 Prospectus and Registration Exemptions
      (Regulation 45-106 respecting Prospectus and Registration
      Exemptions in Québec); 

	 	
       
	
       

		
      B) 
	
      The "minimum amount investment ($150,000)" exemption
      found in section 2.10 of National Instrument 45-106 Prospectus and
      Registration Exemptions (Regulation 45-106 respecting
      Prospectus and Registration Exemptions in Québec).
  

1

	Resale restrictions and
      legends: 	
      The Debentures, Common Shares, Warrants and Warrant
      Shares may be subject to indefinite resale restrictions under applicable
      securities laws. 

	  	
       

		
      The Subscribers acknowledge that the certificates
      representing the Debentures, Common Shares and Warrants will bear the
      following legends: 

	  	
       

		
      "Unless permitted under securities legislation, the
      holder of this security must not trade the security before the date that
      is 4 months and a day after the later of (i) the Closing Date, and (ii)
      the date the Corporation became a reporting issuer in any province or
      territory of Canada. " 

	  	
       

		
      "These securities have not been registered under the
      securities act of 1933 (the “Securities Act”) or under applicable
      state securities laws and may not be sold, transferred or otherwise
      disposed of unless registered under the Securities Act and any applicable
      state securities laws or pursuant to available exemptions from such
      registration. " 

	  	
       

		
      Subscribers are advised to consult with their own legal
      counsel or advisors to determine the resale restrictions that may be
      applicable to them. The Subscribers are solely responsible for (and the
      Corporation is in no way responsible for) the investor's compliance with
      applicable resale restrictions. 

	  	
       

	Use of Proceeds: 	
      The Corporation may use the proceeds from the Offering
      for general corporate purposes. 

2

SCHEDULE “B”

NOTICE OF CONVERSION

     The undersigned hereby elects to
convert principal under the 8% Secured Convertible Debenture of Sand Technology,
Inc., a Quebec corporation (the “Corporation”), due on December 31, 2017,
into Class A common shares, no par value (the “Common Shares”), of the
Corporation according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Corporation in accordance therewith. No fee will be charged to the holder
for any conversion, except for such transfer taxes, if any.

     By the delivery of this Notice of
Conversion the undersigned represents and warrants to the Corporation that its
ownership of the Common Shares does not exceed the amounts determined in
accordance with Section 13(d) of the Exchange Act, specified under Article 3 of
the Debenture.

     The undersigned agrees to comply
with the prospectus delivery requirements under the applicable securities laws
in connection with any transfer of the aforesaid Common Shares.

	 Conversion calculations: 	
	 	Date to Effect Conversion:
    ___________________
	 above referenced Debenture. 	
	 	  
	 	                           Dated:
    

SCHEDULE “C”

CONVERSION SCHEDULE

The 8% Secured Convertible Debentures due on December 31, 2017,
in the aggregate principal amount of $____________ issued by Sand Technology
Inc. This Conversion Schedule reflects conversions made under Section 4 of the
above referenced Debenture.

Dated: 

	

	

Amount of Conversion
    

	Aggregate Principal 
Amount Remaining
      
Subsequent to 
Conversion 

(or original Principal
      
Amount) 	

Corporation Attest
  

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

	

	

Amount of Conversion
    

	Aggregate Principal 
Amount Remaining
      
Subsequent to 
Conversion 

(or original Principal
      
Amount) 	

Corporation Attest
  

	 	 	 	 
	 	 	 	 

SCHEDULE “D”

CERTIFICATE

ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS 
FOR
ALL SUBSCRIBERS

The Subscriber certifies that :

[   ] he is purchasing a sufficient number of Units such
that the aggregate acquisition cost is not less than $150,000;

or

[   ] he is an "accredited investor" as defined in National
Instrument 45-106 Prospectus and Registration Exemptions or Regulation 45-106
respecting Prospectus and Registration Exemptions in Québec ("NI 45-106") by
virtue of satisfying one or more of the criteria below [you must certify your
status as an "accredited investor" by initialling one or more] and is purchasing
the Units as principal for its own account and not for the benefit of any other
person:

	 	_____	1. 	A Canadian financial institution, or a Schedule
      III bank. 
	 	 	  	  
		_____	2. 	The Business Development Bank of Canada
      incorporated under the Business Development Bank of Canada Act
      (Canada). 
	 	 	  	  
		_____	3. 	A subsidiary of any person referred to in
      paragraphs (1) or (2), if the person owns all of the voting securities of
      the subsidiary, except the voting securities required by law to be owned
      by directors of that subsidiary. 
	 	 	  	  
		_____	4. 	A person registered under the securities
      legislation of a jurisdiction of Canada as an adviser or dealer, other
      than a person registered solely as a limited market dealer under one or
      both of the Securities Act (Ontario) or the Securities Act
      (Newfoundland and Labrador). 
	 	 	  	  
		_____	5. 	An individual registered or formerly registered
      under the securities legislation of a jurisdiction of Canada as a
      representative of a person referred to in paragraph (4). 
	 	 	  	  
		_____	6. 	The Government of Canada or a jurisdiction of
      Canada, or any crown corporation, agency or wholly-owned entity of the
      Government of Canada or a jurisdiction of Canada. 
	 	 	  	  
		_____	7. 	A municipality, public board or commission in
      Canada and a metropolitan community, school board, the Comité de gestion
      de la taxe scolaire de l’Ile de Montréal or an intermunicipal management
      board in Québec. 
	 	 	  	  
		_____	8. 	Any national, federal, state, provincial,
      territorial or municipal government of or in any foreign jurisdiction, or
      any agency of that government. 

		_____	9. 	
      A pension fund that is regulated by either the Office of
      the Superintendent of Financial Institutions (Canada) or a pension
      commission or similar regulatory authority of a jurisdiction of Canada.
      

	 	 	  	
   

		_____	10. 	
      An individual who, either alone or with a spouse,
      beneficially owns, directly or indirectly, financial assets having an
      aggregate realizable value that before taxes, but net of any related
      liabilities, exceeds $1,000,000. 

	 	 	  	
   

		_____	11. 	
      An individual whose net income before taxes exceeded
      $200,000. in each of the 2 most recent calendar years or whose net income
      before taxes combined with that of a spouse exceeded $300,000. in each of
      the 2 most recent calendar years and who, in either case, reasonably
      expects to exceed that net income level in the current calendar year.
    

	 	 	  	
   

		_____	12. 	
      An individual who, either alone or with a spouse, has net
      assets of at least $5,000,000. 

	 	 	  	
   

		_____	13. 	
      A person, other than an individual or investment fund,
      that has net assets of at least $5,000,000 as shown on its most recently
      prepared financial statements. 

	 	 	  	
   

		_____	14. 	
      An investment fund that distributes or has distributed
      its securities only to 

	 	 	  	
     
	
   

				
    (i) 
	
      a person that is or was an accredited investor at the
      time of the distribution;

	 	 	  	
     
	
   

				
    (ii) 
	
      a person that acquires or acquired securities in the
      circumstances referred to in section 2.10 (Minimum amount investment), and
      2.19 (Additional investment in investment funds) of NI 45-106, or
  

	 	 	  	
     
	
   

				
    (iii) 
	
      a person described in paragraph 14(i) or (ii) that
      acquires or acquired securities under section 2.18 (Investment fund
      reinvestment) of NI 45-106. 

	 	 	  	
     
	
   

		_____	15. 	
      An investment fund that distributes or has distributed
      securities under a prospectus in a jurisdiction of Canada for which the
      regulator or, in Québec, the securities regulatory authority, has issued a
      receipt. 

	 	 	  	
     
	
   

		_____	16. 	
      A trust company or trust corporation registered or
      authorized to carry on business under the Trust and Loan Companies Act
      (Canada) or under comparable legislation in a jurisdiction of Canada or a
      foreign jurisdiction, acting on behalf of a fully managed account managed
      by the trust corporation or trust corporation, as the case may be.
  

	 	 	  	
     
	
   

		_____	17. 	
      A person acting on behalf of a fully managed account
      managed by that person, if that person 

				
    (i) 
	
      is registered or authorized to carry on business as an
      adviser or the equivalent under the securities legislation of a
      jurisdiction of Canada or a foreign jurisdiction, and 

	 	 	  	
     
	
   

				
    (ii) 
	
      in Ontario, is purchasing a security that is not a
      security of an investment fund. 

	 	 	  	
     
	
   

		_____	18. 	
      A registered charity under the Income Tax Act
      (Canada) that, in regard to the trade, has obtained advice from an
      eligibility adviser or an adviser registered under the securities
      legislation of the jurisdiction of the registered charity to give advice
      on the securities being traded. 

	 	 	  	
     
	
     

		_____	19. 	
      An entity organized in a foreign jurisdiction that is
      analogous to any of the entities referred to in paragraphs (1) to (4) or
      paragraph (9) in form and function. 

	 	 	  	
     
	
     

		_____	20. 	
      A person in respect of which all of the owners of
      interests, direct, indirect or beneficial, except the voting securities
      required by law to be owned by directors, are persons that are accredited
      investors. 

	 	 	  	
     
	
     

		_____	21. 	
      An investment fund that is advised by a person registered
      as an adviser or a person that is exempt from registration as an adviser.      

	 	 	  	
     
	
     

		_____	22. 	
      A person that is recognized or designated by the
      securities regulatory authority or, except in Ontario and Québec, the
      regulator as 

	 	 	  	
     
	
     

	 	 	  	
    (i) 
	
  an accredited investor, or 

	 	 	  	
     
	
     

				
    (ii) 
	
      an exempt purchaser in Alberta or British Columbia after
      September 14, 2005. 

For the purposes of the foregoing certification, the following
definitions apply:

	(a) 	
      "affiliate" means that an issuer is an affiliate
      of another issuer if:

	 	 	 
		(i) 	
      one of them is the subsidiary of the other, or

	 	 	 
		(ii) 	
      each of them is controlled by the same person.

	 	 	 
	(b) 	
      "Canadian financial institution" means

	 	 	 
		(i) 	
      an association governed by the Cooperative Credit
      Associations Act (Canada) or a central cooperative credit society for
      which an order has been made under section 473(1) of that Act,
or

	 	 	 
		(ii) 	
      a bank named in Schedule I or II of the Bank Act
      (Canada), loan corporation, trust corporation, trust corporation,
      insurance corporation, treasury branch, credit union, caisse populaire,
      financial services cooperative, or league that, in each case, is
      authorized by an enactment of Canada or a jurisdiction of Canada to carry
      on business in Canada or a jurisdiction of
Canada.

	(c) 	
      "corporation" means any corporation, incorporated
      association, incorporated syndicate or other incorporated
    organization;

	 	 	 
	(d) 	
      "control person" has the same meaning as in
      securities legislation except in Manitoba, Newfoundland and Labrador,
      Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island
      and Quebec where control person means any person that holds or is one of a
      combination of persons that holds

	 	 	 
		(i) 	
      a sufficient number of any of the securities of an issuer
      so as to affect materially the control of the issuer, or

	 	 	 
		(ii) 	
      more than 20% of the outstanding voting securities of an
      issuer except where there is evidence showing that the holding of those
      securities does not affect materially the control of the issuer.

	 	 	 
	(e) 	
      "entity" means a corporation, syndicate,
      partnership, trust or unincorporated organization;

	 	 	 
	(f) 	
      "financial assets" means cash, securities, or any
      contract of insurance or deposit or evidence thereof that is not a
      security for the purposes of the securities legislation;

	 	 	 
	(g) 	
      "fully managed account" means an account of a
      client for which a person makes the investment decisions if that person
      has full discretion to trade in securities for the account without
      requiring the client’s express consent to a transaction;

	 	 	 
	(h) 	
      "mutual fund" means:

	 	 	 
		(i) 	
      for the purposes of British Columbia
  law,

	 	(A) 	
      an issuer of a security that entitles the holder to
      receive on demand, or within a specified period after demand, an amount
      computed by reference to the value of a proportionate interest in the
      whole or in a part of the net assets, including a separate fund or trust
      account, of the issuer of the security,

	 	 	 
	 	(B) 	
      an issuer described in an order that the commission may
      make under section 3.2 of the Securities Act (B.C.), and

	 	 	 
	 	(C) 	
      an issuer that is in a class of prescribed
  issuers,

but does not include an issuer, or a
class of issuers, described in an order that the commission may make under
section 3.1 of the Securities Act (B.C.);

	 	(ii) 	for the purposes of Alberta law,

	 	(A) 	
      an issuer whose primary purpose is to invest money
      provided by its security holders and whose securities entitle the holder
      to receive on demand, or within a specified period after demand, an amount
      computed by reference to the value of a proportionate interest in the
      whole or in part of the net assets, including a separate fund or trust
      account, of the issuer, or

	 	 	 
	 	(B) 	
      an issuer that is designated as a mutual fund under
      section 10 of the Alberta Securities Act (Alberta) or in accordance
      with the regulations,

but does not include an issuer, or
class of issuers, that is designated under section 10 of the Alberta
Securities Act (Alberta) not to be a mutual fund;

	 	(iii) 	
      for the purposes of Ontario law, an issuer whose primary
      purpose is to invest money provided by its security holders and whose
      securities entitle the holder to receive on demand, or within a specified
      period after demand, an amount computed by reference to the value as a
      proportionate interest in the whole or in part of the net assets,
      including a separate fund or trust account, of the issuer;

	 	 	 
	 	(iv) 	
      for the purposes of Quebec law, a corporation issuing
      shares which must, on request of the holder, redeem them at their net
      asset value;

	(i) 	
      "non-redeemable investment fund" means an
      issuer:

	 	 	 	 
		(i) 	
      whose primary purpose is to invest money provided by its
      security holders;

	 	 	 	 
		(ii) 	
      that does not invest,

	 	 	 	 
			(A) 	
      for the purpose of exercising or seeking to exercise
      control of an issuer, other than an issuer that is a mutual fund or a
      non-redeemable investment fund, or

	 	 	 	 
			(B) 	
      for the purpose of being actively involved in the
      management of any issuer in which it invests, other than an issuer that is
      a mutual fund or a non-redeemable investment fund, and

	 	 	 	 
		(iii) 	
      that is not a mutual fund;

	 	 	 	 
	(j) 	
      "person" includes

	 	 	 	 
		(i) 	
      an individual,

	 	 	 	 
		(ii) 	
      a corporation,

	 	 	 	 
		(iii) 	
      a partnership, trust, fund and an association, syndicate,
      organization or other organized group of persons, whether incorporated or
      not, and

	 	 	 	 
		(iv) 	
      an individual or other person in that person's capacity
      as a trustee, executor, administrator or personal or other legal
      representative;

	(k)	 "portfolio adviser" means:
  

	 	(v) 	
      a portfolio manager; or

	 	 	 
	 	(vi) 	
      a broker or investment dealer exempted from registration
      as an adviser under section 148 of the regulation made under the
      Securities Act (Ontario) if that broker or investment dealer is not
      exempt from the by-laws or regulations of the Toronto Stock Exchange or
      the Investment Dealers’ Association of Canada referred to in that
      section;

	
      (l) 
	
      "related liabilities" means liabilities incurred
      or assumed for the purpose of financing the acquisition or ownership of
      financial assets or liabilities that are secured by financial assets;
    

	
       
	
       

	
      (m) 
	
       "spouse" means an individual who:
  

	 	(vii) 	
      is married to another individual and is not living
      separate and apart within the meaning of the Divorce Act (Canada)
      from the other individual,

	 	 	 
	 	(viii) 	
      is living with another individual in a marriage-like
      relationship, including a marriage-like relationship between individuals
      of the same gender, or

	 	 	 
	 	(ix) 	
      in Alberta, is an individual referred to in paragraph (i)
      or (ii), or is an adult interdependent partner within the meaning of the
      Adult Interdependent Relationships Act
(Alberta);

	
      (n) 
	
      "subsidiary" means an issuer that is controlled
      directly or indirectly by another issuer and includes a subsidiary of that
      subsidiary. 

SCHEDULE “E”

CERTIFICATE
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS 
FOR NON-CANADIAN SUBSCRIBERS
(OTHER THAN UNITED
STATES SUBSCRIBERS)

The Subscriber, on its own behalf and (if applicable) on behalf
of others for whom it is contracting hereunder, further represents, warrants and
covenants to and with the Corporation (and acknowledges that the Corporation is
relying thereon) that it is, and (if applicable) any beneficial purchaser for
whom it is contracting hereunder is, a resident of, or otherwise subject to, the
securities legislation of a jurisdiction other than Canada or the United States,
and:

	(a) 	
      the Subscriber is, and (if applicable) any other
      purchaser for whom it is contracting hereunder, is:

	 	 	 
		(i) 	
      a purchaser that is recognized by the securities
      regulatory authority in the jurisdiction in which it is, and (if
      applicable) any other purchaser for whom it is contracting hereunder, is
      resident or otherwise subject to the securities laws of such jurisdiction,
      as an exempt purchaser and is purchasing the Units as principal for its,
      or (if applicable) each such other purchaser’s, own account, and not for
      the benefit of any other person, for investment only and not with a view
      to resale or distribution; or

	 	 	 
		(ii) 	
      a purchaser which is purchasing the Units pursuant to an
      exemption from any prospectus or securities registration requirements
      (particulars of which are enclosed herewith) available to the Corporation,
      the Subscriber and any such other purchaser under applicable securities
      laws of their jurisdiction of residence or to which the Subscriber and any
      such other purchaser are otherwise subject to, and the Subscriber and any
      such other purchaser shall deliver to the Corporation such further
      particulars of the exemption and their qualification thereunder as the
      Corporation may reasonably request. The Subscriber will, if requested by
      the Corporation, deliver to the Corporation a certificate or opinion of
      local counsel from the jurisdiction of the Subscriber’s residence (or, if
      acting for a beneficial purchaser, the jurisdiction of the beneficial
      purchaser’s residence) which will confirm the matters referred to in this
      Schedule “D”;

	 	 	 
	(b) 	
      the purchase of Common Shares by the Subscriber, and (if
      applicable) each such other purchaser, does not contravene any of the
      applicable securities laws in such jurisdiction and does not trigger: (i)
      any obligation to prepare and file a prospectus, an offering memorandum or
      similar document, or any other ongoing reporting requirements with respect
      to such purchase or otherwise; or (ii) any registration or other
      obligation on the part of the Corporation; and

the Subscriber, and (if applicable) any other purchaser for
whom we are contracting hereunder will not sell or otherwise dispose of any
Units, Debentures, Common Shares or Warrants, except in accordance with
applicable Canadian securities laws, and if the Subscriber, or (if applicable)
such beneficial purchaser sells or otherwise disposes of any Units, Debentures,
Common Shares or Warrants, the Subscriber, and (if applicable) such beneficial
purchaser, will obtain from such purchaser representations, warranties and
covenants in the same form as provided in this Schedule “D” and shall comply
with such other requirements as the Corporation may reasonably require.

Dated at ___________________ this _________ day of
__________________, 2008.

	 	 
	 	Name of Subscriber 
	 	 
	 	 
	 	Print Name of Subscriber 
	 	 
	 	  
	 	 
	 	 
	 	Title 

SCHEDULE “F”

ACCREDITED INVESTOR CERTIFICATE
(UNITED STATES
SUBSCRIBERS)

     The undersigned Subscriber hereby
certifies that it is an accredited investor as that term is defined in Rule
501(a) under the U.S. Securities Act of 1933, as amended (the “U.S. Securities
Act”). The specific category(s) of institutional accredited investor applicable
to the undersigned is checked below. ALL REFERENCES TO DOLLAR AMOUNTS IN THIS
SCHEDULE F ARE TO THE LAWFUL CURRENCY OF THE UNITED STATES.

1. Any bank as defined in Section 3(a)(2) of the U.S.
Securities Act of 1933, as amended (the “U.S. Securities Act”), or any savings
and loan association or other institution as defined in Section 3(a)(5)(A) of
the U.S. Securities Act whether acting in its individual or fiduciary capacity;
any broker dealer registered pursuant to Section 15 of the U.S. Securities
Exchange Act of 1934; any insurance company as defined in Section 2(a)(13) of
the U.S. Securities Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in Section
2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees if such plan has total
assets in excess of US$5,000,000; any employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of US$5,000,000, or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors (as such term is
defined in Rule 501(a) of Regulation D);

2. Any private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940;

3. Any organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the Debentures
with total assets in excess of US$5,000,000; 

4. Any director or executive officer of Sand Technology
Inc.;

5. Any natural person whose individual net worth, or
joint net worth with that person’s spouse, at the time of his purchase exceeds
US$1,000,000;

6. Any natural person who had an individual income in
excess of US$200,000 in each of the two most recent years or joint income with
that person’s spouse in excess of US$300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;

7. Any trust with total assets in excess of
US$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person (being defined as
a person who has such knowledge and experience in financial and business matters
that he or she is capable of evaluating the merits and risks of the prospective
investment); or

8. Any entity in which all of the equity owners are
accredited investors (as such term is defined in Rule 501(a) of Regulation D
under the U.S. Securities Act).

     IN WITNESS WHEREOF, the
undersigned has executed this Accredited Investor Certificate this ____ day of
April, 2008.

	 	Signature of Subscriber 
	 	 
	 	 
	 	 
	 	Name of Subscriber 
	 	 
	 	 

SCHEDULE “G”

EXISTING INDEBTEDNESS

	Loans and advances from Arthur Ritchie (as
      at February 29, 2008) 	 	CAD$1,196,195

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