Document:

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                       SPECIAL WARRANT PURCHASE AGREEMENT

                                     BETWEEN

                             SOFTQUAD SOFTWARE, LTD.
                                  (THE COMPANY)

                                       AND

                    THOMSON KERNAGHAN & CO. LIMITED, AS AGENT
                                   (THE AGENT)

                            DATED AS OF MAY 18, 2000

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                       SPECIAL WARRANT PURCHASE AGREEMENT

     This Special Warrant Purchase Agreement (this "Agreement") is made and
entered into as of May 19, 2000 (the "Effective Date") between SoftQuad Software
Ltd. (the "Company"), a Delaware corporation, and Thomson Kernaghan & Co.
Limited (the "Agent"), an Ontario, Canada, corporation, as agent for certain
purchasers (the "Purchasers").

                                   Background

     The Company has authorized the issuance, sale, and delivery of 1,000,000
Special Warrants in the form of Exhibit B attached to this Agreement (the
"Special Warrants") to purchase 1,000,000 shares (the "Shares") of the Company's
Common Stock, par value $0.001 ("Common Stock") at a price per Special Warrant
of $2.50, in currency of the United States of America, for a total purchase
price of $2,500,000.00. The Agent wishes to purchase the Special Warrants for
the account of the Purchasers upon the terms and conditions stated in this
Agreement. The Agent is purchasing the Special Warrants for the account of the
Purchasers in reliance upon the exemption from the registration requirements of
Section 5 of the U.S. Securities Act of 1933, as amended (the "Securities Act"),
and the safe harbor afforded by Rule 903 promulgated by the U.S. Securities and
Exchange Commission (the "SEC").

     In connection with the issuance and sale of the Special Warrants to the
Agent, the Company has authorized the issuance and delivery of a warrant in the
form of Exhibit C attached to this Agreement (the "Agent's Warrant") to Thomson
Kernaghan & Co. Limited to purchase 100,000 shares of Common Stock at $2.50 per
share.

                                    Agreement

     For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Purchaser hereby agree as
follows:

Section 1.  Common Stock.

     Section 1.1. Issuance and Sale of the Special Warrants and the Agent's
                  Warrant.

     The Company agrees (i) to issue and sell the Special Warrants to the Agent
for the Purchasers' account and the Agent agrees to purchase the Special
Warrants from the Company for the Purchasers' account, at the Closing, for the
Purchase Price of US$2,500,000; and (ii) to issue and deliver the Agent's
Warrant to the Agent.

     Section 1.2. Closing.

     The closing of the purchase and sale of the Special Warrants (the
"Closing") shall take place at the offices of Thomson Kernaghan & Co. Limited,
Tenth Floor, 365 Bay Street, Toronto, Ontario M5H 2V2, Canada, at 3:00pm,
Toronto time, on Thursday, May 19, 2000 (the "Closing Date"), or on such other
date or such other time or place as the parties may agree.

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     Section 1.3 Deliveries at Closing

     At the Closing, the Company shall deliver to the Agent:

     (a)  this Agreement, executed by the Company;

     (b)  a certificate for the Special Warrants, registered in the Purchasers'
          name or in the Agent's name as nominee, as the Agent may specify; and

     (c)  the Registration Rights Agreement (defined in Section 4.9 below),
          executed by the Company, in substantially the form of Exhibit A
          hereto.

     At the Closing, the Company shall also deliver the Agent's Warrant to the
Agent.

Section 2. Purchasers' Representations and Warranties

     The Agent represents and warrants with respect to the Purchasers:

     Section 2.1. Investment Purpose

     The Purchasers are acquiring the Special Warrants, for their own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, provided however, that by making
the representations herein, the Purchasers do not agree to hold any Special
Warrants or the underlying Shares for any minimum or other specific term. The
Agent acknowledges that the Special Warrants may not be resold in the United
States, or to or for the account of a U.S. person as defined by SEC Rule 902(k),
except pursuant to an effective registration statement under the Securities Act
or after the expiration of the one-year distribution compliance period provided
in SEC Rule 903(b)(3)(iii)(A).

     Section 2.2. Accredited Purchaser Status

     Each Purchaser is an "accredited investor" as that term is defined in Rule
501(a)(3) of Regulation D of the SEC.

     Section 2.3. Reliance on Regulation S Exemption

     The Purchasers understand that the Special Warrants are being offered and
sold to it in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act for offshore transactions as defined in SEC Rule
902(h), and that the Company is relying in part upon the truth and accuracy of,
and the Purchasers' compliance with, the representations, warranties,
agreements, acknowledgments, and understandings of the Purchasers set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Purchasers to acquire such Special Warrants. With respect to
that exemption, the Agent further represents and warrants to the Company that:

     (a)  No Purchaser is a U.S. Person as defined in SEC Rule 902(k).

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     (b)  The offer to sell the Special Warrants to the Purchasers was not made
          in the United States, and was made in Toronto, Ontario.

     (c)  The Purchasers' buy orders for the Special Warrants were made outside
          the United States, and were made in Toronto, Ontario.

     (d)  The Purchasers have complied with all of the conditions required of
          then by SEC Rule 903(b)(3).

     Section 2.4. Information

     The Purchasers and their advisors, if any, have been furnished with all
materials relating to the proposed business, financial condition, and operations
of the Company and materials relating to the offer and sale of the Special
Warrants, that have been requested by the Purchasers. The Purchasers and their
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Purchasers or their advisors, if any, or their representatives
shall modify, amend, or affect the Purchasers' right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchasers
understand that their investment in the Special Warrants involves a high degree
of risk. The Purchasers have sought such accounting, legal, and tax advice as it
has considered necessary to make an informed investment decision with respect to
their acquisition of the Special Warrants.

     Section 2.5. No Governmental Review

     The Purchasers understand that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Special Warrants, or the fairness or
suitability of the investment in the Special Warrants, nor have such authorities
passed upon or endorsed the merits of the offering of the Special Warrants.

     Section 2.6. Authorization Enforcement

     This Agreement has been duly and validly authorized, executed, and
delivered by the Agent on behalf of the Purchasers and is a valid and binding
agreement of the Purchasers severally enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation, and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.

     Section 2.7. Organization

     The Agent is a corporation organized under the laws of the Province of
Ontario, Canada.

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     Section 2.8. No Scheme to Evade Registration.

     The acquisition of the Special Warrants is not a transaction (or any
element of a series of transactions) that is part of a plan or scheme by the
Purchasers to evade the registration provisions of the Securities Act.

Section 3. Representations And Warranties Of The Company

     The Company represents and warrants to the Agent and the Purchasers that:

     Section 3.1. Organization and Qualification

     The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company is not qualified as a foreign corporation to do business
in any other jurisdiction.

     Section 3.2. Authorization, Enforcement, Compliance with Other Instruments.

     (a)  the Company has the requisite corporate power and authority to enter
          into and perform this Agreement and to issue the Special Warrants;

     (b)  the execution and delivery of this Agreement by the Company, and the
          consummation by it of the transactions contemplated hereby, including
          without limitation the issuance of the Special Warrants, have been
          duly authorized by the Company's Board of Directors and no further
          consent or authorization is required by the Company, its Board of
          Directors or its stockholders;

     (c)  this Agreement has been duly executed and delivered by the Company and
          the persons signing on behalf of the Company have full power and
          authority to do so; and

     (d)  this Agreement constitutes the valid and binding obligation of the
          Company enforceable against the Company in accordance with its terms,
          except as such enforceability may be limited by general principles of
          equity or applicable bankruptcy, insolvency, reorganization,
          moratorium, liquidation, or similar laws relating to, or affecting
          generally, the enforcement of creditors' rights and remedies.

     Section 3.3. Capitalization

     Immediately prior to Closing, the authorized capital stock of the Company
consisted of 50,000,000 shares, divided into (i) 25,000,000 shares of Common
Stock, $0.001 par value; and (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, and (b) 1,722,222 shares have been designated Class
B Convertible Preferred Stock. No shares of the Company's capital stock are
subject to preemptive rights or any other similar rights.

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     Section 3.4. Issuance of Special Warrants

     The Special Warrants are duly authorized and, upon issuance in accordance
with the terms hereof, shall be validly issued. The Special Warrants are
"restricted securities" as defined by SEC rules, and may be transferred,
assigned or resold by the Purchaser only in accordance with the Securities Act
and the SEC rules promulgated thereunder.

     Section 3.5. No Conflicts

     The execution, delivery, and performance of this Agreement by the Company,
and the consummation by the Company of the transactions contemplated hereby and
thereby, will not (a) result in a violation of the Certificate of Incorporation,
any Certificate of Designation applicable to any Preferred Stock of the Company,
or the Bylaws of the Company or (b) conflict with, constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration, or
cancellation of, any agreement, indenture, or instrument to which the Company is
a party, or result in a violation of any law, rule, regulation, order, judgment,
or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected. The Company is not in violation of any term of, or in default
under, its Certificate of Incorporation or Bylaws, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree, or
order or any statute, rule, or regulation applicable to the Company. The
business of the Company is not being conducted and shall not be conducted in
violation of any law, ordinance, or regulation of any governmental entity.
Except as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization, or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver, and perform any of its obligations under or contemplated by
this Agreement in accordance with the terms hereof. All consents,
authorizations, orders, filings, and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.

     Section 3.6. Absence of Certain Changes

     Since the date of the Company's opening balance sheet, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations, or prospects
of the Company. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.

     Section 3.7. Absence of Litigation

     There is no action, suit, proceeding, inquiry, or investigation before or
by any court, public board, government agency, self-regulatory organization, or
body pending or, to the

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knowledge of the Company, threatened against or affecting the Company, in which
an unfavorable decision, ruling or finding would (a) have a material adverse
effect on the transactions contemplated hereby, (b) adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under this Agreement, or any of the other documents
contemplated herein, or (c) have a material adverse effect on the business,
operations, properties, financial condition, or results of operation of the
Company.

     Section 3.8. Purchase of Special Warrants

     The Company acknowledges and agrees that the Agent is acting solely in the
capacity of an agent for the account of the Purchasers with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Agent is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement, or the
transactions contemplated herein. The Company further represents to the
Purchasers that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.

     Section 3.9. No Undisclosed Events, Liabilities, Developments, or
Circumstances

     No event, liability, development, or circumstance has occurred or exists,
or is contemplated to occur, with respect to the Company or its businesses,
properties, prospects, operations, or financial condition, which could be
material but which has not been publicly announced or disclosed in writing to
the Purchaser.

     Section 3.10. No General Solicitation

     Neither the Company, nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Special Warrants.

     Section 3.11. No Integrated Offering

     Neither the Company, nor any of its affiliates, nor any person acting on
its or their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of the Special Warrants under the Securities Act or
cause this offering of the Special Warrants to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable
stockholder approval provisions.

     Section 3.12. Internal Accounting Controls

     The Company maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's

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general or specific authorization, and (d) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

     Section 3.13. No Materially Adverse Contracts, Etc.

     The Company is not subject to any charter, corporate, or other legal
restriction, or any judgment, decree, order, rule, or regulation which in the
judgment of the Company's officers has, or is expected in the future to have, a
material adverse effect on the business, properties, operations, financial
condition, results of operations, or prospects of the Company. The Company is
not a party to any contract or agreement which in the judgment of the Company's
officers has, or is expected to have, a material adverse effect on the business,
properties, operations, financial condition, results of operations, or prospects
of the Company.

     Section 3.14. Tax Status

     The Company has made or filed all federal and state income and all other
tax returns, reports, and declarations required by any jurisdiction to which it
is subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports, and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports,
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

     Section 3.15. Certain Transactions

     Except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers, and directors),
including any contract, agreement, or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director, or such employee or, to the knowledge of the Company, any corporation,
partnership, trust, or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee, or
partner.

     Section 3.16. Fees and Rights of First Refusal

     The Company is not obligated to offer the securities offered hereunder on a
right of first refusal basis or otherwise to any third parties including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents, or other third parties. The Company is not obligated to pay any
commission or fee in connection with the issuance and sale of the Special
Warrants for which the Agent or any Purchaser is or may become liable.

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     Section 3.17. Regulation S Exemption

     The Company understands that the Agent is purchasing the Special Warrants
in reliance on the exemption from the registration requirements of Section 5 of
the Securities Act for offshore transactions as defined in SEC Rule 902(h), and
that the Agent is relying in part upon the truth and accuracy of, and the
Company's compliance with, the representations, warranties, agreements,
acknowledgments, and understandings of the Company set forth herein in order to
determine the availability of such exemptions and the eligibility of the Company
to issue and sell the Special Warrants to the Purchaser without having complied
with those registration requirements. With respect to that exemption, the
Company further represents and warrants to the Agent and the Purchasers that:

     (a)  The Company has not offered any of the Special Warrants to a U.S.
          Person (as defined in SEC Rule 902(k)) or to a person in the United
          States.

     (b)  The offer and sale of the Special Warrants to the Purchasers are being
          made in an offshore transaction as defined in SEC Rule 902(h).

     (c)  The Company has not engaged in any directed selling efforts, as
          defined in SEC Rule 902(c), with respect to the Special Warrants.

     (d)  The Company has complied with all of the conditions required of it
          under SEC Rule 902(b)(3).

Section 4. Covenants

     Section 4.1. Best Efforts

     Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 5 and 6 of this
Agreement.

     Section 4.2. Compliance with Regulation S

     Each party shall comply with all of the terms of SEC Rule 903(b)(3)
required of it with respect to the Special Warrants.

     Section 4.3. Reporting Status

     The Company is a "reporting company" under the Securities and Exchange Act
of 1934, as amended (the "Exchange Act"), as defined by the rules and
regulations of the SEC and the NASD, and shall file in a timely manner all
reports and other information required by it to be filed with the SEC under the
Exchange Act in order to remain a reporting company, for so long as the
Purchaser is the holder or beneficial owner of any Special Warrants or Common
Stock.

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     Section 4.4. Use of Proceeds

     The Company will use the proceeds from the sale of the Special Warrants for
general working capital purposes.

     Section 4.5 Listings

     The Company shall maintain the listing of its Common Stock on the NASDAQ
OTC Bulletin Board, and upon the NASDAQ Small Cap Market as soon thereafter as
it is eligible therefor. The Company shall promptly provide to the Agent copies
of any notices it receives regarding the eligibility of the Common Stock for
trading in the over-the-counter market.

     Section 4.6. Expenses

     The Company shall pay the Agent's expenses, including reasonable attorney's
fees, incurred in connection with this Agreement.

     Section 4.7. Corporate Existence

     So long as the Purchasers hold, in the aggregate 1% or more of the
outstanding Common Stock, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, consolidation, sale of all
or substantially all of the Company's assets, or any similar transaction or
related transactions (each such transaction, a "Sale of the Company") except if
the surviving or successor entity in such transaction is a publicly traded
corporation whose Common Stock is listed for trading on the New York Stock
Exchange, Inc., the American Stock Exchange, or the NASDAQ National Market.

     Section 4.8. Transactions With Affiliates

     So long as the Purchasers hold, in the aggregate, of 1% or more of the
outstanding Common Stock, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify, or supplement, or permit any
subsidiary to enter into, amend, modify, or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of any
class of the Company's capital stock, or affiliates, or with any individual
related by blood, marriage, or adoption to any such individual or with any
entity in which any such entity or individual owns a 5% or more beneficial
interest (each, a "Related Party"), except for (i) customary employment
arrangements and benefit programs on reasonable terms, (ii) any agreement,
transaction, commitment, or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, (iii) any agreement, transaction, commitment, or arrangement
which is approved by a majority of the disinterested directors of the Company,
for purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "Affiliate" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (1) has a 5% or more equity interest in
that person or entity, (2) has 5% or more

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common ownership with that person or entity, (3) controls that person or entity,
or (4) share common control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.

     Section 4.9. Registration Rights

     As soon as is practicable after the date of this Agreement, the Company
shall file a registration statement (the "Registration Statement") with the SEC
to register the resale of the Common Stock in to which the Special Warrants are
convertible, and shall use its best efforts to cause the Registration Statement
to become effective, all as provided in the Registration Rights Agreement (the
"Registration Rights Agreement") attached as Exhibit A to this Agreement.

Section 5. Conditions To The Company's Obligation To Sell

     The obligation of the Company hereunder to issue and sell the Special
Warrants to the Agent at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:

     (a)  The Agent shall have executed this Agreement and delivered the same to
          the Company.

     (b)  The Agent shall have delivered the Purchase Price for the Special
          Warrants to the Company.

     (c)  The representations and warranties of the Purchaser shall be true and
          correct in all material respects as of the date when made and as of
          the Closing Date as though made at that time, and the Agent shall have
          performed, satisfied, and complied in all material respects with the
          covenants, agreements and conditions required by this Agreement to be
          performed, satisfied, or complied with by the Purchaser at or prior to
          the Closing Date.

Section 6. Conditions To The Purchasers' Obligation To Purchase

     The obligation of the Agent hereunder to purchase the Special Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Agent's sole benefit and may be waived by the Agent at any time in its sole
discretion:

     (a)  The Company shall have executed this Agreement.

     (b)  The Company shall have executed the Registration Rights Agreement.

     (c)  The representations and warranties of the Company shall be true and
          correct in all material respects (except to the extent that any of
          such representations and warranties is already qualified as to
          materiality in Section 3 above, in which case,

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                                      -12-

          such representations and warranties shall be true and correct without
          further qualification) as of the date when made and as of the Closing
          Date as though made at that time (except for representations and
          warranties that speak as of a specific date) and the Company shall
          have performed, satisfied, and complied in all material respects with
          the covenants, agreements, and conditions required by this Agreement
          to be performed, satisfied, or complied with by the Company at or
          prior to the Closing Date.

Section 7. Indemnification

     In consideration of the Agent's execution and delivery of this Agreement
and acquiring the Special Warrants hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify, and hold harmless the Agent and each Purchaser, and all of
its officers, directors, employees, and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities, and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company in this Agreement, or any
other certificate, instrument, or document contemplated hereby, (b) any breach
of any covenant, agreement, or obligation of the Company contained in this
Agreement, or (c) any cause of action, suit, or claim brought or made against
such Indemnitee and arising out of or resulting from the execution, delivery,
performance, or enforcement of this Agreement, or any other instrument,
document, or agreement executed pursuant hereto by any of the Indemnities, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Special Warrants, or the
status of the Agent or any Purchaser or holder of the Special Warrants, as a
stockholder in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.

Section 8. General Provisions

     Section 8.1. Governing Law

     This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware; provided, however, (i) that if any provision of
this Agreement is unenforceable under the laws of the State of Delaware, but is
enforceable under the laws of the Province of Ontario, Canada, then such
provision shall be governed by and interpreted in accordance with the laws of
the Province of Ontario; and (ii) that the exemption from the registration
requirements of the Securities Act for the sale shall be governed by SEC Rule
903. The parties agree that the courts of the Province of Ontario, Canada, shall
have exclusive

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                                      -13-

jurisdiction and venue for the adjudication of any civil action between them
arising out of relating to this Agreement, and hereby irrevocably consent to
such jurisdiction and venue.

     Section 8.2. Counterparts

     This Agreement may be executed in two or more identical counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause four (4)
additional original executed signature pages to be physically delivered to the
other party within five (5) days of the execution and delivery hereof.

     Section 8.3. Headings

     The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.

     Section 8.4. Severability

     If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.

     Section 8.5. Entire Agreement, Amendments

     This Agreement supersedes all other prior oral or written agreements
between the Purchaser, the Company, their affiliates and persons acting on their
behalf with respect to the issuance and sale of the Special Warrants, and this
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company, nor the
Agent, nor any Purchaser makes any representation, warranty, covenant, or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.

     Section 8.6. Notices

     Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (a) upon receipt, when delivered
personally, (b) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested, (c) three (3) days after being
sent by certified mail, return receipt requested, or (d) one (1) day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:

<PAGE>
                                      -14-

               if to the Company:                  with a copy (which shall not
                                                   constitute notice) to:
       SoftQuad Software, Ltd.
       Suite 400                                   Goodman Phillips & Vineberg
       161 Eglinton Ave. East                      250 Yonge Street
       Toronto, Ontario                            Suite 2400
       M5P 1J5                                     Toronto, Ontario
                                                   M5B 2M6

       Attention:  Roberto Drassinower
       Telephone:  (416) 554-3000                  Attention:  Neill May
       Facsimile:  (416) 554-0306                  Telephone: (416) 597-4187

                                                   Facsimile:  (416) 979-1234

               if to the Agent:                    with a copy (which shall not
                                                   constitute notice) to:
      Thomson Kernaghan & Co. Limited
      365 Bay Street, 10th Floor                   John M. Mann
      Toronto, Ontario M5H 2V2, Canada             Attorney at Law
      Attention: Mark E. Valentine,                1330 Post Oak Boulevard,
      Chairman                                     Suite 2800
      Telephone:  (416) 860-8800                   Houston, Texas 77056-3060
      Facsimile:  (416) 367-8055                   Telephone:  (713) 622-7114
                                                   Facsimile:  (713) 622-7185

Each party shall provide five (5) day's prior written notice to the other party
of any change in address or facsimile number.

     Section 8.7. Successors and Assigns

     This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Purchaser. The Agent and the Purchasers may assign their
respective rights hereunder without the consent of the Company, provided
however, that any such assignment shall not release the Purchasers from their
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption.

     Section 8.8. No Third Party Beneficiaries

     This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.

<PAGE>

                                      -15-

     Section 8.9. Survival

     Unless this Agreement is terminated under Section 8.12, the representations
and warranties of the Company and the Agent contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4 and 5, and the indemnification
provisions set forth in Section 7, shall survive the Closing. The Purchaser
shall be responsible only for its own representations, warranties, agreements,
and covenants hereunder.

     Section 8.10. Publicity

     The Company and the Agent shall have the right to approve, before issuance,
any press releases or any other public statements with respect to the
transactions contemplated hereby; provided however, that the Company shall be
entitled, without the prior approval of the Agent, to make any press release or
other public disclosure with respect to such transactions as is required by
applicable law and regulations (although the Agent shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof).

     Section 8.11. Further Assurances

     Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments, and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

     Section 8.12. Termination

     In the event that the Closing shall not have occurred with respect to the
Agent on or before five (5) business days from the date hereof due to the
Company's or Agent's failure to satisfy the conditions set forth in Sections 5
and 6 above (and the non-breaching party's failure to waive such unsatisfied
condition(s)), the non-breaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided however, that
if this Agreement is terminated pursuant to this Section 8.12, the Company shall
remain obligated to reimburse the Purchaser for the expenses described in
Section 4.6 above.

     Section 8.13. No Strict Construction

     The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

     Section 8.14. Currency

     All dollar amounts expressed in this Agreement are currency of the United
States of America.

<PAGE>

                                      -16-

     In witness whereof, the Company and the Agent have caused this Common Stock
Purchase Agreement to be duly executed as of the date first written above.

SoftQuad Software, Ltd.              Thomson Kernaghan & Co. Limited, as Agent

By ______________________________    By __________________________________

Name ____________________________    Name ________________________________

Title ___________________________    Title _______________________________

<PAGE>

                                    EXHIBIT A

                          REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                    EXHIBIT B

                           SPECIAL WARRANT CERTIFICATE

<PAGE>

                                    EXHIBIT C

                                 AGENT'S WARRANT<PAGE>

December 14, 1999

Mr. Roberto Drassinower
President & Chief Executive Officer
SoftQuad Software Inc.
161 Eglinton Avenue East, Suite 400
Toronto, Ontario
M4P 1J5

Dear Mr. Drassinower:

Re: US$8 MILLION PRIVATE PLACEMENT OF COMMON SHARES

This letter will confirm our mutual agreement with respect to your engagement of
Thomson Kernaghan & Co. Ltd. (the "Agent") as the exclusive agent of SoftQuad
Software Inc. ("Softquad"), and a new Delaware corporation to be formed for the
purpose of acquiring Softquad (the "Company"), to act on its behalf, on a best
efforts basis, in connection with its offer and sale of up to US$8 million of
the Company's common shares ("Common Shares"), in two placements as detailed in
the attached term sheet (see Schedule B) (the "Offering") the first of which
shall be exempt from the registration requirements of applicable Canada
securities laws, and from the registration requirements of the U.S. Securities
Act of 1933, as amended (the "Securities Act"), pursuant to Regulation D of the
U.S. Securities and Exchange Commission, and the second of which shall be
registered under the Securities Act on the following terms.

1.   Our engagement shall begin upon your signed acceptance of this letter and
     shall end on the earlier of i) completion of the Offering or ii) May 31,
     2000.

2.   The Agent shall retain the right of first refusal to act as lead or co-lead
     agent on any financing transaction by the Company for a period of 12 months
     commencing on the date of listing.

3.   On or before February 15, 2000, the Company will provide the Agent with (i)
     a detailed statement of its intended use of the proceeds from the placement
     of the Shares; (ii) monthly unaudited financial statements from the date of
     its last audit, consisting of a balance sheet, statement of income,
     statement of cash flows, and statement of changes in shareholders' equity,
     all prepared in accordance with US GAAP and applicable SEC regulations; and
     (iii) such other information regarding the Company and its financial
     condition and operations as the Agent may reasonably request.

4.   The Company will provide the Agent with, a subscription agreement,
     Purchasers' Warrants, Agent's Warrants, and such other documentation as the
     Company's counsel or the Agent's counsel deems reasonably necessary, and an
     opinion of the Company's counsel with respect to the organization and good
     standing of the Company, the authorization and issuance of the Shares, the

<PAGE>

Page 2

     offering's compliance with applicable law, the validity and enforceability
     of the subscription agreements and the warrants, and such other matters
     contemplated by this letter as the Agent or its legal counsel may
     reasonably request. All such documentation must be reasonably satisfactory
     to the Agent and its legal counsel.

5.   Softquad represents and warrants to the Agent that:

     (a) Softquad is and the Company will be duly organized, is and will confirm
         its' valid existence and is in good standing in the jurisdiction of
         it's incorporation, and is qualified to do business in every
         jurisdiction where the nature of its business or activities so require;

     (b) Softquad has all requisite corporate power and authority to execute and
         perform this letter agreement. All corporate action necessary for the
         authorization, execution, delivery and performance of this letter
         agreement and the transactions contemplated hereby have been taken.
         This agreement constitutes a valid and binding obligation of Softquad,
         enforceable against Softquad in accordance with its terms.

     (c) The execution and performance of this letter agreement by Softquad, the
         Company's offer and sale of the Preferred and Common Shares, and the
         issuance of the Purchasers' Warrants and the Agent's Warrants, will not
         violate any provision of the certificate of incorporation or bylaws of
         Softquad or the Company or any material agreement or other instrument
         to which Softquad or the Company is a party or by which it is bound,
         the violations of which, in each case or in the aggregate, would have a
         material adverse effect on the business or financial condition of
         Softquad or the Company.

     (d) Softquad is in material compliance with all laws applicable to it, is
         not materially in default in any of its obligations under any agreement
         or other instrument, and no materially adverse change has occurred in
         Softquad's financial condition since the date of its last audit.

     (e) Except as set forth in this agreement, Softquad has no public or
         private offering of Securities pending or contemplated that it has not
         disclosed in writing to us.

6.   The Company will make no public or private offering of securities prior to
     May 31st, 2000 provided that the first tranche of US$3 million is raised.

7.   The Company also agrees to indemnify the Agent as per the attached
     Schedule A.

8.   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

<PAGE>

Page 3

     jurisdiction of the courts of Ontario in any action to construe or enforce
     this letter agreement, or to recover damages for its breach.

Please confirm our engagement on these terms by signing this letter in the space
provided below.

Sincerely,

THOMSON KERNAGHAN & CO. LTD.

By:__________________________________
     John Koshan
     Vice President & Director

Confirmed, accepted and agreed to on December __, 1999.

SOFTQUAD SOFTWARE CORP.

By: ________________________________
         Roberto Drassinower
         President & Chief Executive Officer

<PAGE>

Page 4

SCHEDULE "A"

SOFTQUAD SOFTWARE LTD. ("SOFTQUAD"), AND A NEW DELEWARE CORPORATION TO BE FORMED
FOR THE PURPOSES OF ACQUIRING SOFTQUAD its subsidiaries or affiliated companies
(collectively the "Indemnitor") hereby agrees to indemnify and hold TK and/or
any of its respective 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, any breach by the Indemnitor of any of its
representations warranties or agreements contained in the agreement to which
this letter is attached or in any certificate or other document given pursuant
thereto, or the non-compliance by the Indemnitor with any requirement of
applicable securities laws or other laws in connection with the transactions
contemplated by said agreement, 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:

                      (i)      the Agent or its Personnel have been negligent or
                               dishonest or have committed any fraudulent act in
                               the course of such performance; and

                      (ii)     the expenses, losses, claims, damages or
                               liabilities, as to which indemnification is
                               claimed, were caused by the gross negligence,
                               dishonesty or fraud referred to in (i).

If for any reason (other than the occurrence of any of the events itemized in
(i) and (ii) above), the foregoing indemnification is unavailable to the Agent
or insufficient to hold it 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 excess of such
amount over the amount of the fees received by the Agent hereunder pursuant to
the letter to which this is attached. No party who has engaged in any fraud,
fraudulent misrepresentation or negligence shall be entitled to claim
contribution from any person who is not engaged in such conduct.

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 its 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.

If any matter or thing contemplated by this section shall be asserted against
the Agent or any of its Personnel (an "Indemnified Person") in respect of which
matter or thing indemnity may be sought against the Indemnitor pursuant to this
agreement or any such potential matter or thing comes to their knowledge, the
Agent shall promptly notify the Indemnitor in writing of the nature of the

<PAGE>

Page 5

action or claim. The Indemnitor shall (i) be entitled to (but not required to)
assume the defence of that action or claim, including the employment of counsel
(satisfactory to the Agent, acting reasonably) and (ii) assume payment of
expenses in relation thereto as and when they are received.
The Indemnified Person(s) shall have the right to employ separate counsel in any
case and to participate in the defence thereof, but the fees and expenses of
such counsel should be at the expense of the Indemnified Person(s) unless (a)
the employment of such counsel has been specifically authorized in writing by
the Indemnitor in connection with the defence of such action or claim; (b) the
Indemnitor shall not, within a reasonable time after receiving written notice,
have employed counsel to have charge of the defence of such action or claim; or
(c) the named parties to any such action or claim include both the Indemnified
Person(s) and the Indemnitor and the Indemnified Person(s) shall have been
advised by counsel, acting reasonably, that there may be defences available to
such person(s) which are different from or additional to those available to the
Indemnitor, in any of which events the fees and expenses of such counsel shall
be borne by the Indemnitor. Notwithstanding the foregoing, no settlement may be
made by any Indemnified Person hereunder without the prior written consent of
the other parties, including the Indemnitor, which consent shall not be
unreasonably withheld."

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.

FOR THOMSON KERNAGHAN & CO LTD

BY:  _______________________________
     John Koshan
     Vice President & Director

SOFTQUAD SOFTWARE INC.,
its subsidiaries or affiliated companies

BY:  _______________________________
     Roberto Drassinower
     President & Chief Executive Officer

<PAGE>

Page 6

                                   SCHEDULE B

                             SOFTQUAD SOFTWARE LTD.

                                SUMMARY OF TERMS
                      Up to US$8 Million Private Placement

<TABLE>

<S>                                  <C>
ISSUER:                                Softquad Software Ltd. (a private
                                       Delaware incorporated company (the
                                       "Issuer").

TARGET:                                Softquad Software Inc. (the Canadian
                                       operating company) ("Softquad Canada").
                                       The Issuer will acquire 100% of the
                                       issued and outstanding shares of Softquad
                                       Canada on a 1:1 share for share exchange.
                                       Softquad Canada may use "exchangeable
                                       shares". Issuer may use wholly owned
                                       Canadian acquisition corporation.

SOFTQUAD CANADA -                      Approximately 11,065,275 (consisting of 2
CURRENT FULLY DILUTED SHARES           groups of Shareholders; Group 1-
OUTSTANDING:                           approximately 7,469,975 shares (including
                                       James Clark, Pinetree Capital Corp,
                                       Beacon M International Investments Inc.,
                                       Protege and Newkidco); Group 2 - balance
                                       of shares).

PLACEMENT AGENT:                       Thomson Kernaghan & Co. Ltd. (the
                                       "Agent")

FINANCIAL ADVISOR:                     Thomson Kernaghan & Co. Ltd. (subject to
                                       separate "Financial Advisory" agreement).

FIRST TRANCHE

FINANCING                              i)       US$1 million to purchase 736,702
                                                Common Shares (Rule 504);
                                       ii)      US$2 million to purchase
                                                1,473,405 Convertible Preferred
                                                Shares (convertible into Common
                                                Shares on a 1:1 basis)

SOFTQUAD CANADA -
VALUATION (PRE-MONEY):                 US$15 million (approximately US$1.3574
                                       per share)

INITIAL CLOSING DATE:                  On or before December 15, 1999

PURCHASER'S WARRANTS:                  The Issuer shall issue on closing
                                       warrants to purchase Common Shares equal
                                       to 20% of the aggregate subscription
                                       amount. The Purchaser's Warrants shall
                                       expire 3 years after the Initial Closing
                                       Date and shall have an exercise price
                                       based on a post first tranche valuation
                                       of US$20 million (approximately US$1.44
                                       per share).

AGENT'S WARRANTS:                      The Issuer shall issue on closing to the
                                       Agent warrants to purchase Common Shares
                                       equal to 10% of the aggregate
                                       subscription amount. The Agent's Warrants
                                       shall expire 3 years after the Initial
                                       Closing Date and shall have an exercise
                                       price based on a post first tranche
                                       evaluation of US$20 million
                                       (approximately US$1.44 per share).
</TABLE>

<PAGE>

Page 7

<TABLE>
<S>                                    <C>
AGENT'S FEE:                           7% of the aggregate purchase price of the
                                       Common Shares and Convertible Preferred
                                       Shares placed.

RULE 504:                              The Issuer shall commit to the issuance
                                       of the first $1 million of Common Shares
                                       as unrestricted shares under SEC Rule
                                       504. Such Common Shares will comprise the
                                       first million dollars of the first
                                       tranche.

USE OF PROCEEDS:                       To fund ongoing operations of the Issuer,
                                       consulting fee of US$100,000 payable to
                                       KBL Capital, and to repay approximately
                                       CDN $1,000,000 in debt.

SECOND TRANCHE

FINANCING:                             Up to US$3 million to purchase 2,083,333
                                       Common Shares.

SOFTQUAD CANADA -                      US$20 million (approximately US$1.44 per
VALUATION (PRE-MONEY):                 share).

SECONDARY CLOSING DATE:                Subject to successful completion of the
                                       Issuer's registration statement.

PURCHASER'S WARRANTS:                  The Issuer shall issue on closing
                                       warrants to purchase Common Shares equal
                                       to 20% of the aggregate subscription
                                       amount. The Purchaser's Warrants shall
                                       expire 3 years after the Initial Closing
                                       Date and shall have an exercise price
                                       based on a post second tranche valuation
                                       of US$25.5 million (approximately US$1.53
                                       per share).

AGENT'S WARRANTS:                      The Issuer shall issue on closing to the
                                       Agent warrants to purchase Common Shares
                                       equal to 10% of the aggregate
                                       subscription amount. The Agent's Warrants
                                       shall expire 3 years after the Initial
                                       Closing Date and shall have an exercise
                                       price based on a post second tranche
                                       valuation of US$25.5 million
                                       (approximately US$1.53 per share).

AGENT'S FEE:                           7% of the aggregate purchase price of the
                                       Common Shares placed.

STRATEGIC INVESTOR:                    The Company may solicit up to an
                                       additional US$2 million from strategic
                                       investors on the same terms outlined in
                                       the Second Tranche. The Agent's Fee
                                       including brokers warrants on this
                                       transaction shall be 25% to the Agents
                                       and 75% to KBL Capital.

REGISTRATION:                          The Issuer shall register for both the
                                       first and second tranche:

                                       (i)      the Common Shares underlying the
                                                conversion of the Convertible
                                                Preferred Shares in the first
                                                tranche;
                                       (ii)     the issuance of Common Shares in
                                                the second tranche;
                                       (iii)    100% of the Common Shares
                                                underlying the Purchaser's
                                                Warrants;
                                       (iv)     100% of the Common Shares
                                                underlying the Agent's Warrants;
                                       (v)      100% of the Issuer's Common
                                                Shares issuable to Group 1 and
                                                Group 2 (or Common Shares
                                                underlying the conversion of the
                                                Softquad Exchangeable Shares)
                                                subject to the Escrow Agreement
                                                below.
                                       (vi)     100% of the Common Shares
                                                associated with the Financial
                                                Advisory Agreement share
                                                issuance.
</TABLE>

<PAGE>

Page 8

<TABLE>

<S>                                    <C>
                                       The Issuer shall cause such
                                       registration to be effective before
                                       March 31, 2000, and shall keep such
                                       registration effective (1) with respect
                                       to the Common Shares underlying the
                                       Preferred Shares, and the Common Shares
                                       issued or issuable to current investors,
                                       for a period expiring only when the
                                       Purchaser no longer qualifies as an
                                       affiliate of the Issuer, and (2) with
                                       respect to the Common Shares underlying
                                       the Purchaser's Warrants and the Agent's
                                       Warrants, until 30 days after the
                                       warrants have been fully exercised or
                                       expired.

ESCROW AGREEMENT:                      All Group 1 investors shall be subject to
                                       an escrow agreement consisting of the
                                       following release terms; (i) 1,725,000
                                       escrowed shares shall vest over a twelve
                                       month period commencing monthly on
                                       January 1, 2000. The resale amount is a
                                       product of 143,750 (ie. 1/12 of
                                       1,725,000) and a fraction (the numerator
                                       of which is the number of Escrowed Shares
                                       beneficially owned by the Shareholder,
                                       and the denominator of which is the total
                                       number of escrowed shares owned by all
                                       Group 1 shareholders (including the
                                       shareholder); and

                                       (ii) 2,083,333 escrowed shares shall vest
                                       over a six month period commencing on the
                                       effective date of the Registration
                                       Statement and expiring six months later.
                                       The resale amount is a product of 348,000
                                       (ie. 1/6 of 2,083,333) and a fraction
                                       (the numerator of which is the number of
                                       Escrowed Shares beneficially owned by the
                                       Shareholder, and the denominator of which
                                       is the total number of escrowed shares
                                       owned by all Group 1 shareholders
                                       (including the shareholder).

                                       (iii) The residual number of shares shall
                                       vest over a period expiring May 31, 2001
                                       and commencing on the effective date of
                                       the Registration Statement. The resale
                                       amount shall mirror similar "dribble out"
                                       provisions as defined by Rule 144.

                                       All Group 2 investors shall be subject to
                                       an escrow agreement vesting over three
                                       years in equal annual installments
                                       commencing on the date of closing. The
                                       resale amount shall mirror similar
                                       "dribble out" provisions as defined by
                                       Rule 144.

ESCROW AGENT:                          The Issuer shall deliver to Thomson
                                       Kernaghan & Co. Ltd., as escrow agent,
                                       the share certificates issuable in the
                                       first and second tranche, underlying the
                                       Convertible Preferred Shares, Purchaser's
                                       Warrants and Agent's Warrants and the
                                       respective Group 1 and Group 2 shares.

LIQUIDATED DAMAGES:                    The Issuer shall pay to the Purchaser,
                                       pro rata, an amount per day equal to
                                       0.067% of the aggregate purchase price of
                                       the Common Shares issued in the first
                                       tranche for each day after March 31,
                                       2000, that the registration statement is
                                       not effective.

                                       The Issuer shall also pay the Purchaser
                                       and the Placement Agent, pro rata, an
                                       amount per day equal to 0.067% of the
                                       aggregate exercise price of the Common
</TABLE>

<PAGE>

Page 9

<TABLE>

<S>                                   <C>
                                       Stock underlying their respective
                                       warrants issued in the first tranche for
                                       each day after March 31, 2000, that the
                                       registration statement is not 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. Expenses of counsel
                                       shall be capped at US$100,000 and any
                                       additional amounts to be approved by the
                                       Company.

OTHER ISSUER UNDERTAKINGS:             The Issuer also undertakes to engage the
                                       services of a professional US based
                                       investor relations firm and a US public
                                       relations firm on or before the effective
                                       date of its listing on a public US
                                       exchange.

ACCOUNTANT'S LETTER                    The Issuer shall furnish the Placement
                                       Agent with a letter from the Issuer's
                                       independent public accountants (upon
                                       completion of the Issuer's annual audit)
                                       with respect to certain financial and
                                       accounting matters, including the absence
                                       of the receipt of any information that
                                       would lead them to conclude that any
                                       materially adverse change has occurred in
                                       the Issuer's financial condition since
                                       the date of their last audit.

CAPITAL STRUCTURE                      SoftQuad, prior to the closing of this
                                       Offering, will effect a re-organization
                                       of the current share structure, the
                                       result of which will reflect the common
                                       shares detailed in this term sheet.

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 Thomson Kernaghan and its
                                       counsel.

CANADIAN TAX ISSUES:                   The transactions are subject to such
                                       modification and restructuring as may be
                                       necessary to minimize the imposition of
                                       Canadian taxes.
</TABLE>

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