CONFIDENTIAL
Copy Number:
Name of Offeree: _______________________________________
OFFERING OF UNITS
(each Unit consisting of one share of
common stock
and one-half of a warrant to purchase
a share of common stock)
OF
SOFTQUAD SOFTWARE, LTD.
(A DELAWARE CORPORATION)
--------------------------
SUBSCRIPTION BOOKLET
U.S. PURCHASERS ONLY
--------------------------
U.S. PLACEMENT AGENT:
SmallCaps Online LLC
April 7, 2000
SUBSCRIPTION INSTRUCTIONS - - U.S. SUBSCRIBERS
(Please read carefully)
Units of SoftQuad Software, Ltd., a Delaware corporation (the
"Company"), are being offered for a minimum investment for purchasers resident
in the United States of US$333,333 and a minimum investment for purchasers
resident in Canada and other non-residents of the United States of C$500,000
(together, the "Offering"). Each unit (a "Unit") to be issued to non-Canadian
subscribers consists of one share of common stock, par value $.001 per share
("Common Stock") of the Company and one-half ([]) of one warrant (a
"Warrant") to purchase one share of Common Stock at an exercise price of
US$12.50 per share, subject to adjustment as provided in subsection 14(c)
hereof. Each unit to be issued to Canadian subscribers ("Canadian Units")
consists of one special warrant ("Special Warrant") entitling the holder to
acquire one share of Common Stock for no additional consideration, and 1/2
(one-half) of one Warrant. The purchase price of each Unit (and of each Canadian
Unit) is US$7.50. You should consult with an attorney, accountant, investment
advisor or other advisor regarding an investment in the Company and its
suitability for you. The Company reserves the right to reject any offer to
purchase the Units, in whole or part, for any reason without notice. The Company
may withdraw, cancel or modify this Offering at any time without notice.
In order to subscribe for Units, a prospective purchaser must complete
and execute the subscription documents contained in this booklet in accordance
with the instructions set forth herein. ALL SUBSCRIPTION DOCUMENTS MUST BE
COMPLETED CORRECTLY AND THOROUGHLY OR THEY WILL NOT BE ACCEPTED (INCLUDING
CHECKING THE APPROPRIATE BOX(ES) IN SECTION 6 AND SECTION 7 TO INDICATE
ACCREDITED INVESTOR STATUS. This entire booklet should then be returned to
SmallCaps Online LLC c/o Xxxxxx Xxxxxxxxx & Co. Limited, 000 Xxx Xxxxxx, 00xx
Xxxxx, Xxxxxxx, Xxxxxxx X0X 0X0 (Attention: Xxxxxx X. Xxxxxxxx). Please be sure
that your name appears in exactly the same way in each signature and in each
place where it is inserted in the documents. Duplicate copies of each signed
document will be returned to you after subscription for Units has occurred. It
is anticipated that the offering will close on or about April 14, 2000. All
Subscription documents should be completed and returned by April 11, 2000.
UNITS AND CANADIAN UNITS ARE BEING OFFERED AND SOLD ONLY TO
INSTITUTIONAL "ACCREDITED INVESTORS" AS DEFINED IN RULE 501(a) OF REGULATION D
PROMULGATED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE "SEC"). Delivery
of this booklet to anyone other than the person named on the front cover as the
offeree is unauthorized, and any reproduction or circulation of this booklet, in
whole or in part, is prohibited.
Subscriptions from suitable prospective investors ("Subscribers," or
each individually a "Subscriber") will be accepted at the sole discretion of the
Company after receipt of all subscription documents (properly completed and
executed) and after confirmation of the receipt of the appropriate payment.
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FOR ALL U.S. SUBSCRIBERS
SUBSCRIPTION AGREEMENT READ, COMPLETE, DATE, AND SIGN. Each Subscriber
must complete and sign the signature page and
initial the applicable boxes under Sections 6 and 7
of the Subscription Agreement entitled
"Representations and Warranties as to
Institutional Accredited Investor Status" and
"Representations and Warranties as to
Accredited Investor Status," respectively.
Corporations, partnerships and trusts must
attach appropriate authorizing instruments
(corporate resolution or by-laws, partnership
agreement or trust instrument). ADDITIONAL
DOCUMENTATION MAY BE REQUIRED.
PAYMENT The minimum investment for purchasers resident
in the United States is US$333,333 or such
greater amount required by local law.
The purchase price is payable by either
certified check or wire transfer.
IF MAKING PAYMENT BY CERTIFIED CHECK, SEND A
CHECK PAYABLE TO "THOMSON KERNAGHAN & CO.
LIMITED"
Wire transfer instructions will be provided to
prospective investors by the Placement Agent.
PLEASE PRINT IN INK OR TYPE ALL INFORMATION.
FAILURE TO COMPLY WITH THE ABOVE INSTRUCTIONS WILL CONSTITUTE AN
INVALID SUBSCRIPTION, WHICH, IF NOT CORRECTED, WILL RESULT IN
THE REJECTION OF YOUR SUBSCRIPTION REQUEST.
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No. __________ ______________________________
Name of Offeree
SUBSCRIPTION AGREEMENT -- U.S. PURCHASERS ONLY
SoftQuad Software, Ltd.
000 Xxxxxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
Ladies and Gentlemen:
This Subscription Agreement is made between SoftQuad Software, Ltd., a
Delaware corporation (the "Company"), and the undersigned prospective purchasers
(the "Subscriber") who is subscribing hereby for Units (the "Units") in the
Company, each Unit consisting of one share of common stock, par value $.001 per
share ("Common Stock"), of the Company and one warrant (a "Warrant") to purchase
1/2 (one half) of a share of Common Stock at an exercise price of US$12.50 per
share. This subscription is submitted to you in accordance with, and subject to,
the terms and conditions of an offering (the "Offering") of a minimum of
1,000,000 Units and a maximum of 2,500,000 Units (in each case including
Canadian Units, as defined below). Each Unit issued to a resident of the United
States and other non-residents of Canada consists of one share of Common Stock
and one Warrant. Each unit issued to a resident of Canada (a "Canadian Unit")
consists of one special warrant ("Special Warrant") entitling the holder to
acquire one share of Common Stock for no additional consideration, and 1/2
(one-half) of one Warrant. The purchase price of each Unit (and of each Canadian
Unit) is US$7.50. Thomson Kernaghan & Co. Limited (the "Canadian Placement
Agent") is acting as the placement agent on behalf of the Company in connection
with the Canadian portion of the Offering (the "Canadian Placement Agent"), and
SmallCaps Online LLC is acting concurrently as the placement agent on behalf of
the Company in connection with the U.S. Offering (the "U.S. Placement Agent"
and, together with the Canadian Placement Agent, the "Placement Agents").
It is anticipated that the initial closing will occur on or about April 14,
2000, or such other date the Company and the Placement Agents may agree (the
"Initial Closing Date" and, collectively with all other closing dates the
"Closing Date").
In consideration of the Company's agreement to sell Units to the
undersigned upon the terms and conditions summarized herein, the undersigned
agrees and represents to the Company and the U.S. Placement Agent as follows:
1. Subscription. The Subscriber hereby irrevocably subscribes for, and
agrees to purchase, that number of Units of the Company set forth on the
execution page hereof. In accordance with the Subscription Instructions attached
hereto, the undersigned has remitted to the Company payment in full for one
hundred percent (100%) of the aggregate purchase price of the Units subscribed
for hereunder.
2. Understandings. The Subscriber understands and acknowledges that it
is aware of the following:
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(a) This subscription may be rejected, in whole or in part, by the
Company, in its sole and absolute discretion, for any reason without notice,
notwithstanding prior receipt by the undersigned of notice of acceptance of the
undersigned's subscription. If the undersigned's subscription is rejected in
whole or part, the payment made by the undersigned (or, in the case of rejection
of a portion of the undersigned's subscription, the part of the payment relating
to such rejected portion) will be returned promptly, without interest.
(b) The undersigned hereby acknowledges and agrees that the
subscription hereunder is irrevocable by the undersigned and that, except as
required by law, the undersigned is not entitled to cancel, terminate, or revoke
this Subscription Agreement or any agreements of the undersigned hereunder and
that this Subscription Agreement and such other agreements shall survive the
death or disability of the undersigned and shall be binding upon and inure to
the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives, and permitted assigns. If the undersigned is
more than one person, the obligations of the undersigned hereunder shall be
joint and several and the agreements upon each such person and his/her heirs,
executors, administrators, successors, legal representatives, and permitted
assigns. The Subscriber warrants that it has not and will not use any material
non-public information obtained from the Company for any purpose other than for
evaluating whether to invest in Units and not in connection with an investment
in any other securities of the Company that are publicly traded.
(c) NEITHER THE UNITS, NOR THE SHARES OF COMMON STOCK, THE WARRANTS OR
ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS, HAVE BEEN
REGISTERED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING
OFFERED IN RELIANCE ON EXEMPTIONS FROM THE ACT AND SUCH STATE LAWS AND THE LAWS
OF OTHER APPLICABLE JURISDICTION. THE UNITS MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND/OR SUCH STATE LAWS PURSUANT TO
REGISTRATION THEREUNDER OR EXEMPTION THEREFROM.
(d) The Offering is intended to be exempt from registration under the
Act by virtue of Section 4(2) of the Act and the provisions of Regulation D
promulgated under the Act ("Regulation D") and Rule 506 thereunder, which is in
part dependent upon the truth, completeness and accuracy of the statements made
by the undersigned hereunder.
(e) It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the Act, Regulation D and Rule 506, the
undersigned will, at a minimum, be required to fulfill the investor suitability
requirements hereunder.
(f) No governmental agency has passed upon the Units, the shares of
Common Stock or the Warrants or made any finding or determination as to the
wisdom or fairness of any investments therein nor has any such agency made any
recommendation or endorsement of such securities.
(g) The Units, the shares of Common Stock and the Warrants involve a
risk of loss by the Subscriber of its entire investment, and it must bear such
economic risk for an indefinite period of time.
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An investment in the Units (and the securities comprising same) is suitable only
for person who have substantial financial resources and have no need for
liquidity in this investment.
(h) THE TAX CONSEQUENCES TO THE SUBSCRIBER OF THE INVESTMENT IN THE
COMPANY WILL DEPEND ON THE SUBSCRIBER'S PARTICULAR CIRCUMSTANCES. IN MAKING AN
INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY
AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISK INVOLVED.
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS SUBSCRIPTION
AGREEMENT, ANY OTHER DOCUMENTS DELIVERED HEREWITH OR ANY OTHER COMMUNICATION
FROM THE COMPANY OR ANY PLACEMENT AGENT AS INVESTMENT OR LEGAL ADVICE. THIS
SUBSCRIPTION AGREEMENT, ANY OTHER DOCUMENTS DELIVERED HEREWITH AND ANY SUCH
OTHER MATERIALS, AS WELL AS THE NATURE OF AN INVESTMENT IN THE SECURITIES
OFFERED, SHOULD BE REVIEWED BY EACH PROSPECTIVE INVESTOR AND SUCH INVESTOR'S
INVESTMENT, TAX, LEGAL, ACCOUNTING AND OTHER ADVISORS.
3. General Representations and Warranties. The Subscriber represents
and warrants to the Company, that:
(a) The undersigned is familiar with, and understands, the terms of the
Offering and sale of the Units. The Subscriber, its advisers, if any, and
designated representatives, if any, have the knowledge and experience in
financial and business matters necessary to evaluate the investment in the
Company, and have carefully reviewed and understand the risks of, and other
considerations relating to, the purchase of Units.
(b) The Subscriber, its advisers, if any, and designated
representatives, if any, have been afforded the opportunity to obtain any
information necessary to verify the accuracy of any representations or
information given to them in connection with the Offering, have had all their
inquiries to the Company or answered to their satisfaction, and have been
furnished all information requested in writing relating to the Company or the
offering and sale of the Units.
(c) The Subscriber, its advisers, if any, and designated
representatives, if any, have not been furnished any offering literature, and
have relied only on the information contained in this Subscription Agreement and
the information described in paragraph 3(b) above furnished or made available to
them at their written request by the Company.
(d) The Subscriber, if a corporation, partnership, trust or other legal
entity, is authorized and otherwise fully qualified to purchase and hold Units
in the Company. Such entity has its principal place of business at the address
set forth on the signature page hereof and such entity has not been formed for
the specific purpose of acquiring Units in the Company.
(e) The Subscriber has adequate means of providing for current and
anticipated financial needs and contingencies, is able to bear the economic risk
for an indefinite period of time and has no need for liquidity of the investment
in the Units and could afford complete loss of such investment.
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(f) The Subscriber is not subscribing for Units as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media (but excluding information
available through Internet-related media that would not constitute general
solicitation material under applicable federal securities laws, rules and
regulations) or broadcast over television or radio, or presented at any seminar
or meeting, or any solicitation of a subscription by a person not previously
known to the Subscriber in connection with investments in securities generally.
(g) All of the information that the Subscriber has heretofore furnished
or which is set forth herein is correct and complete as of the date of this
Subscription Agreement, and, if there should be any material change in such
information prior to the admission of the undersigned to the Company, the
Subscriber will immediately furnish revised or corrected information to you.
(h) If the Subscriber is a partnership or limited liability company,
the representations, warranties, agreements and understanding set forth herein
are true with respect to all partners or members in the Subscriber (and if any
such partner or member is itself a partnership or limited liability company, all
persons holding an interest in such partnership or limited liability company,
directly or indirectly, including through one or more partnerships or limited
liability companies), and the person executing this Subscription Agreement has
made due inquiry to determine the truthfulness of the representations and
warranties made hereby, and the undersigned agrees to furnish to the Company,
upon request, documentation satisfactory to Company in its reasonable
discretion, supporting the truthfulness of such representations and warranties
with respect to all such partners or members in the Subscriber.
(i) If the undersigned is purchasing in a representative or fiduciary
capacity, the representations and warranties herein shall be deemed to have been
made on behalf of the person or persons for whom the undersigned is so
purchasing, and the undersigned agrees to furnish the Company, upon request,
documentation satisfactory to the Company in its sole discretion, supporting the
truthfulness of such representations and warranties as made on behalf of such
person or persons.
4. Representations and Warranties as to Investment Intent. The
Subscriber represents to the Company that: it is purchasing the Units for his or
its own account, or for one or more fiduciary accounts as to which the
Subscriber has investment discretion, and for investment purposes only and not
with a view to their resale or further distribution to any other person or
entity; no one other than the Subscriber will have any interest in, or any right
to acquire, the Units, nor does anyone other than the Subscriber have any
interest in this subscription; it has full right, power and authority to execute
this Subscription Agreement, any materials accompanying this Subscription
Agreement, and as of the time this Subscription Agreement, be or it has duly and
validly executed, this Subscription Agreement; and he or it has full right power
and authority to perform his or its obligations hereunder and thereunder.
5. Understanding as to Exemption from Registration. The Subscriber
understands and acknowledges that the Units are being offered and sold in
reliance upon the exemption from registration provided by Section 4(2) of the
Act; that the reliance of the Company upon that exemption is predicated, in
part, on the representations and warranties made and to be made by the
Subscriber in and pursuant to this Subscription Agreement; and that the
exemption may not be available if any of those representations and warranties is
not true and accurate.
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6. Representations and Warranties as to Institutional Accredited
Investor Status. The Subscriber warrants and represents that any one of the
statements below, next to which the Subscriber has placed its initials in the
space designated therefor, which describe an institutional "accredited
investor," as that term is defined in Rule 501(a) of Regulation D promulgated by
the SEC under the Act, is true with respect to the Subscriber.
INITIAL ONE OR MORE OF THE FOLLOWING STATEMENTS, IF APPLICABLE:
[ ] (i) the Subscriber is a bank as defined in Section 3(a)(2) of the
Act, or any savings and loan association or other institution as defined in
Section 3(a)(5(A) of the Act, whether acting in its individual or fiduciary
capacity;
[ ] (ii) the Subscriber is a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
[ ] (iii) the Subscriber is an insurance company as defined in Section
2(13) of the Act;
[ ] (iv) the Subscriber is an investment company registered under the
Investment Company Act of 1940;
[ ] (v) the Subscriber is a business development company as defined in
Section 2(a)(48) of the Investment Company Act of 1940;
[ ] (vi) the Subscriber is a private business development company as
defined in Section 202(a)(22) of the Advisers Act.
[ ] (vii) the Subscriber is a corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of acquiring
Units, with total assets in excess of $5,000,000;
[ ](1) (viii) the Subscriber is a trust, with total assets in excess of
$5,000,000 not formed for the specific purpose of acquiring Units, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D promulgated by the SEC under the Act;
[ ] (ix) the Subscriber is an entity in which all of the equity owners
are accredited investors.
7. Further Agreements. The Subscriber agrees that:
(a) it is not entitled to cancel, terminate or revoke this
subscription;
------------------
(1) A Subscriber initialing this box must provide a supplemental letter with
this Subscription Agreement describing the basis by which it is a trust
directed by a sophisticated person with the knowledge and experience in
business and financial matters capable of evaluation the merits and risks
of the prospective investment.
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(b) it will not transfer or assign this subscription or any interest
therein;
(c) this subscription may be accepted or rejected, in whole or in part,
by the Company, in its sole discretion, without giving any reason therefor;
(d) if (i) this subscription is accepted in whole or in part, and (ii)
the other conditions precedent set forth above are met, it shall become a
stockholder and warrantholder of the Company, the amount to be paid by the
Subscriber for the Units to be issued to the Subscriber may be transferred to
the capital of the Company as a contribution of the Subscriber;
(e) additional Units may be offered or sold by the Company; and
(f) it will indemnify and hold harmless the Company, SmallCaps Online
LLC, and their respective affiliates and each other person, if any, who controls
any of the foregoing, within the meaning of Section 15 of the Act, against any
and all loss, liability, claim, damage and expense whatsoever (including, but
not limited to, any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation commenced or threatened or any
claim whatsoever, including reasonable attorneys' fees) arising out of or based
upon any false representation, warranty or acknowledgement made herein.
11. Acknowledgment. The Subscriber acknowledges that this Subscription
Agreement will not be valid, binding and enforceable until the Subscriber
hereunder is accepted and approved by the Company
12. Miscellaneous. The Subscriber understands and agrees that:
(a) This Subscription Agreement supersedes any previous subscription
agreement executed by or on behalf of the Subscriber relative to Units in the
Company, and any such previous agreement is hereby rescinded and is no further
force and effect.
(b) The Subscriber's representations, warranties and covenants
contained herein shall be true and correct in all respects on and as of the date
of the sale of the Units as if made on and as of such date and shall survive the
execution and delivery of this Subscription Agreement and the purchase of the
units.
(c) Failure of the Company to exercise any right or remedy under this
Subscription Agreement or any other agreement between the Company and the
undersigned, or delay by the Company in exercising such right or remedy, will
not operate as a waiver thereof. No waiver by the Company will be effective
unless and until it is in writing and signed by the Company.
(d) This Subscription Agreement shall be governed by, and enforced and
construed in all respects in accordance with, the laws of the State of Delaware,
such laws are applied by Delaware courts to agreements entered into, and to be
perform in, Delaware by and between residents of Delaware, and shall be binding
upon the undersigned, the undersigned's heirs, estate, legal representatives,
successors, and assigns and shall inure to the benefit of the Company, its
successors and assigns. If any provision of this Subscription Agreement is
invalid or unenforceable under any applicable statue or rule of law, then
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed
7
modified to conform with such statute or rule of law. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
of enforceability of any other provisions thereof.
(e) The Subscriber hereby agrees to furnish the Company such other
information as the Company may request with respect to his or its subscription
hereunder.
13. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber as follows:
(a) Organization. The Company is a corporation validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now being conducted
and to own its properties and is duly licensed or qualified and in good standing
in each jurisdiction in which the conduct of its business or the nature of its
properties requires such qualification or authorization, except where the
failure to be so qualified or authorized and in good standing could not
reasonably be expected to have a material adverse effect on the business and
financial condition of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect"). As of the date hereof, the Company does not have any
material subsidiaries other than SoftQuad Acquisition Corp. and SoftQuad
Software, Inc., both Ontario corporations, (each a "Subsidiary and collectively
the "Subsidiaries"). Each Subsidiary has been duly organized, is validly
existing and in good standing under the laws of the jurisdiction of its
organization, has the power and authority to own its properties and to conduct
its business and is duly qualified and authorized to transact business and is in
good standing in each jurisdiction in which the conduct of its business or the
nature of its properties requires such qualification or which the conduct of its
business or the nature of its properties requires such qualification or
authorization, except where the failure to be so qualified or authorized and in
good standing could not reasonably be expected to have a Material Adverse
Effect. All of the outstanding common stock of each Subsidiary is owned
(directly or indirectly) by the Company, free and clear of any liens, and has
been duly authorized and validly issued, and is non-assessable, except for such
failures as could not reasonably be expected to have a Material Adverse Effect.
(b) Authorization. The Company has take all action required to
authorize the execution and delivery of this Subscription Agreement and the
consummation of the transactions contemplated hereby, including the issuance of
sale of the Common Stock and the Warrants. This Subscription Agreement has been
duly executed and delivered by the Company and, subject to the due
authorization, execution and delivery by the Subscriber, constitutes a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except to the extent that enforcement thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(c) SEC Documents The Company has furnished the Subscriber herewith, or
made available to the Subscriber, copies of the following reports (the "SEC
Documents") filed by the Company or its predecessor by merger, The American
Sports Machine, Inc. ("ASM"):
(i) ASM's Form 10-SB filed on June 10, 1999;
(ii) ASM's Amendment to Form 10-SB filed on August 3, 1999;
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(iii) ASM's Form 10-QSB filed on August 16, 1999;
(iv) ASM's Amendment to Form 10-SB filed on August 19, 1999;
(v) ASM's Amendment to Form 10-SB filed on September 2, 1999;
(vi) ASM's Form 10-KSB filed on December 29, 1999;
(vii) ASM's Form 10-QSB filed on February 14, 2000;
(viii) ASM's preliminary Form 14-C filed on March 9, 2000;
(ix) ASM's Form 8-K filed on March 9, 2000;
(x) ASM's definitive Form 14-C filed on March 21, 2000.
(xi) XXX's revised definitive Form 14-C filed on April 4, 2000;
(xii) ASM's Form, 8-K filed on April 5, 2000.
Each of the SEC Documents, as of its respective date of filing,
complied in all material respects with the applicable requirements of the
Exchange Act. The Company is current in its obligations to file all periodic
reports with the SEC required to be filed under the Exchange Act and applicable
rules and regulations promulgated thereunder.
(d) Financial Statements. The financial statements of ASM included in
the Company's Form 10-SB, as amended, and Forms 10-Q, fairly present, in all
material respects, the financial position, the results of operations, cash flows
and the other information purported to be shown therein at the respective dates
and for the respective periods to which they apply. Such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, are correct and complete,
in all material respects, and are in accordance with the books and records of
the Company. There has at no time been a material adverse change in the
financial condition, results or operations, business, properties, assets, or
liabilities of ASM from the latest information set forth in the SEC Documents.
The Company is not providing the Subscriber with consolidated financial
statements that reflect the Company's merger with ASM, or the Company's
acquisition of SoftQuad Software, Inc.
(e) No Violations or Breaches: Consents. (i) Neither the execution and
delivery of this Subscription nor the consummation of the transactions
contemplated hereby will violate any provision of, or result in the breach of
(A) the Certificate of Incorporation or By-Laws of the Company; (B) any material
agreement to which the Company is a party; (C) result in the creation of any
material claim, lien, charge or encumbrance upon any of the property or assets
of the Company; or (D) to the knowledge of the Company, any applicable federal,
state, foreign or local law, statute, ordinance, rule, code, regulation, order,
judgment or decree, except for those violations that would not have a Material
Adverse Effect. For
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purposes hereof, the term "knowledge" means the actual knowledge of the
directors and executive officers of the Company; and
(ii) The Company is not in violation or breach of or in default with
respect to, complying with any material provision of any contract, agreements,
instrument, lease, license, arrangement or understanding which is material to
the Company, and each such contract, agreement, instrument, lease, license,
arrangement and understanding is in full force and effect and is the legal,
valid and binding obligation of the Company, enforceable as to it in accordance
with its terms (subject to applicable bankruptcy, insolvency and other laws
affecting the enforceability of the creditors' rights generally and to general
equitable principles). The Company is not in violation or breach of, or in
default with respect to, any term of its Certificate of Incorporation or
By-Laws, each as amended to date.
(iii) The Company is not in material violation of any law or regulation
relating to occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company has received all
permits, licenses, and/or other approvals required of it under applicable
occupational safety and health and environmental laws and regulations to conduct
its business, and the Company is in material compliance with all terms and
conditions of any such permit, license or approval, except any such violation of
law or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of any such permit,
licenses or approvals which would not, singly or in the aggregate, result in a
Material Adverse Effect.
(f) Capitalization; Issuance of Shares. Immediately prior to Closing,
the authorized capital stock of the Company will consist of 75,000,001 shares,
divided into (i) 50,000,000 shares of Common Stock, $0.001 par value, of which
5,372,372 are issued and outstanding (on a non-diluted basis); (ii) 25,000,000
shares of Preferred Stock, $0.001 par value, of which (a) 1,473,405 shares have
been designated Class A Convertible Preferred Stock, all of which are issued and
outstanding, and (b) 1,722,222 shares have been designated Class B Convertible
Preferred Stock, all of which are issued and outstanding; and (iii) one share of
Special Voting Stock, which is issued and outstanding. There also will be
outstanding immediately prior to Closing warrants to purchase 1,878,367 shares
of Common Stock, special warrants to acquire 1,000,000 shares of Common Stock
(exercisable for no additional consideration), options to purchase 1,557,500
shares of Common Stock and 5,773,785 exchangeable shares in the capital of the
Company's subsidiary SoftQuad Acquisition Corp., each of which is exchangeable
for one share of Common Stock. No shares of the Company's capital stock are
subject to preemptive rights or any other similar rights.
Upon the issuance by the Company to the Subscriber of the shares of
Common Stock and the payment therefore by the Subscriber to the Company, on the
terms and subject to the conditions set forth herein, the shares of Common Stock
will have been duly authorized and validly issued and will be fully paid, and
non-assessable. The shares of Common Stock issuable upon the exercise of the
Warrant upon issuance (and upon receipt by the Company of the exercise price
thereof) will be validly issued, fully paid and non-assessable.
(g) Litigation. There is no litigation, arbitration, governmental or
other proceeding (formal or informal) or claim or investigation pending or, to
the knowledge of the Company, threatened with respect to the Company or any of
its operations, businesses, properties or assets, except such as individually or
in the aggregate do not now have and will not likely in the future have a
Material Adverse Effect. The
10
Company is not in violation of, or in default with respect to, any law, rule,
regulation, order judgment or decree, except such as in the aggregate do not
have a Material Adverse Effect.
(h) Intellectual Property. The Company has valid title to or licenses
to use each patent, patent application, trademark, trademark application, trade
name, service mark, copyright, franchise or other intangible property or asset
(all of the foregoing being herein call "Intangibles") necessary to the business
of the Company as presently conducted. To the Company's knowledge, except as
disclosed to the Subscriber in writing, the Company has not infringed nor is it
infringing in any material respect with respect to Intangibles or others, and
the Company has not received notice of infringement with respect to asserted
Intangibles of others, which infringement would have a Material Adverse Effect.
(i) Absence of Certain Changes. Subsequent to the date of this
Subscription Agreement, (A) the Company has not, except in the ordinary course
of business, incurred any material liability or obligation, primary or
contingent, for borrowed money, (B) there has not been any material change in
the capital stock, short-term debt or long-term debt of the company, (C) the
Company has not entered into any material transaction not in the ordinary course
of business (D) the Company has not purchased any of its outstanding capital
stock nor declared or paid any dividend or distribution of any kind on its
capital stock, (E) the Company has not sustained any material loss or
interference with its businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding, and (F) there has not
been any material adverse change which the Company reasonably believes would
likely result in a prospective material adverse change, in the financial
condition, results or operations, business, properties, assets, or liabilities
of the Company and its Subsidiaries, taken as a whole.
(j) Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; the
Company has not been refused any insurance coverage sought or applied for, and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from insurers of recognized financial responsibility as may be
reasonably necessary to continue its business.
(k) Tax Matters. The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not have a
Material Adverse Effect), and has paid all material taxes required to be paid by
it and any other material assessment, fine or penalty levied against it to the
extent that any of the foregoing is due and payable, except for any such
material assessment, fine or penalty that is currently being contested in good
faith or as disclosed to the Subscriber in writing.
(l) Accounting Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (i) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to my differences.
11
(m) Disclosure. Neither this agreement, nor any other document
furnished to the Subscriber by the Company in connection with this Subscription
contains any untrue statement of a material fact, and this agreement and such
documents, taken as a whole, will not omit to state any material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading, except that the Company shall have no liability
for any information provided to the Company in writing by, and relating to, the
U.S. Placement Agent, for use in connection with and used in connection with the
Offering. It is understood that any summary of a document does not constitute an
untrue or misleading statement merely because it is a summary; provided,
however, that any such summary may not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading. If, at any time before the Offering is completed or terminated or
before all subscriptions are accepted by the Company, there should be any change
which would cause this agreement or any of such documents not to comply with
this paragraph 13(m), the Company will promptly advise the U.S. Placement Agent
thereof and prepare and furnish the U.S. Placement Agent with, for distribution
to investors, after prior review and approval by the U.S. Placement Agent and
their counsel (such approval not to be unreasonably withheld), such copies of
such supplements or amendments to this agreement and any of such documents will
cause this agreement and those documents, as so supplemented or amended, to
comply with this paragraph 13(m), and will authorize the U.S. Placement Agent to
make to investors, if (i) deemed necessary by counsel to the U.S. Placement
Agent and approved by the U.S. Placement Agent or (ii) if deemed necessary by
counsel to the Company, an offer of rescission.
14. Certain Covenants.
(a) The Company covenants and agrees, at its own cost and expense:
(i) to as expeditiously as possible file a registration statement (a
"Registration Statement") with the SEC, covering the resale of any and all
shares of Common Stock included in the Units and the shares of Common Stock
issuable upon exercise of the Warrants (the "Registrable Shares");
(ii) to use its commercially reasonable best efforts to cause such
Registration Statement to become effective within 120 days following the Closing
Date and remain effective until the earlier to occur of (i) the date on which
all the Warrants have been exercised or have expired by their terms, and (ii)
the date on which all shares underlying such Warrants are eligible for resale
pursuant Rule 144 of the Act, without limitation;
(iii) to prepare and file with the SEC, as expeditiously as possible,
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for the period described in the foregoing
clause (ii);
(iv) as expeditiously as possible, to furnish to the Subscriber such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, and such other documents as the Subscriber may reasonably request in
order to facilitate the sale or other disposition of the Registrable Shares; and
(v) as expeditiously as possible, register or qualify the Registrable
Shares covered by the Registration Statement under the securities or Blue Sky
laws of such states as the Subscribers shall
12
reasonably request; provided, however, that (x) the Company shall not for any
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or execute a general consent to
service of process in any jurisdiction and (y) if the Company is offering
securities for its own account, it need not register or qualify under the
securities or Blue Sky laws of any jurisdiction in which the managing
underwriter has no intention of offering or selling securities for the account
of the Company (except that the Company will use its best efforts to register or
qualify Registrable Shares in such additional jurisdiction as any Subscriber may
request subject to the limitation of clause (x) and at the Subscriber's
expense).
Following the issuance of any such shares of Common Stock, and prior to
such time as the applicable Registrable Shares are so registered, such shares
shall be restricted securities under the Act, will not have been registered
under the Act and may not be sold or transferred absent such registration or
unless an exception from registration is available and the certificates
evidencing such shares shall bear an appropriate legend restricting transfers
under the Act. In connection with such registration, the Subscriber shall
provide to the Company such information, and execute and deliver such
certificates and other agreements, as the Company may reasonably request in
order to effectuate the registration of the Registrable Shares including
providing information regarding such holder and the distribution proposed by
such holder as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance.
(b) The Subscriber agrees that, upon receipt of any notice from the
Company of (i) any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus covering any of the Subscribers'
Registrable Shares, (ii) the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement covering any of the Subscriber's
Registrable Shares or the initiation of any proceedings for that purpose, (iii)
the receipt by the Company of any notification with respect to the suspension of
the qualification of any Registrable Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (iv) the happening
of any event that requires the making of any changes in the Registration
Statement covering any of Subscriber's Registrable Shares so that it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or that any related prospectus will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, and (v) the Company's reasonable determination
that a post-effective amendment to a Registration Statement covering any of the
Subscriber's Registrable Shares or a supplement to any related prospectus is
required under the Act; the Subscriber will forthwith discontinue disposition of
such Registrable Shares until it is advised in writing by the Company that the
use of the applicable prospectus (as amended or supplemented, as the case may
be) and disposition of the Registrable Shares covered thereby pursuant thereto
may be resumed provided, however, (x) that the Subscriber shall not resume its
disposition of Registrable Shares pursuant to such Registration Statement or
related prospectus unless it has received notice from the Company that such
Registration Statement or amendment has become effective under the Act and has
received a copy or copies of the related prospectus (as then amended or
supplemented, as the case may be) unless the Registrable Shares are then listed
on a national securities exchange and the Company has advised the Subscriber
that the Company has delivered copies of the related prospectus, as then amended
or supplemented, in transactions effected upon such exchange, subject to any
subsequent receipt by such Subscriber from the Company of notice of any of the
events contemplated by clauses (i) through (iv) of this paragraph, and, (y) if
so directed by the Company, such
13
holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in the Subscriber's possession, of the
prospectus covering such Registrable Shares current at the time of receipt of
such notice.
(c) (i) In the event of any Registration of any of the Registrable
Shares under the Act pursuant to this Subscription Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, and each
other person, if any, who controls such seller within the meaning of the Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller or controlling person may become subject under the
Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement of any material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and, subject to Section 12(c)(iii) below, the
Company will reimburse such seller and each such controlling person for any
legal or any other expenses reasonably incurred by such seller or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission made
in such Registration Statement, preliminary prospectus or final prospectus, or
any such amendment or supplement, in conformity with information furnished to
the Company, in writing, by or on behalf of such seller or controlling person
for use in the preparation thereof or inclusion therein.
The indemnity provisions in this Section 12(c)(ii) are subject to the
condition that, insofar as they related to any untrue statement or omission made
in a preliminary prospectus or prospectus but eliminated or remedied in a final
prospectus or an amended or supplemented prospectus on file with the SEC at the
time the Registration Statement becomes effective or any amended or supplemented
prospectus filed with the SEC pursuant to Rule 424 or any successor provision
under the Act (the "Final Prospectus"), such indemnity provisions shall not
inure to the benefit of the Subscriber (x) if the Subscriber is not selling
Registrable Shares though an underwriter, if the Company has previously
delivered copies of such Final Prospectus to the Subscriber or, if Registrable
Shares are then listed on a national securities exchange, if the Company has
previously delivered copies of such Final Prospectus to such national securities
exchange in accordance with Rule 153 or any successor rule under the Act, or (y)
if the Subscriber is selling Registrable Shares through an underwriter or
underwriters, the Company has previously delivered copies of such Final
Prospectus to such underwriter or underwriters.
(ii) In the event of any registration of any of the
Registrable Shares under the Act pursuant to this Subscription Agreement, the
Subscriber will indemnify and hold harmless the Company, each of its directors
and officers and each underwriter (if any,) and each person, if any, who
controls the Company or any such underwriter within the meaning of the Act or
the Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company, such directors and officers, underwriter or
controlling person may become subject under the Act, Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the Act, any
14
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission to state a material fact required to
be stated therein or necessary to make the statement therein not misleading, if
the statement or omission was made in conformity with information furnished in
writing to the Company by or on behalf of the Subscriber, specifically for use
in connection with the preparation of or inclusion in such Registration
Statement, prospectus, amendment or supplement; and shall reimburse the Company,
its directors and officers, and each such controlling person for any legal or
other expenses reasonably incurred by any of them in connection with
investigation or defending any such loss, claim, damage, liability or action,
provided, however, in no event shall Subscriber's indemnification obligations
hereunder exceed the gross proceeds from the sale of Registrable Shares by the
Subscriber. This indemnity shall remain in full force and effect for the
applicable statute of limitation period regardless of any investigation made by
or on behalf of the Company or such controlling person and shall survive the
transfer of shares.
(iii) Each party entitled to indemnification under this
Section 12(c)(ii) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any loss, claim, action, damage
or liability as to which indemnity may be sought, and shall permit the
Indemnified Party to assume the defense of any such claim or any litigation
resulting therefrom; provided, that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld); and,
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnified Party of its obligations under
this Section 12(c)(ii), except to the extent that such failure to give notice
prejudices the Indemnifying Party or such Indemnifying Party is damaged by such
delay. The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such expense
(but in no event shall the Indemnifying Party be obligated to pay the fees and
expenses of more than one counsel for the Indemnified Party or Parties) if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential conflict of
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle claim or litigation without the prior written consent of the
Indemnifying Party.
(iv) If the indemnification provided for in this Section 12(c)
is finally determined by a court of competent jurisdiction to be unavailable to
an Indemnified Party with respect to any loss, liability, claim, damage, or
expense referred to therein or contribution is required under the Act in
circumstances for which indemnification is provided under this Section 12(c),
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense (i) in such
proportion as is in appropriate to reflect the relative benefits received by the
Indemnifying Party on the one hand and the Indemnified Party on the other or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other but also the
15
relative fault of the Indemnifying Party and the Indemnified Party as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact related to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
(A) no Subscriber will be required to contribute any amount in excess of the
gross proceeds of all Registered Shares sold by it pursuant to such Registration
Statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
(v) The obligations under this Section 12(c) shall survive the
completion of any offering of Registered Shares in a Registration Statement.
(d) As liquidated damages and Subscriber's sole and exclusive remedy in
the event of a breach by the Company of its obligations set forth in Section
14(a) above, if a Company Registration Statement covering such shares of Common
Stock is not declared effective within 120 days, but prior to 180 days,
following the final Closing Date of the Offering, the exercise price of the
Warrants sold to Subscribers shall be reduced by US$0.25 per month, or a pro
rated amount thereof for partial months, until a Registration Statement covering
such shares is declared effective. If a Registration Statement covering such
shares of Common Stock is not declared effective within 180 days following the
final Closing Date, the exercise price of the Warrants shall be thereafter
reduced by US$0.50 per month, or a pro rated amount thereof for partial months,
until a Registration Statement covering such shares of Common Stock is declared
effective. Notwithstanding the foregoing, in no event should the exercise price
of the Warrants sold to Subscribers be reduced to a price lower than US$3.75 per
share.
(e) From and after the Closing Date, the Company shall use its
commercially reasonable best efforts to file all documents required
to be filed by it on a timely basis with the SEC under the Exchange
Act.
[SIGNATURE PAGE FOLLOWS]
16
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the date specified below.
_________________________________________________________
Number of Units Subscribed For Print Full Legal Name of Partnership, Trust or LLC
_________________________________________________________
Aggregate Purchase Price (Signature of Authorized Signatory)
(US$7.50 per Unit)
Dated: Name:______________________________________________________________
Title:_____________________________________________________________
Address:___________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
U.S. Tax Identification Number (if a U.S. Person)
___________________________________________________________________
Date and State or Jurisdiction of Incorporation or Organization
___________________________________________________________________
Date on which Taxable Year Ends
___________________________________________________________________
Registration Instructions
___________________________________________________________________
Delivery Instructions
Contact: ______________________________ Tel. No._______________
ACCEPTED AND AGREED:
SOFTQUAD SOFTWARE, LTD.
By: ______________________________
Name:
Title:
Dated: ____________________________
17
