PRIVATE AND CONFIDENTIAL
February 28, 2000
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
President
Softquad Software Ltd.
C/o
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AND
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President & CEO
Softquad Software Inc.
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Attention: ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
RE: SOFTQUAD SOFTWARE LTD. - PRIVATE PLACEMENT
This letter will confirm our mutual agreement with respect to your engagement of
Thomson Kernaghan & Co. Ltd. (the "Lead Agent") as the exclusive agent of
SoftQuad Software Ltd. ("Softquad" or the "Company"), a Delaware corporation, to
act on its behalf, on a best efforts basis, in connection with its offer and
sale of up to US$17.5 million of the Company's common shares ("Common Shares"),
in two placements as detailed in the attached term sheets (see Schedule B and
Schedule C) (the "Offerings").
The Agent would propose to begin the Offerings process immediately following
execution of this letter, with a view towards completion of the Offerings on or
about May 31, 2000 (or such other mutually agreed to date), based on the
following terms and conditions:
1. Thomson Kernaghan & Co. Limited ("TK") is hereby appointed as Softquad's
Lead Agent in connection with the Offerings until the earlier to occur of:
(i) the completion of the Offerings and (ii) May 31, 2000, subject to
extension of such engagement thereafter by mutual agreement. In the event
the Offerings are completed within 12 months of the date of termination
with investors specifically identified by the Lead Agent and specifically
introduced to Softquad prior to the date of termination, the
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Lead Agent shall be entitled to receive from Softquad the fees set forth
in clause 5 in respect of such sales. TK shall act as Softquad's Lead
Agent for the Offerings, which shall be done on a best efforts basis. The
Lead Agent will be entitled, subject to the terms hereof, to appoint, in
respect of the Offerings, a selling group consisting of other agents (the
"Agents") who are registered dealers reasonably acceptable to Softquad and
other acceptable duly registered sub-agents. Provided that the Lead Agent
shall have completed the Offerings, the Lead Agent shall also have a right
of first refusal to be the Lead Agent of any subsequent financings
contemplated by Softquad for a period of one year following the completion
of the Offerings, subject to Softquad and the Lead Agent, both acting
reasonably, agreeing to the terms and conditions thereof. Section 5 of
this engagement agreement shall survive the termination hereof and shall
remain in full force and effect for the benefit of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
2. The total issue size for the Offerings will be approximately US$17.5
million, consisting of two tranches; the initial tranche being 1 million
common shares at $2.50 per share and the second tranche being up to 2
million units at $7.50 per unit.
3. Softquad, together with its counsel, will be responsible for the
preparation of all offering materials to be used in connection with the
Offerings, with the assistance of the Lead Agent and their counsel.
4. Softquad will make available to the Lead Agent, the Agents and their
agents all corporate and operating records, financial information,
financial statements, information concerning the direct and indirect
beneficial ownership of its securities and key officers in order to permit
a complete due diligence investigation of the business and affairs of
Softquad and its subsidiaries and affiliates. The Lead Agent, on behalf of
itself, agrees to hold confidential all information designated as such by
Softquad including, without limitation, all trade secrets and proprietary
technology and processes. In the event the Lead Agent, the Agents, their
agents or advisors receive notice of a requirement to disclose such
information, the Lead Agent shall immediately provide notice to that
effect to Softquad, which shall be entitled at its own expense to contest
such requirement.
5. Softquad, will pay to the Lead Agent an agency fee equal to 8.0% of the
aggregate gross proceeds of the Offerings and an amount of broker warrants
equal to 10% of the aggregate gross proceeds exercisable at the price of
each of the Offerings for a period of two years from the date that the
securities underlying the warrants are registered for resale by a
registration statement.
6. Softquad will be responsible for all reasonable expenses related to the
Offerings, whether or not it is completed, including, without limitation,
fees and disbursements of its legal counsel, expenses related to road
shows and marketing activities, printing costs and filing fees, the Lead
Agent's out-of-pocket expenses (including those incurred in connection
with due diligence) and the fees and disbursements of legal counsel for
the Lead Agent. Softquad shall pay any eligible GST on the foregoing
amounts.
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7. The definitive terms of our agreement will be governed by a formal agency
agreement (the "Agency Agreement") in respect of the Offerings to be
settled and entered into at the time of pricing of the Offerings. The
Agency Agreement will be negotiated in good faith between the Company and
the Lead Agent and will contain representations, warranties, covenants,
conditions, indemnities and termination provisions (including, without
limitation, a broad "market out" right) customary in agreements of this
type and will be consistent in all material respects with this letter.
8. The securities are to be offered to residents of Ontario pursuant to
Regulation S.
9. The completion of the Offerings will be subject to and conditional on the
receipt of all necessary approvals.
10. It is understood that this letter does not represent a firm commitment of
the Lead Agent to underwrite the Offerings at this time. The pricing and
the Lead Agent's ability to successfully market the issue will be
contingent upon market conditions at the time of the Offerings and the
completion of satisfactory due diligence by the Lead Agent or their
representatives.
11. The Company shall prepare financial forecasts for the period ending
December 31, 2001 for inclusion in the Company's business plan for use in
connection with the due diligence process of the Lead Agent, provided that
the Lead Agent keep and hold all such forecasts in strict confidence.
12. In connection with this engagement, ▇▇▇▇▇▇▇▇ agrees to provide the Lead
Agent with the indemnity set out in Schedule I attached hereto. It is
understood and agreed that this indemnity shall be superseded by the more
comprehensive indemnity provisions to be contained in the Agency Agreement
consistent with Schedule I. This agreement and the indemnity provisions
contained in Schedule I shall enure to the benefit of the respective
successors and assigns of the parties hereto and of the indemnified
parties, and the obligations and liabilities assumed in the agreement and
in the indemnity agreement contained in Schedule I shall be binding upon
their respective successors and assigns.
13. The provisions of paragraphs 1, 5, 6, 13, and 14 and the indemnity
provisions contained in Schedule I shall survive the completion of the
Offerings and shall survive the termination of this agreement. The
indemnity agreement contained in Schedule I shall be in addition to any
other liability which Softquad may have to the Lead Agent at law or in
equity and shall remain in full force and effect regardless of any
investigation made by or on behalf of the Lead Agent.
14. This letter is a binding agreement between the Company and the Agent, and
it shall be construed and enforced in accordance with the laws of the
province of Ontario and the national laws of Canada; provided, however, if
any provision of this letter agreement in unenforceable under the laws of
Ontario or Canada, but is enforceable under the laws of the U.S. state of
Delaware, then the law of Delaware shall govern the construction and
enforcement of that provisions. Softquad hereby consents to the
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jurisdiction of the courts of Ontario in any action to construe or enforce
this letter agreement, or to recover damages for its breach.
15. The expected use of proceeds for the Offerings is for capital
expenditures, research and development, and working capital.
16. Until the earlier of completion of the Offerings and the date which is 180
days from the date hereof, provided the Lead Agent are still involved in
the process of marketing the Offerings, Softquad agrees not to, without
the prior written consent of the Lead Agent, such consent not to be
unreasonably withheld,(a) sell or issue for cash proceeds, or negotiate or
enter into an agreement to sell or issue for cash proceeds, any securities
of Softquad, other than pursuant to (i) the Offerings; (ii) the exercise
of convertible securities, options or warrants outstanding at the date
hereof; or (iii) Softquad's Stock Option Plan, or (b) sell or negotiate or
enter into an arrangement to sell all or substantially all of the assets
of Softquad.
In the event of any breach of the foregoing through the sale of securities
or assets to one or more "strategic" buyers, Softquad agrees to make
payments to the Lead Agent forthwith following the completion of any such
transaction in the amount equal to 8.0% of the maximum gross proceeds for
the Offerings plus the Lead Agent' expenses, in full satisfaction of all
claims against Softquad in this regard.
If you are in agreement with the foregoing, please indicate your acceptance by
signing and returning to us the enclosed copy of this letter, whereupon this
letter shall constitute a binding agreement.
Yours very truly,
THOMSON KERNAGHAN & CO. LIMITED,
Per: _______________________________
▇▇▇▇ ▇▇▇▇▇▇
Vice President & Director
Agreed to and Accepted as of this ____ day of February, 2000.
SOFTQUAD SOFTWARE INC. SOFTQUAD SOFTWARE LTD.
Per: ____________________________________ Per: _________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, President & CEO ▇▇▇▇▇▇▇ ▇▇▇▇▇, President
SCHEDULE "A"
Softquad, its subsidiaries or affiliated companies (collectively, the
"Indemnitor") hereby agrees to indemnify and hold Thomson Kernaghan & Co.
Limited. and/or any of its affiliates (hereinafter referred to as the "Agent")
and each of the directors, officers, employees and shareholders of the Agent
(hereinafter referred to as the "Personnel") harmless from and against any and
all expenses, losses (other than loss of profits), claims, actions, damages or
liabilities, whether joint or several (including the aggregate amount paid in
reasonable settlement of any actions, suits, proceedings or claims), and the
reasonable fees and expenses of its counsel that may be incurred in advising
with respect to and/or defending any claim that may be made against the Agent,
to which the Agent and/or its Personnel may become subject or otherwise involved
in any capacity under any statute or common law or otherwise insofar as such
expenses, losses, claims, damages, liabilities or actions arise out of or are
based, directly or indirectly, upon the performance of professional services
rendered to the Indemnitor by the Agent and its Personnel hereunder or otherwise
in connection with the matters referred to in the letter to which this is
attached, provided, however, that this indemnity shall not apply to the extent
that a court of competent jurisdiction in a final judgment that has become
non-appealable shall determine that:
(a) the Agent or its Personnel have been grossly negligent or dishonest
or have committed any fraudulent act in the course of such
performance; and
(b) the expenses, losses, claims, damages or liabilities, as to which
indemnification is claimed, were directly caused by the gross
negligence, dishonesty or fraud referred to in (a).
Without limiting the generality of the foregoing, this indemnity shall
apply to all expenses (including legal expenses), losses, claims and liabilities
that the Agent may incur as a result of any action or litigation that may be
threatened or brought against the Agent .
If for any reason (other than the occurrence of any of the events
itemized in (a) and (b) above), the foregoing indemnification is unavailable to
the Agent or insufficient to hold the Agent harmless, then the Indemnitor shall
contribute to the amount paid or payable by the Agent as a result of such
expense, loss, claim, damage or liability in such proportion as is appropriate
to reflect not only the relative benefits received by the Indemnitor on the one
hand and the Agent on the other hand but also the relative fault of the
Indemnitor and the Agent, as well as any relevant equitable considerations;
provided that the Indemnitor shall in any event contribute to the amount paid or
payable by the Agent as a result of such expense, loss, claim, damage or
liability any access of such amount over the amount of the fees received by the
Agent hereunder pursuant to the letter to which this is attached.
The Indemnitor agrees that in case any legal proceeding shall be brought against
the Indemnitor and/or the Agent by any governmental commission or regulatory
authority or any stock exchange or other entity having regulatory authority,
either domestic or foreign, shall investigate the Indemnitor and/or the Agent
and any Personnel of the Agent shall be required to testify in connection
therewith or shall be required to respond to procedures designed to discover
information regarding, in connection with, or by reason of the performance of
professional services rendered to the Indemnitor by the Agent, the Agent shall
have the right to employ its own counsel in connection therewith, and the
reasonable fees and expenses of such counsel as well as the reasonable costs
(including an amount to reimburse the Agent for time spent by the Agent'
Personnel in connection therewith) and out-of-pocket expenses incurred by its
Personnel in connection therewith shall be paid by the Indemnitor as they occur.
Promptly after receipt of notice of the commencement of any legal
proceeding against the Agent or any of the Agent' Personnel or after receipt of
notice of the commencement or any investigation, which is based, directly or
indirectly, upon any matter in respect of which indemnification may be sought
from the Indemnitor, the Agent will notify the Indemnitor in writing of the
commencement thereof and, throughout the course thereof, will provide copies of
all relevant documentation to the Indemnitor, will keep the Indemnitor advised
of the progress thereof and will discuss with the Indemnitor all significant
actions proposed.
The indemnity and contribution obligations of the Indemnitor shall be
in addition to any liability which the Indemnitor may otherwise have, shall
extend upon the same terms and conditions to the Personnel of the Agent and
shall be binding upon and enure to the benefit of any successors, assigns, heirs
and personal representatives of the Indemnitor, the Agent and any of the
Personnel of the Agent. The foregoing provisions shall survive the completion of
professional services rendered under the letter to which this is attached or any
termination of the authorization given by the letter to which this is attached.
THOMSON KERNAGHAN & CO. LTD. SOFTQUAD SOFTWARE INC. SOFTQUAD SOFTWARE LTD.
By:_________________________ By:____________________ By:___________________
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SCHEDULE B
SOFTQUAD SOFTWARE LTD.
SUMMARY OF TERMS
US$2.5 Million Private Placement
ISSUER: Softquad Software Ltd. (a private
Delaware incorporated company (the
"Issuer").
ISSUE: 1 million common shares ("Shares")
PRICE: US$2.50
PLACEMENT AGENT: Thomson Kernaghan & Co. Ltd. (the
"Agent")
INITIAL CLOSING DATE: On or about February 25, 2000
AGENT'S WARRANTS: The Issuer shall issue on closing to the
Agent warrants to purchase Shares equal
to 10% of the aggregate subscription
amount. The Agent's Warrants shall expire
2 years after the date the Issuer's
registration statement becomes effective
and shall have an exercise price based of
US$2.50.
AGENT'S FEE: 8% of the aggregate purchase price of the
Shares placed.
USE OF PROCEEDS: To fund ongoing operations of the Issuer.
REGISTRATION: The Issuer shall register:
(i) the Shares underlying the conversion
of the Convertible Preferred Shares;
(ii) 100% of the Shares underlying the
Agent's Warrants;
The Issuer shall cause such registration
to be effective before April 31, 2000,
and shall keep such registration
effective (1) with respect to the Shares,
and (2) with respect to the Shares
underlying the Agent's Warrants, until 30
days after the warrants have been fully
exercised or expired.
LEGAL OPINION: The Issuer shall furnish the Placement
Agent with an opinion of counsel,
reasonably satisfactory to the Placement
Agent and its legal counsel, with respect
to the transactions contemplated by this
term sheet.
PLACEMENT AGENT'S EXPENSES: The Issuer shall reimburse the Placement
Agent for its reasonable out-of-pocket
expenses, including the fees and expenses
of its legal counsel.
DUE DILIGENCE AND DOCUMENTATION: This offering is subject to the Agent's
satisfactory review and due diligence.
All documents and execution of definitive
agreements shall be subject to review and
approval by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and its
counsel.
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SCHEDULE C
SOFTQUAD SOFTWARE LTD.
SUMMARY OF TERMS
Up to US$15 Million Private Placement
ISSUER: Softquad Software Ltd. (a private
Delaware incorporated company (the
"Issuer").
ISSUE: 2 million units ("Units") (plus up to
additional 500 thousand units to be sold
by KBL Capital Partners Inc.)
PRICE: US$7.50 per Unit
UNIT: Each Unit shall entitle the Unit holder
to acquire one common share and one half
common share purchase warrant. Each whole
common share purchase warrant will
entitle the security holder to acquire an
one common share at a price of $12.50 for
a period of 12 months from the date the
registration statement is deemed
effective.
PLACEMENT AGENT: Thomson Kernaghan & Co. Ltd. (the "Agent")
INITIAL CLOSING DATE: On or before May 31, 2000
AGENT'S WARRANTS: The Issuer shall issue on closing to the
Agent warrants to purchase Shares equal
to 10% of the aggregate subscription
amount. The Agent's Warrants shall expire
2 years after the date that the Issuers
registration statement is declared
effective and shall have an exercise
price based of US$7.50.
AGENT'S FEE: 8% of the aggregate purchase price of the
Shares placed.
SELLING GROUP KBL Capital Partners Inc. ("KBL") shall
have the right to sell up to an
additional 500 thousand units on a
selling group basis.
USE OF PROCEEDS: To fund ongoing operations of the Issuer.
REGISTRATION: The Issuer shall register:
(iii) the common shares underlying the
conversion of the Unit;
(iv) the common shares underlying the
common share purchase warrants;
(v) 100% of the Shares underlying the
Agent's Warrants;
The Issuer shall cause such registration
to be effective before July 31, 2000, and
shall keep such registration effective
(1) with respect to the Shares underlying
the Preferred Shares, and (2) with
respect to the Shares underlying the
Agent's Warrants, until 30 days after the
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warrants have been fully exercised or
expired.
LIQUIDATED DAMAGES: If the Registration Statement is not
declared effective within 120 days of
Closing Date, the exercise price on the
warrants shall be reduced by $0.25 per
month, or pro rated portion thereof,
until the Registration Statement is
declared effective. If the Registration
Statement is not declared effective
within 180 days of Closing Date, the
exercise price on the warrants shall
therefore be reduced by $0.50 per months,
or pro rated portion thereof, until the
Registration Statement is declared
effective.
LEGAL OPINION: The Issuer shall furnish the Placement
Agent with an opinion of counsel, reasonably
satisfactory to the Placement Agent and
its legal counsel, with respect to the
transactions contemplated by this term
sheet.
PLACEMENT AGENT'S EXPENSES: The Issuer shall reimburse the Placement
Agent for its reasonable out-of-pocket
expenses, including the fees and expenses
of its legal counsel.
DUE DILIGENCE AND DOCUMENTATION: This offering is subject to the Agent's
satisfactory review and due diligence.
All documents and execution of definitive
agreements shall be subject to review and
approval by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and its
counsel.