<PAGE>
SPECIAL WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH
AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND IN COMPLIANCE WITH ANY
STATE SECURITIES LAWS.
THE HOLDER HEREOF, BY PURCHASING THE SPECIAL WARRANTS REPRESENTED HEREBY,
ACKNOWLEDGES AND COVENANTS THAT SUCH SPECIAL WARRANTS MAY NOT BE SOLD,
TRANSFERRED OR EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE SECURITIES
LAWS.
CERTIFICATES REPRESENTING SECURITIES ISSUABLE UPON EXERCISE OF THIS SPECIAL
WARRANT SHALL BEAR A LEGEND RESTRICTING TRANSFER SIMILAR TO THE LEGEND SET FORTH
ABOVE, TO THE EXTENT APPLICABLE.
SPECIAL WARRANTS
SOFTQUAD SOFTWARE, LTD.
(governed by the laws of Delaware)
SPECIAL WARRANT NO. SPECIAL WARRANTS
---------
each entitling the holder to
acquire one (1) Common
Share, subject to adjustment
in certain events.
THIS IS TO CERTIFY THAT
o
(the "holder")
is the registered holder of the number of Special Warrants of Softquad Software,
Ltd. (the "Company") specified above and is thereby entitled, without payment of
any additional consideration, to be issued shares of Common Stock, par value
U.S.$0.001 per share, in the capital of the Company ("Common Shares") on the
basis of one Common Share for each Special Warrant by surrendering to the
Company, at 161 Eglinton Avenue East, Suite 400, Toronto, Ontario M4P 1J5 during
the exercise period referred to below, this Warrant Certificate together with a
notice of exercise in the form set forth below duly completed and executed.
The Company has covenanted that, among other things, it will use its
commercially reasonable efforts to expeditiously obtain receipts for a
prospectus (the "Prospectus") from the securities regulatory authorities of the
provinces of Alberta, British Columbia, Ontario and Quebec (each a "Qualifying
Province") for the purposes of qualifying under the applicable laws of the
Qualifying Provinces the distribution of the Common Shares issuable upon the
exercise of the Special Warrants.
<PAGE>
- 2 -
The Special Warrants evidenced by this Warrant Certificate may be exercised by
the holder at any time prior to the "Time of Expiry" being 5:00 p.m. (Toronto
time) on the date which is five (5) business days after the issuance of a
receipt for the Company's Prospectus in the Qualifying Province in which the
holder is resident (for this purpose, holders not resident in a Qualifying
Province shall be deemed to be resident in Ontario) by surrendering to the
Warrant Agent this Warrant Certificate evidencing such Special Warrants together
with a duly completed and executed notice of exercise substantially in the form
attached hereto. Surrender of this Warrant Certificate will be effective only on
personal delivery thereof to, or, if sent by mail or other means of
transmission, on actual receipt thereof by, the Warrant Agent at the office
specified above. As soon as practicable following the relevant exercise date and
surrender of the applicable Warrant Certificates, the Company shall cause to be
delivered or mailed to or to the order of the Warrantholder certificates
representing the appropriate number of Common Shares issuable upon such exercise
of such Special Warrants.
At the Time of Expiry, any Special Warrants evidenced by this Warrant
Certificate which are outstanding and have not been exercised shall be
automatically exercised by the Company on behalf of the holder without any
further action on the part of the holder. The Common Shares issuable in respect
of such exercise of such Special Warrants shall be issued to such holder upon
surrender of the Warrant Certificate evidencing such Special Warrants. Surrender
of this Warrant Certificate will be effective only on personal delivery thereof
to, or, if sent by mail or other means of transmission, on actual receipt
thereof by, the Company at the address specified above. As soon as practicable
following the Time of Expiry and surrender of the applicable Warrant
Certificates, the Company shall cause to be delivered or mailed to or to the
order of the Warrantholder certificates representing the appropriate number of
Common Shares issuable upon such exercise of such Special Warrants
To the extent that any Special Warrant evidenced hereby confers the right to be
issued a fraction of a Common Share, such right may be exercised in respect of
such fraction only in combination with another Special Warrant Certificate or
other Special Warrant Certificates which, in the aggregate, entitle the holder
to be issued a whole number of Common Shares, and under no circumstances is the
Company obligated to issue any fractional Common shares or to make any payment
in respect of such a fraction.
The holder of Special Warrants evidenced by this Warrant Certificate may
exercise a number of Special Warrants less than the total number which the
holder is entitled to exercise pursuant to this Warrant Certificate. In the
event of an exercise by such holder of a number of Special Warrants less than
the total number which the holder is entitled to exercise, the holder shall be
entitled to receive, without charge therefor, a new special warrant certificate
evidencing the balance of the Special Warrants which are not being exercised.
No Common Shares will be issued upon the exercise of any Special Warrant if the
issuance of such Common Shares would constitute a violation of the securities
laws of any jurisdiction.
Schedule "A" to this Warrant Certificate provides for adjustments to the rights
of the holders of Special Warrants, including the number of Unit Shares issuable
upon the exercise or deemed exercise thereof on the happening of certain stated
events such as the subdivision or consolidation of the outstanding Common
Shares, certain distributions of Common Shares or of securities convertible into
or exchangeable for Common Shares or of other securities or assets of the
Company, certain offerings of rights, warrants or options and certain capital
reorganizations.
<PAGE>
- 3 -
On presentation at the office of the Company in Toronto, Ontario at the address
above, on compliance with the reasonable requirements of the Company, one or
more Warrant Certificates may be exchanged for one or more Warrant Certificates
of different denomination evidencing in the aggregate the same number of Special
Warrants as the Warrant Certificate or Warrant Certificates being exchanged.
The Special Warrants evidenced by this Warrant Certificate may only be
transferred, on the register of transfers to be by the Company, by the holder or
his executors, administrators or other legal representatives or his or their
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Company, and, in compliance with applicable laws (in
connection with which requirement the Company may require, in its discretion, an
opinion from counsel as to such compliance reasonably acceptable to it, and upon
compliance with such other reasonable requirements as the Company may prescribe,
such transfer will be duly recorded on such register of transfers. Without
limiting the generality of the foregoing, the Company will be entitled to refuse
to permit and record any transfer of any Special Warrant on such register if
such transfer would constitute a violation of the securities laws of any
jurisdiction.
No Special Warrants may be exercised in the United States or by or for account
of benefits of a U.S. Person, and no certificate representing Common Shares will
be delivered to an address in the United States, unless an exemption from
registration under the U.S. Securities Act and applicable state securities laws
is available and evidence thereof satisfactory to the Company (which may, at the
option of the Company, include an opinion of counsel) is received prior to the
exercise. Evidence of an exemption from registration shall not be required in
the case of a Warrantholder that certifies in writing that it was an original
purchaser of Special Warrants from the Company and is an "accredited investor"
(as defined in Regulation D under the U.S. Securities Act) and provides evidence
of such status satisfactory to the Company (which may, at the option of the
Company, include financial statements).
The holder of Special Warrants evidenced by this Warrant Certificate may at time
prior to Time of Expiry, upon written instructions delivered to the Company,
exchange this Warrant Certificate for other Warrant Certificates evidencing the
Special Warrants in other denominations entitling the holder to acquire in the
aggregate the same number of Common Shares as may be required under this Warrant
Certificate.
In the event that this Warrant Certificate is mutilated, lost, destroyed or
stolen, the Company shall issue a new certificate of like date and tenor as the
one mutilated, lost, destroyed or stolen upon surrender and cancellation of such
mutilated Warrant Certificate or in lieu of and in substitution for such lost,
destroyed or stolen Warrant Certificate, provided that the applicant for
issuance of a new Warrant Certificate shall bear the reasonable costs of the
issue thereof and in the case of loss, destruction or theft the Company's
obligation to issue a new Warrant Certificate shall be subject to the condition
that the applicant therefor shall have provided to the Company evidence of
ownership of the loss, destruction or theft satisfactory to the Company and an
indemnity in form and amount satisfactory to the Company in its discretion.
The holding of this Warrant Certificate will not constitute the holder a
shareholder of the Company or entitle it to any right or interest in respect
thereof except as otherwise provided in the Special Warrant Indenture.
<PAGE>
- 4 -
This Warrant Certificate shall be governed by the laws of the Province of
Ontario and the federal laws of Canada applicable therein.
IN WITNESS WHEREOF Softquad Software, Ltd. has caused this Warrant Certificate
to be signed by its officers duly authorized in that behalf as of April 18,
2000.
SOFTQUAD SOFTWARE, LTD.
PER: __________________________________
AUTHORIZED SIGNING OFFICER
<PAGE>
TRANSFER OF SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________________ , _______________ Special Warrants
of Softquad Software, Ltd. (the "Company") registered in the name of the
undersigned on the register of the Warrant Agent maintained therefor, and hereby
irrevocably appoints __________________________________________________ the
attorney of the undersigned to transfer the said securities on the books of the
Company with full power of substitution.
Dated the _______ day of _________________, _________ .
Signature of Transferor guaranteed by:
--------------------------------------- ------------------------------------
ELIGIBLE INSTITUTION: PRINT NAME OF TRANSFEROR
------------------------------------
SIGNATURE OF TRANSFEROR
------------------------------------
------------------------------------
ADDRESS OF TRANSFEROR
(Note: The signature to this transfer must correspond with the name written upon
the face of this Special Warrant Certificate in every particular without any
changes whatsoever.)
A guarantee of signature may be given by any Canadian chartered bank or a major
Canadian trust company or by a Medallion signature guarantee from a member of a
recognized signature Medallion guarantee program.
<PAGE>
ACKNOWLEDGEMENT OF TRANSFEREE
TO: [NAME OF TRANSFEROR]
- and -
Softquad Software, Ltd.
The undersigned transferee of __________Special Warrants of Softquad Software,
Ltd. (the "Company") hereby expressly waives and releases the Company and
Thomson Kernaghan & Co., Limited from, to the fullest extent permitted by law,
all rights of withdrawal to which it might otherwise be entitled pursuant to
section 71(2) of the Securities Act (Ontario) and analogous provisions of other
provincial securities legislation.
Dated the ______ day of _______________________ , _________ .
--------------------------------------------
PRINT NAME OF TRANSFEREE
BY:
--------------------------------------
SIGNATURE
--------------------------------------------
OFFICE OR TITLE
--------------------------------------------
--------------------------------------------
ADDRESS OF TRANSFEREE
<PAGE>
EXERCISE FORM
TO: Softquad Software, Ltd.
The undersigned hereby certifies that the undersigned is a resident of the
Province/State of _________________ and irrevocably exercises the right to
acquire _________ Common Shares of Softquad Software, Ltd.
Such securities are to be issued as follows:
NAME:
---------------------------------------------------------------------
(PRINT CLEARLY)
ADDRESS IN FULL:
----------------------------------------------------------
--------------------------------------------------------------------------
Further Special Warrants required for the balance of the Common Shares which may
be acquired are to be issued as follows:
NAME:
---------------------------------------------------------------------
(PRINT CLEARLY)
ADDRESS IN FULL:
----------------------------------------------------------
--------------------------------------------------------------------------
DATED this ______ day of ______________________ , __________ .
Signature Guarantee
Eligible Institution: PRINT NAME OF WARRANTHOLDER
------------------------------------
SIGNATURE OF WARRANTHOLDER
------------------------------------
------------------------------------
ADDRESS OF WARRANTHOLDER
Note: (1) The signature of the registered holder must correspond with the
name as written upon the face of the Special Warrant in every particular without
alteration or any change whatsoever.
(2) Common Shares and Special Warrants will be issued in the name of
the registered holder as it appears on the Special Warrant register unless
otherwise specified.
A guarantee of signature may be given by any Canadian chartered bank or a major
Canadian trust company or by a Medallion signature guarantee from a member of a
recognized signature Medallion guarantee program.
<PAGE>
SCHEDULE "A"
ADJUSTMENTS
1. ADJUSTMENT OF EXCHANGE NUMBER
The number of Common Shares issuable on the exercise of the Special Warrants (or
the number and kind of shares or securities to be received upon exercise in the
case of Sections 1(4) and 1(5) below) (in case, the "EXCHANGE NUMBER") shall be
subject to adjustment from time to time in the events and in the manner provided
in Section 2 and as follows:
(1) If prior to the Time of Expiry (the "EXERCISE PERIOD") the Company shall:
(a) issue to all or substantially all the holders of the Common
Shares by way of a stock distribution, stock dividend or
otherwise, Common Shares or securities exchangeable for or
convertible into Common Shares (the "CONVERTIBLE SECURITIES");
(b) subdivide or redivide its outstanding Common Shares into a
greater number of Common Shares; or
(c) combine, consolidate or reduce its outstanding Common Shares
into a lesser number of Common Shares
(any of these events being herein called a "SHARE REORGANIZATION"), then on each
such event, the Exchange Number shall be adjusted effective immediately after
the record date at which the holders of Common Shares are determined for the
purposes of the Share Reorganization to a number that is the product of (1) the
Exchange Number in effect on the record date, and (2) a fraction:
(i) the numerator of which shall be the number of Common Shares,
outstanding after giving effect to the Share Reorganization;
and
(ii) the denominator of which shall be the number of Common Shares,
outstanding on the record date before giving effect to the
Share Reorganization.
For the purposes of determining the number of Common Shares outstanding at any
particular time for the purpose of this Section 1(1), there shall be included
that number of Common Shares which would have resulted from the conversion at
that time of all Convertible Securities.
(2) If during the Exercise Period the Company shall issue rights, options or
warrants to all or substantially all the holders of the Common Shares pursuant
to which those holders are entitled to subscribe for, purchase or otherwise
acquire Common Shares (the "OFFERED SHARES") or Convertible Securities (the
"OFFERED CONVERTIBLE SECURITIES") within a period of 45 days from the date of
issue thereof at a price per Common Share or underlying Common Share less than
95% of the Current Market Price (any such issuance being herein called a "RIGHTS
OFFERING") and the Company does not provide the holders of Special Warrants with
the opportunity to participate in the Rights Offering on the same terms and
conditions applicable to holders of Common Shares, the Exchange Number shall be
adjusted effective immediately after the record date at which holders of Common
Shares are determined for the purposes of the Rights Offering to an Exchange
<PAGE>
- 2 -
Number that is the product of (i) the Exchange Number in effect on the record
date and (ii) a fraction:
(a) the numerator of which shall be the sum of (i) the number of
Common Shares, outstanding on the record date plus (ii) that
number of Common Shares equal to the aggregate price of the
total number of Offered Shares or Common Shares underlying the
Offered Convertible Securities divided by the Current Market
Price; and
(b) the denominator of which shall be the sum of (i) the number of
Common Shares outstanding on the record date plus (ii) the
total number of Offered Shares or Common Shares underlying the
Offered Convertible Securities.
Any Offered Shares or Offered Convertible Securities owned by or held for the
account of the Company shall be deemed not to be outstanding for the purpose of
any computation. If all the rights, options or warrants so issued are not
exercised prior to the expiration thereof, the Exchange Number shall be
readjusted to the Exchange Number in effect immediately prior to the record date
and the Exchange Number shall be further adjusted based upon the number of
Offered Shares or Offered Convertible Securities actually issued and delivered
upon the exercise of the rights, options or warrants, as the case may be, but
subject to any other adjustment required hereunder by reason of any event
arising after that record date.
(3) If during the Exercise Period the Company shall issue or distribute to all
or substantially all the holders of Common Shares (i) shares of any class other
than Common Shares or (ii) rights, options or warrants other than rights,
options or warrants in respect of which the provisions of Section 1(2) apply or
(iii) evidences of indebtedness or (iv) any other assets and that issuance or
distribution does not constitute a Share Reorganization or a Rights Offering
(any of those events being herein called a "SPECIAL DISTRIBUTION"), the Company
shall issue or distribute to the holders of the Special Warrants their pro rata
share of such Special Distribution, based on the number of Unit Shares to which
they are entitled upon exercise of their Special Warrants as of the record date
or effective date of such Special Distribution (after giving effect to all
adjustments hereunder required as of such date), such issuance or distribution
to be made forthwith following the exercise by any holder of his or her Special
Warrants.
(4) If during the Exercise Period there is a reorganization of the Company not
otherwise provided for in Section 1(1) or a consolidation or merger or
amalgamation of the Company with or into another body corporate including a
transaction whereby all or substantially all of the Company's undertaking and
assets become the property of any other corporation (any such event being herein
called a "CAPITAL REORGANIZATION"), any holder of a Special Warrant who has not
exercised his or her right to exchange his or her Special Warrant for Common
Shares prior to the effective date of the Capital Reorganization shall be
entitled to receive and shall accept, upon the exercise of his or her right at
any time after the effective date of the Capital Reorganization, in lieu of the
number of Common Shares (and any other securities or property to which holders
are entitled upon exercise of the Special Warrants after giving effect to all
adjustments hereunder required as of such date to which he or she was
theretofore entitled upon exercise of the Special Warrant, the aggregate number
of securities or property of the Company or the Company's successor or
transferee, as the case may be, that the holder would have been entitled to
receive as a result of the Capital Reorganization if, on the effective date
<PAGE>
- 3 -
thereof, he or she had been the holder of the number of Common Shares to which
immediately before the transaction he or she was entitled upon exercise of the
Special Warrants. No Capital Reorganization shall be carried into effect unless
all necessary steps to be taken by the Company shall have been taken to afford
the holders of Common Shares the entitlement to receive the number of securities
or property of the Company or of the Company's successor or transferee, as the
case may be, contemplated hereby, in the same manner as holders of Common
Shares, subject to adjustment thereafter in accordance with provisions the same,
as nearly as may be possible, as those contained in this Section 1 and in
Section 2.
(5) If the Company shall reclassify or otherwise change the outstanding Common
Shares, the exercise right shall be adjusted effective immediately upon the
reclassification becoming effective so that holders of Special Warrants who
exercise their rights thereafter shall be entitled to receive such securities as
they would have received had the Special Warrants been exercised immediately
prior to the effective date, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained in this
Section 1 and in Section 2.
2. SUBSCRIPTION RIGHTS ADJUSTMENT RULES
The following rules and procedures shall be applicable to adjustments made
pursuant to Section 1:
(1) The adjustments and readjustments provided for herein are cumulative and,
subject to Section 2(2), shall apply (without duplication) to successive issues,
subdivisions, combinations, consolidations, distributions and any other events
that require adjustment of the Exchange Number.
(2) No adjustment in the Exchange Number shall be required unless the adjustment
would result in a change of at least 1/2 of 1% in the Exchange Number then in
effect, provided, however, that any adjustments that, except for the provisions
of this Section 2(2) would otherwise have been required to be made, shall be
carried forward and taken into account in any subsequent adjustment.
(3) No adjustment in the Exchange Number shall be made in respect of any event
described in Section 1(1)(a) or Section 1(2) or Section 1(3) if the holders of
the Special Warrants are entitled to participate in the event on the same terms,
mutatis mutandis, as if they had exercised their Special Warrants immediately
prior to the effective date or record date of the event.
(4) No adjustment in the Exchange Number shall be made pursuant to Section 1 in
respect of the issue of Common Shares pursuant to:
(a) the exercise of Special Warrant; or
(b) the issuance of Common Shares pursuant to the exercise of
options now or hereafter granted pursuant to the Company's
stock option plan or option agreements with employees, or
pursuant to the exercise of rights under currently existing
agreements,
and any such issue shall be deemed not to be a Share Reorganization, a Rights
Offering or a Special Distribution.
<PAGE>
- 4 -
(5) If a dispute shall at any time arise with respect to adjustments of the
Exchange Number, the dispute shall be conclusively determined by the auditors of
the Company or if they are unable or unwilling to act, by such firm of
independent chartered accountants as may be selected by the directors and any
such determination shall, absent manifest error, be binding upon the Company and
all Warrantholders.
(6) If the Company shall set a record date to determine the holders of Common
Shares for the purpose of entitling them to receive any dividend or distribution
or any subscription or purchase rights and shall, thereafter, legally abandon
its plans to pay or deliver the dividend or distribution or subscription or
purchase rights, then no adjustment in the Exchange Number shall be required by
reason of the setting of the record date.
(7) If and whenever at any time during the Exercise Period, the Company shall
take any action affecting or relating to the Common Shares, other than any
action described in this Section 2 which in the opinion of the directors of the
Company would prejudicially affect the rights of any holders of Special
Warrants, the Exchange Number may be adjusted by the directors of the Company in
such manner, if any, and at such time, as the directors of the Company, may in
their sole discretion, subject to the approval of any stock exchange on which
the Common Shares which are listed and posted for trading, determine to be
equitable in the circumstances to such holders.
(8) As a condition precedent to the taking of any action which would require an
adjustment in any of the rights under the Special Warrants, the Company will
take any action which, in the opinion of counsel to the Company, may be
necessary in order that the Company or any successor to the Company or any
successor to the undertaking or assets of the Company, will be obligated to and
may validly and legally issue all the Common Shares or other securities which
the Warrantholders would be entitled to receive thereafter and to exercise such
Special Warrants in accordance with the provisions hereof.
3. POSTPONEMENT OF SUBSCRIPTION
In any case where the application of Section 2 results in an increase of the
Exchange Number taking effect immediately after the record date for or
occurrence of a specific event, if any Special Warrants are exercised after that
record date or occurrence and prior to completion of the event or of the period
for which a calculation is required to be made, the Company may postpone the
issuance to the Warrantholders of the Common Shares or other securities to which
the holder is entitled by reason of the increase of the Exchange Number but the
Common Shares or other securities shall be so issued and delivered to that
holder upon completion of that event or period, with the number of those Common
Shares calculated on the basis of the Exchange Number on the date of exercise of
the Special Warrants, adjusted for completion of that event or period, and the
Company shall forthwith after such date deliver to the person or persons in
whose name or names the Common Shares or other securities are to be issued an
appropriate instrument evidencing the person's or persons' right to receive the
Common Shares or other securities.
4. NOTICE OF CERTAIN EVENTS
(1) At least 7 days before but not more than 30 days before the earlier of the
effective date of or the record date for any event referred to in Section 1 or
Section 2 that requires an adjustment in the Exchange Number, the Company shall
<PAGE>
- 5 -
give notice to the Warrantholders of the particulars of the event and, if
determinable, the adjustment.
(2) If notice has been given under Section 4(1) and the adjustment is not then
determinable, the Company shall promptly after the adjustment is determinable
give notice to the Warrantholders of the adjustment.
5. DEFINITIONS
Capitalized terms used herein and not otherwise defined shall have the meaning
ascribed thereto in the special warrant certificate to which this schedule is
appended. For purposes hereof "CURRENT MARKET PRICE" means in respect of a
Common Share at any date means the weighted average trading price of a Common
Share for any twenty (20) consecutive trading days ending on the third trading
day before such date, on such primary stock exchange on which the Common Shares
are then listed as may be selected for such purpose by the directors of the
Company or, if the Common Shares are not listed on more than one stock exchange,
on such stock exchange on which the Common Shares are then listed, or if the
Common Shares are not then listed on any stock exchange, on the over-the-counter
market, or, if the Common Shares are not then traded in the over-the-counter
market, the Current Market Price of the Common Shares shall be the fair value of
a Common Share as determined by the directors of the Company, after consultation
with a nationally recognized investment banking firm with respect to the fair
value of such securities
