SUBSCRIPTION AGREEMENT (With Warrants)
Exhibit 99.4
(With
Warrants)
Smart
Online, Inc.
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Attention:
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Gentlemen:
(1) Pursuant
to prior understandings and discussions, the undersigned (“Subscriber”) hereby
agrees to purchase from Smart Online, a Delaware corporation (the “Company”),
for a purchase price of Three Dollars and Fifty Cents ($3.50) per share (i) the
number of shares of Common Stock, par value $0.001 per share (“Common Stock”)
set forth on the signature page of this Agreement and a minimum investment of
$570,000 and (ii) a Warrant (“Warrants”) to purchase the number of shares on
Common Stock (“Warrant Shares”) set forth on the signature page of this
Agreement. (The Common Stock, Warrant Shares and warrant are sometimes
hereinafter referred to collectively as the “Securities.”) Subscriber hereby
acknowledges (i) that this subscription shall not be deemed to have been
accepted by the Company until the Company indicates its acceptance by returning
to Subscriber an executed copy of this subscription, and (ii) that acceptance by
the Company of this subscription is conditioned upon the information and
representations of Subscriber hereunder being complete, true and correct as of
the date of this subscription and as of the date of closing of sale of the
Securities to Subscriber. As a condition to Subscriber’s purchase of the
Securities pursuant to this Agreement, Subscriber and the Company will execute
and deliver to one another a copy of the Registration Rights Agreement in
substantially the form attached hereto as Appendix
A (the
“Registration Rights Agreement”) and the Company shall issue a Warrant in
substantially the form of Appendix
B
hereto.
(2) Until
actual delivery of the purchase price to the Company and acceptance by the
Company of the purchase price and this Subscription Agreement, the Company shall
have no obligation to Subscriber. The Company may revoke a prior acceptance of
this Subscription Agreement at any time prior to delivery to and acceptance by
the Company of the purchase price for the Securities.
(3)
Subscriber hereby represents and warrants to the Company as
follows:
(a) Authorization.
Subscriber has full power and authority to enter into this Agreement. This
Agreement constitutes Subscriber’s valid and legally binding obligation,
enforceable in accordance with its terms except as limited by (i) applicable
bankruptcy, insolvency, receivership, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally, and
(ii) general principals of equity, the application of which may deny the Company
the right to specific performance, injunctive relief and other equitable
remedies.
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(b) Experience.
Subscriber is experienced in evaluating and investing in private placement
transactions of securities of technology companies such as the Company, has such
knowledge and experience in financial and business matters that Subscriber is
capable of evaluating the merits and risks of Subscriber’s investment in the
Securities, is able to bear the economic risk of the investment and is prepared
to hold the shares for an indefinite period of time.
(c) Investment.
Subscriber is acquiring the Securities for investment for Subscriber’s own
account and not with a view to, or for resale in connection with, any
distribution thereof, and Subscriber has no present intention of selling or
distributing the Securities. Subscriber does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person with respect to any of the
Securities other than as set forth in this Agreement. Subscriber understands
that the Securities to be purchased by Subscriber have not been registered under
the Securities Act of 1933, as amended (the “Act”) by reason of a specific
exemption from the registration provisions of the Act which depends upon, among
other things, the bona fide nature of the investment intent as expressed
herein.
(d) Reliance
Upon Subscriber Representations.
Subscriber understands that the Securities are not registered under the Act on
the grounds that the sale provided for in this Agreement and the issuance of
Securities hereunder is being made in reliance upon an exemption from the
registration requirements of the Act pursuant to Section 4(2) thereof as a
transaction by an issuer of Securities not involving a public offering or
pursuant to Section 4(6) thereof as a transaction by an issuer of securities
solely to accredited investors, and is similarly exempt under applicable state
securities laws, and that the Company’s reliance on such exemption is predicated
on Subscriber’s representations as set forth in this Agreement.
(e) Restricted
Securities.
Subscriber acknowledges that the Securities have not been registered under the
Act or any applicable state securities law and that the Securities may not be
sold, assigned, pledged, hypothecated or transferred, unless there exists an
effective registration statement therefor under the Act and all applicable state
securities laws or the Company has received an opinion of counsel, reasonably
acceptable to counsel for the Company, or other reasonable assurances, that such
sale, assignment, pledge, hypothecation or transfer is exempt from registration.
Subscriber understands that in the absence of an effective registration
statement covering the Securities or an exemption therefrom under the Act and
all applicable state securities laws, the Securities must be held indefinitely.
In particular, Subscriber is aware that the Securities may not be sold pursuant
to Rule 144 promulgated under the Act, unless all conditions of Rule 144 are
met. Among the conditions for the use of Rule 144 may be the availability of
current and adequate information to the public about the Company. Such
information is not now available and, except as set forth in the Registration
Rights Agreement, the Company has no obligation to make such information
available. Notwithstanding the foregoing, no opinion of counsel shall be
required by the Company in connection with the transfer of the Securities to an
entity that is a direct or indirect wholly-owned subsidiary of Subscriber.
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(f) Legends.
(i) Each
certificate or warrant agreement representing the Securities shall, in addition
to any legends required elsewhere, bear the following legend as appropriate for
stock certificates and warrant agreements:
THE
SHARES REPRESENTED BY THIS CERTIFICATE AND WARRANT AND THE SHARES OF COMMON
STOCK ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR TRANSFERRED UNLESS THERE EXISTS
AN EFFECTIVE REGISTRATION STATEMENT THEREFOR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS OR THE ISSUER HEREOF HAS
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL OF THE
ISSUER, THAT SUCH SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR TRANSFER IS EXEMPT
FROM REGISTRATION.
(ii) Each
certificate or warrant agreement representing Securities or Conversion
Securities shall also bear any legend required by any applicable state
securities law or by any other agreement to which the holder thereof is a party
or by which the holder thereof is bound.
(iii) Each
certificate or warrant agreement representing the Securities shall also bear a
legend referring to the Lock-Up Agreement set forth in Section (5)
below.
(g) No
Public Market.
Subscriber understands that no public market now exists for any of the
securities issued by the Company.
(h) Access
to Information.
Subscriber has received all information that Subscriber considers necessary or
appropriate for deciding whether to purchase Securities. Subscriber has had an
opportunity to ask questions and receive answers from the Company’s management
regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects and financial condition of the Company and to
obtain additional information from the Company (to the extent that the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to
Subscriber or to which Subscriber had access.
(i) Accredited
Investor.
Subscriber
recognizes it is important under the Act and state securities law that the
Company determine if potential investors are “accredited investors,” as defined
in Appendix
C attached
hereto. Subscriber represents that Subscriber is an “accredited investor” by
reason of having assets in excess of $5,000,000 USD, not formed for the specific
purpose of investing in the company, whose purchase is directed by a
sophisticated person having knowledge and experience in financial and business
matters or any other “accredited investors” definitions as defined in
Appendix
C.
Subscriber further represents that Subscriber is a resident of the State of
Switzerland.
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(4) The
representations, warranties, understandings, acknowledgments and agreements in
this Agreement are true and accurate as of the date hereof, shall be true and
accurate as of the date of the acceptance hereof by the Company and shall
survive thereafter.
(5) Lockup
Agreement.
(a) Subscriber
hereby agrees that, except as permitted under subsection (b) of this Section
(5), during the Restricted Period, as defined herein, Subscriber will
not:
(i)
Sell any
of the Securities or other securities of the Company or Holding Company received
on account of ownership of the Securities (the “Lock-Up
Securities”).
(ii)
Transfer,
assign or otherwise dispose of any of the Lock-up Securities.
(iii)
Pledge,
hypothecate or otherwise create a lien on any of the Lock-Up
Securities.
(iv)
Loan to
any person or entity any shares or other securities of the Company or Holding
Company.
(v)
Sell
short any shares or other securities of the Company or Holding
Company.
(vi)
Acquire a
put option or grant a call option with respect to any shares or other securities
of the Company or Holding Company.
(vii)
Enter
into any agreement concerning any of the foregoing transactions, or otherwise
facilitate any other person conducting any of the foregoing
transactions.
(b) For
purposes of this Section (5), Holding Company shall mean any company whose stock
is publicly traded (i) with which the Company merges or consolidates or (ii) of
which the Company or its successor becomes a subsidiary. For purposes of this
Section (5), the Restricted Period shall mean the period beginning on the date
of this Agreement and ending 18 months after the effective date of the first
registration statement of the Company that registers for resale the Lock-Up
Securities (the “Effective Date”). Notwithstanding the foregoing, after the
Effective Date Subscriber may sell, during any rolling thirty-day period during
the Restricted Period, up to 33% of the Lock-Up Securities owned by Subscriber
on the Effective Date. The Board of Directors of the Company or Holding Company
may terminate the Restricted Period or allow Subscriber to take a prohibited
action prior to termination of the Restricted Period with respect to some or all
of the Lock-Up Securities owned by the Subscriber, if the Board provides all
other Subscribers of the Company or Holding Company who have the same Restricted
Period with the same termination or waiver at the same time and to the same
extent as for Subscriber.
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(c) Notwithstanding
the foregoing, provided the transferee first signs a Lockup Agreement on
substantially the terms set forth in this Section 5 and reasonably acceptable to
the Company or Holding Company, Subscriber may transfer securities of the
Company or Holding Company without payment or other consideration: (i) if
Subscriber is an individual, to any family member, (ii) if Subscriber is a
corporation, to any direct or indirect parent or subsidiary or any shareholder
of Subscriber, (iii) if Subscriber is a partnership, to any partner of
Subscriber, (iv) if Subscriber is a limited liability company, to any member of
Subscriber, and (v) if Subscriber is a trust, to any beneficiary of such
trust.
(d) Subscriber
further agrees that before and after termination of the Restricted Period,
Subscriber will comply with all securities laws, rules and regulations when
purchasing or reselling securities of the Company or Holding Company, including,
without limitation, those prohibiting sales and purchases of securities while in
possession of material nonpublic information.
(e) The
Lock-Up Securities of Subscriber shall have a legend in form and substance
acceptable to the Company and Holding Company referring to the restrictions of
this Agreement and the Company or Holding Company may instruct the transfer
agent of the Company or Holding Company to stop any transfer of any securities
in violation of this Agreement and may take any other action required to avoid
violation of this Agreement, including, without limitation, obtaining an
injunction.
(f) The
provisions of this Section (5) shall continue in effect after the Lock-Up
Securities are registered pursuant to the Registration Rights
Agreement.
(6) This
Agreement shall be enforced, governed and construed in all respects in
accordance with the laws of the State of Delaware, as such laws are applied by
Delaware courts to agreements entered into and to be performed in Delaware, and
shall be binding upon Subscriber, the Subscriber’s heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company and its successors and assigns.
(7) Subscriber
agrees not to transfer or assign this Agreement, or any of Subscriber’s interest
herein, without the express written consent of the Company.
(8) This
Agreement constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes any and all prior or contemporaneous
representations, warranties, agreements and understandings in connection
therewith. This Agreement may be amended only by a writing executed by all
parties hereto. This Agreement may be executed in one or more
counterparts.
(The
remainder of this page is intentionally left blank.)
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IN
WITNESS WHEREOF, Subscriber has executed this Subscription Agreement this 17 day
of May, 2004.
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SUBSCRIPTION |
|
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162,857 |
Number
of Shares of Common Stock |
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$570,000 |
Total
payment |
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48,857 |
Number
of Warrant Shares |
|
Atlas
Capital, SA |
Avy
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(Address) |
(Name
of Subscriber) |
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/s/
Avy ▇▇▇▇▇▇▇ |
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Switzerland |
(Signature) |
ACCEPTANCE
The
foregoing Subscription Agreement is accepted on this the 24 day of May,
2004.
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SMART
ONLINE, INC. | |
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By:
/s/
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▇▇▇▇▇, President |
APPENDIX
A
REGISTRATION
RIGHTS AGREEMENT
REGISTRATION
RIGHTS AGREEMENT (this “Agreement”), dated as of February 1, 2004, by and among
Smart Online, Inc., a Delaware corporation with its headquarters located at ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the “Company”), and the
undersigned and signatories of counterparts of this Agreement (together with
their respective affiliates and any assignees or transferees of all of their
respective rights hereunder, the “Investors”).
WHEREAS:
A. In
connection with the Subscription Agreement by and among the parties hereto dated
on or after February 1, 2004 (the “Subscription Agreement”), the Company has
agreed, upon the terms and subject to the conditions contained therein, to issue
and sell to the Investors shares of the Company’s common stock (the “Common
Stock”), upon the terms and subject to the limitations and conditions set forth
in such Subscription Agreement; and
B. To induce
the Investors to execute and deliver the Subscription Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the “1933 Act”), and applicable state securities
laws;
NOW,
THEREFORE, 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 each of the Investors hereby
agree as follows:
1. DEFINITIONS.
(a) As used
in this Agreement, the following terms shall have the following
meanings:
(i) “Investors”
means any person who acquires shares of Common Stock of the Company, or any
security of the Company pursuant to which the holder has a right to receive
shares of Common Stock of the Company upon exercise or conversion of such
security, who agrees to become bound by the provisions of this Agreement or a
counterpart of this Agreement and permitted transfers and assignees of Investors
in accordance with Section 9 hereof.
(ii) “Listing
Date” the date on which the Common Stock of the Company becomes listed on the
OTCBB.
(iii) “OTCBB”
the Over-the-Counter Bulletin Board.
(iv) “register,”
“registered,” and “registration” refer to a registration effected by preparing
and filing a Registration Statement or Statements in compliance with the 1933
Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing
for offering securities on a continuous basis (“Rule 415”), and the declaration
or ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the “SEC”).
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(v) “Registrable
Securities” means (x) all shares of Common Stock sold by the Company on or after
February 1, 2004 but before the date a Registration Statement covering the
Reistrable Securities, including, without limitation, any shares issued pursuant
to Section 2(b) of this Agreement (the “Damages Shares”); (y) all shares of
Common Stock issued, or issuable pursuant to warrants or other securities,
issued to any broker, dealer, finder or other person in connection with the sale
of Registrable Securities; and (z) all shares of capital stock issued or
issuable as a dividend on or in exchange for or otherwise with respect to any of
the foregoing.
(vi) “Registration
Statement” means a registration statement of the Company under the 1933
Act.
(b) Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) Mandatory
Registration. No
later than the earlier of (i) thirty (30) days after the date the Company raises
at least $7,000,000 from one or more sales of shares of its securities occurring
on or after February 1, 2004 and (ii) July 1, 2004 (the “Target Filing Date”),
the Company shall prepare and file with the SEC a Registration Statement on Form
▇-▇, ▇▇-▇ or SB-2 as determined by the Company in its sole discretion (or, if
such Forms are not then available, on such form of Registration Statement as is
then available) to effect a registration of the Registrable Securities covering
the resale of the Registrable Securities. The Company may also include in such
Registration Statement in its sole discretion, shares for sale by the Company or
the Company may file a separate Registration Statement covering shares to be
sold by the Company before, at the same time or after the Company files a
Registration Statement covering resale of Registrable Securities by
Investor.
(b) Payments
by the Company. The
Company shall use its best efforts to obtain effectiveness of the Registration
Statement as soon as reasonably practicable. If (i) the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not filed by the Target Filing Date, then the Company
will make payments to the Investors in such amounts and at such times as shall
be determined pursuant to this Section 2(b) as liquidated damages by reason of
any such delay in their ability to sell the Registrable Securities (which remedy
shall be exclusive of any other remedies available at law or in equity). The
Company shall pay to each holder of Registrable Securities an amount (the
“Damage Amount”) equal to the product obtained by multiplying (i) the purchase
price (the “Purchase Price”) paid for the Registrable Securities by the
Investor, by (ii) the Applicable Percentage (as defined below) by (iii) the
number of 30-day periods (prorated for partial periods) after the Target Filing
Date that the Registration Statement covering the Registrable Securities of the
Investor is actually filed; provided, however, that there shall be excluded from
such period any delays which are attributable (i) to Investor, or any other
Investor who holds Registrable Securities, with respect to information relating
to the Investors, including, without limitation, the
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plan of
distribution or beneficial ownership of securities, or (ii) to the failure of
any Investor (or legal counsel to the Investor) to conduct their review of the
Registration Statement pursuant to Section 3(h) below in a reasonably prompt
manner or (iii) any person or entity named in the Prospectus as an underwriter.
The term “Applicable Percentage” means two percent (2%). (For example, if the
Registration Statement is filed thirty days after the Target Filing Date, the
Company would pay as the Damage Amount $2,000 for each $100,000 of the Purchase
Price. In the sole discretion of the Company, the Company may issue to Investor
in lieu of the cash payment described above, a number of shares of Common Stock
of the Company equal to the quotient derived by dividing (i) the Damage Amount,
by (ii) Purchase Price per share (as defined above).
(c) Eligibility
for Form S-3; Conversion to Form S-3. If the
Company meets the registration eligibility and transaction requirements for the
use of Form S-3 (or any successor form) for registration of the offer and sale
by the Investor and any other Investors of their Registrable Securities before
the earlier of the dates stated in clauses (ii) and (iii) in the definition of
the Registration Period (as defined in Section 3(a) below), the Company shall
file a Registration Statement on Form S-3 (or such successor form) with respect
to the Registrable Securities covered by the Registration Statement, filed
pursuant to Section 2(a) (and include in such Registration Statement on Form S-3
the information required by Rule 429 under the ▇▇▇▇ ▇▇▇) or convert the
Registration Statement, filed pursuant to Section 2(a) to a Form S-3 pursuant to
Rule 429 under the 1933 Act and cause such Registration Statement (or such
amendment) to be declared effective as soon as practicable after filing. If the
Company becomes eligible to use Form S-3 during the Registration Period, the
Company agrees to use reasonable efforts to file all reports required to be
filed by the Company with the SEC in a timely manner so as to remain eligible or
become eligible, as the case may be, and thereafter to maintain its eligibility,
for the use of Form S-3. After such Registration Statement on Form S-3 become
effective, subject to Section 3 hereof, the Company shall maintain such
Registration Statement in effect until the earlier of clauses (ii) and (iii) in
the definition of Registration Period in Section 3(a) hereof.
3. OBLIGATIONS
OF THE COMPANY.
In
connection with the registration of the Registrable Securities, the Company
shall have the following obligations:
(a) The
Company shall prepare promptly, and use reasonable efforts to file with the SEC
not later than the Target Filing Date, a Registration Statement with respect to
the number of Registrable Securities provided in Section 2(a), and thereafter
use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective as soon as possible after such
filing, and use reasonable efforts to keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) 270
days after the effective date of the Registration Statement; (ii) the date on
which all of the Registrable Securities have been sold by Investor and (iii) the
date on which the Registrable Securities of Investor (in the opinion of counsel
to the Company) may be immediately sold to the public
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without
registration or restriction (including without limitation as to volume by
Investor) under the 1933 Act (the “Registration Period”), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein not misleading. The right of other Investors to have
the Registration Statement remain in effect shall not confer any rights on
Investor.
(b) The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statements and
the prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the Investor as set forth in the Registration
Statement.
(c) If
requested, the Company shall furnish to one legal counsel for all Investors
whose Registrable Securities are included in a Registration Statement (i)
promptly (but in no event more than two (2) business days) after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company, one copy of each Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
and, in the case of the Registration Statement referred to in Section 2(a), each
letter written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment), and (ii) promptly (but in no event more than two (2) business days)
after the Registration Statement is declared effective by the SEC, such number
of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by Investor. The Company will immediately notify one legal
counsel representing all Investors where Registrable Securities are included in
a Registration Statement by facsimile of the effectiveness of each Registration
Statement or any post-effective amendment. The Company will promptly respond to
any and all comments received from the SEC (which comments shall promptly be
made available to one legal counsel representing all Investors whose
Registration Securities are included in a Registration Statement upon request),
with a view towards causing the Registration Statement or any amendment thereto
to be declared effective by the SEC as soon as reasonably practicable, and (ii)
promptly file an acceleration request as soon as reasonably practicable (but in
no event more than two (2) business days) following the resolution or clearance
of all SEC comments. If applicable, following notification by the SEC that any
such Registration Statement or any amendment thereto will not be subject to
review, the Company shall promptly file with the SEC a final prospectus as soon
as reasonably practicable (but in no event more than two (2) business days)
following receipt by the Company from the SEC of an order declaring the
Registration Statement effective.
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(d) The
Company shall use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
“blue sky” laws of such jurisdictions in the United States as the Investors who
hold a majority of the Registrable Securities being offered by the Registration
Statement reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be reasonably necessary to maintain such registrations and
qualifications in effect during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company undue expense
or burden, (v) make any change in its charter or bylaws, or (vi) spend more than
$10,000 in filing fees and legal fees and expenses for such “blue sky”
compliance.
(e) If the
Company has not selected an underwriter for the offering, and in the event
Investors who hold a majority of the Registrable Securities being offered by the
Registration Statement select underwriters for the offering, the Company shall
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
(f) As
promptly as practicable after becoming aware of such event, the Company shall
notify each Investor of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to any Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided that, for not more than sixty (60) consecutive trading days
(or a total of not more than ninety (90) trading days in any twelve (12) month
period), the Company may delay the disclosure of material non-public information
concerning the Company (as well as prospectus or Registration Statement
updating) the disclosure of which at the time is not, in the good faith opinion
of the Company, in the best interests of the Company (an “Allowed Delay”);
provided, further, that the Company shall promptly (i) notify the Investors in
writing of the existence of material non-public information giving rise to an
Allowed Delay and (ii) advise the Investors in writing to cease all sales under
such Registration Statement until the end of the Allowed Delay. Upon expiration
of the Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise
thereto.
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(g) The
Company shall use its reasonable best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of any Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order within a
reasonable time and to notify each Investor who holds Registrable Securities
being sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution
thereof.
(h) The
Company shall permit a single firm of legal counsel designated by Investors who
own a majority of the Registrable Securities offered under the Registration
Statement to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC. The
role of such legal counsel to the Investors shall be to confirm that the
sections of such Registration Statement covering information with respect to the
Investors, the Investor’s beneficial ownership of securities of the Company and
the Investors intended method of disposition of Registrable Securities shall
conform to the information provided to the Company by each of the Investors,
subject to review and approval by the Company and its legal counsel. Such legal
counsel for the Investors shall not have the right to require changes to the
description of the Company, its business or other matters not related to selling
stockholders.
(i) The
Company shall make generally available to its security holders as soon as
practicable, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the ▇▇▇▇ ▇▇▇) covering a twelve-month period beginning not later
than the first day of the Company’s fiscal quarter next following the effective
date of the Registration Statement.
(j) Until the
Registration Statement ceases to be effective, the Company shall make available
for inspection following reasonable prior written notice by (i) any underwriter
participating in any disposition pursuant to a Registration Statement, (ii) one
firm of attorneys or other agents retained by the Investors who own a majority
of the Registrable Securities, and (iii) one firm of attorneys retained by all
such underwriters (collectively, the “Inspectors”) all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector to enable each Inspector to exercise its due diligence responsibility,
and cause the Company’s officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to an Investor) of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the release of
such Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (b) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to allow such inspection more than once per calendar year. Following such due
diligence review, Investor may require the Company to withdraw the Registrable
Securities of such Investor from the Registration Statement, if the Company does
not make changes to the Registration Statement requested by such
Investor.
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(k) The
Company shall not be required to disclose any confidential information in such
Records to any Inspector or to any Investor pursuant to this Agreement until and
unless such Inspector and Investor shall have entered into confidentiality
agreements (in form and substance satisfactory to the Company) with the Company
with respect thereto. Each Investor agrees that it shall, upon learning that
disclosure of such Records or other information is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor’s ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
(l) The
Company shall (i) cause all the Registrable Securities covered by the
Registration Statement to be listed on each national securities exchange, if
any, on which securities of the same class or series issued by the Company are
then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, to use reasonable efforts to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. (“NASD”) as
such with respect to such Registrable Securities.
(m) The
Company shall provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement.
(n) At the
request of the holders of a majority of the Registrable Securities offered
pursuant to the Registration Statement, the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
(o) The
Company shall take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of Registrable Securities pursuant to a
Registration Statement.
4. OBLIGATIONS
OF THE INVESTORS.
In
connection with the registration of the Registrable Securities, the Investors
shall have the following obligations:
(a) It shall
be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) business days prior to
the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor.
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(b) Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of the Registration Statements hereunder, unless
such Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from the Registration
Statements.
(c) In the
event the Company or Investors holding a majority of the Registrable Securities
being registered determine to engage the services of an underwriter, each
Investor agrees to enter into and perform such Investor’s obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.
(d) Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) or 3(g), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(e) No
Investor may participate in any underwritten registration hereunder unless such
Investor if requested by the Company (i) agrees to sell such Investor’s
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below. Notwithstanding the
foregoing, there is no obligation on the part of the Company or any underwriter
to include Registrable Securities of Investor in the securities to be purchased
or sold by the underwriter.
5. EXPENSES
OF REGISTRATION.
All
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Investors holding a majority of the Registrable
Securities shall be borne by the Company, provided the Company shall not be
required to pay legal fees and disbursements of such legal counsel in excess of
$15,000.
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6. INDEMNIFICATION.
In the
event any Registrable Securities are included in a Registration Statement under
this Agreement:
(a) To the
extent permitted by law, the Company will indemnify, hold harmless and defend
(i) each Investor who holds such Registrable Securities, (ii) the directors,
officers, partners, employees, agents and each person who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as
amended (the “1934 Act”), if any, (iii) any underwriter (as defined in the ▇▇▇▇
▇▇▇) for the Investors, and (iv) the directors, officers, partners, employees
and each person who controls any such underwriter within the meaning of the 1933
Act or the 1934 Act, if any (each, an “Indemnified Person”), against any joint
or several losses, claims, damages, liabilities or expenses (collectively,
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, “Claims”) to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement of a material
fact in a Registration Statement or the omission to state therein a material
fact required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading; or (iii) any violation by the Company of the 1933
Act, the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, “Violations”). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person, or
any of their legal counsel, expressly for use in connection with the preparation
of such Registration Statement or any such amendment thereof or supplement
thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
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(b) In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees severally and not jointly to indemnify,
hold harmless and defend, to the same extent and in the same manner set forth in
Section 6(a), the Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an “Indemnified Party”), against any Claim
to which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation by
such Investor, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor, or its legal counsel, expressly for
use in connection with such Registration Statement; and subject to Section 6(c)
such Investor will reimburse any legal or other expenses (promptly as such
expenses are incurred and are due and payable) reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of a
majority-in-interest of the
A-10
Investors),
if the Investors are entitled to indemnification hereunder, or the Company, if
the Company is entitled to indemnification hereunder, as applicable. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is actually prejudiced in
its ability to defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that (i) no contribution
shall be made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, (ii) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS
UNDER THE 1934 ACT.
With a
view to making available to the Investors the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that may
at any time permit the investors to sell securities of the Company to the public
without registration (“Rule 144”), the Company agrees to use its best efforts
to:
(a) make and
keep public information available, as those terms are understood and defined in
Rule 144;
(b) file with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and
(c) furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company that it has complied with
the reporting requirements of Rule 144, the 1933 Act and the 1934 Act and (ii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
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9. ASSIGNMENT
OF REGISTRATION RIGHTS.
The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of Registrable Securities if: (i) the
Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Subscription Agreement, and
(vi) such transferee shall be an “accredited investor” as that term defined in
Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT
OF REGISTRATION RIGHTS.
Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company and Investors who hold
a majority of the Registrable Securities, except that any person or entity who
acquires Registrable Securities may become a part to this Agreement by the
Company and such person or entity signing a counterpart of this Agreement. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. In the event the Company becomes a
subsidiary of any company whose Common Stock is publicly traded (“Holding
Company”), and the Investor receives shares of Common Stock of such Holding
Company, all obligations of the Company under this Agreement shall terminate
upon such Holding Company assuming this Agreement, which may be done without the
consent or approval of Investor.
11. MISCELLANEOUS.
(a) A person
or entity is deemed to be a holder of Registrable Securities whenever such
person or entity owns of record such Registrable Securities. If the Company
receives conflicting instructions, notices or elections from two or more persons
or entities with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
(b) Any
notices required or permitted to be given under the terms hereof shall be sent
by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or by
facsimile, in each case addressed to a party. The addresses for such
communications shall be:
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If to the
Company:
▇▇▇▇▇▇▇
▇▇▇▇▇
Smart
Online, Inc.
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
E-mail:
▇▇▇▇▇▇@▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
With
copies to:
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.A.
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Email:
▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
If to an
Investor:
to the
address set forth immediately below such Investor’s name on the signature pages
to the Subscription Agreement.
(c) Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.
(d) THIS
AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS.
(e) In the
event that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(f) This
Agreement constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and
thereof.
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(g) Subject
to the requirements of Section 9 hereof, this Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns.
(h) The
headings in this Agreement are for convenience of reference only and shall not
form part of, or affect the interpretation of, this Agreement.
(i) This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
(j) 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.
(k) Except as
otherwise provided herein, all consents and other determinations to be made by
the Investors pursuant to this Agreement shall be made by Investors holding a
majority of the Registrable Securities, determined as if the all options,
warrants and convertible securities then outstanding have been issued and/or
converted into Registrable Securities.
(l) The
Company and each Investor acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the parties acknowledge that the
remedy at law for breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach of any of
the provisions under this Agreement, that the other parties shall be entitled,
in addition to all other available remedies in law or in equity, and in addition
to the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce specifically
the terms and provisions hereof, without the necessity of showing economic loss
and without any bond or other security being required.
(m) 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.
(n) No
Investor may bring any legal or other action or proceeding for breach of this
Agreement or arising out of any matter related to this Agreement, unless the
Investors who own a majority of the Registrable Securities consent to the
bringing of such action. Any claim may be settled by the Company and the
Investors who own a majority of the Registrable Securities.
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(o) In
determining a majority of the Registrable Securities, Investors are deemed to
own all Registrable Securities issuable pursuant to any options, warrants
convertible securities or other rights to acquire Registrable Securities,
whether or not then exercisable or convertible.
[The
Remainder of this Page is Blank.]
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IN
WITNESS WHEREOF, the Company and the undersigned Investors have caused this
Agreement to be duly executed as of the date on the first page of this
Agreement.
SMART
ONLINE, INC.
By: /s/
▇▇▇▇▇▇▇ ▇▇▇▇▇
Name:
▇▇▇▇▇▇▇ ▇▇▇▇▇
Title:
CEO
INVESTOR:
By:
/s/ Avy ▇▇▇▇▇▇▇
Name: Avy
▇▇▇▇▇▇▇
Title:
Executive V.P.
Address:
▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇
▇▇-▇▇▇▇-▇▇▇▇▇▇
Telephone:
(▇▇ ▇▇) ▇▇▇ ▇▇ ▇▇
Facsimile:
(▇▇ ▇▇) ▇▇▇ ▇▇ ▇▇
Email:_______________________________
Initial
Number of Registrable Securities: 162,857
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APPENDIX
B
FORM
OF WARRANT
THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
TRANSFERRED UNLESS THERE EXISTS AN EFFECTIVE REGISTRATION STATEMENT THEREFORE
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE
SECURITIES LAWS OR THE ISSUER HEREOF HAS RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO COUNSEL OF THE ISSUER, THAT SUCH SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR TRANSFER IS EXEMPT FROM REGISTRATION.
SMART
ONLINE, INC.
Form
Of Common Stock Warrant
Warrant
No. W-___________________
__, 2004
This
Warrant is issued to _____________________, and its permissible transferees,
successors and assigns (the “Holder”), by
Smart Online, Inc., a Delaware corporation (the “Company”), for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged.
1. Purchase
of Securities. Subject
to the terms and conditions hereinafter set forth, the Holder shall be entitled,
at any time during the Exercise Period (as set forth in Section 3 below),
to purchase from the Company __________________________ (__________) shares (the
“Shares”) of the
Company’s common stock (the “Common
Stock”)
(subject to adjustment as provided in Section 7 of this Warrant).
2. Warrant
Price. The
exercise price per Share is $5.00 (subject to adjustment pursuant to Section 7
of this Warrant and subject to the cashless exercise provision of Section 4 of
this Warrant) (the “Warrant
Price”).
3. Exercise
Period. This
Warrant may be exercised in whole or in part at any one or more times during the
period (the “Exercise
Period”) that
begins with issuance of this Warrant and ends on ____________,
2006.
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4. Method
of Exercise. While
this Warrant remains outstanding and exercisable, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the
surrender of this Warrant, together with a duly executed copy of the Notice of
Exercise attached hereto as Appendix
A to the
Secretary of the Company at its principal offices; and
(b) payment
of the Warrant Price at the Holder’s election either (i) in cash or by check or
wire transfer in an amount equal to the Warrant Price, or (ii) by forgiving any
debt owed by Company to Holder in an amount equal to the Warrant Price; or (iii)
by delivery of shares of the Company’s Common Stock having a fair market value
equal to the Warrant Price, or (iv) by surrender of Warrants (a “Net
Issuance”) as
determined below. If the Holder elects the Net Issuance method, the Company will
issue Common Stock in accordance with the following formula:
X =
Y(A-B)
A
| Where |
X =
|
the
number of shares of Common Stock to be issued to
Holder. |
|
Y =
|
the
number of shares of Common Stock requested to be exercised under this
Warrant. |
A =
the fair
market value of one (1) share of Common Stock.
B =
the
Warrant Price.
For
purposes of the above calculation, current fair market value of Common Stock
shall be determined in accordance with the following.
(i) if the
exercise is in connection with a public offering of the Company’s Common Stock,
and if the Company’s Registration Statement relating to such public offering has
been declared effective by the Securities and Exchange Commission, then the fair
market value per Warrant Share shall be the initial “Price to Public” specified
in the final prospectus with respect to the offering;
(ii) if this
Warrant is exercised after, and not in connection with a public offering,
and:
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(a) if the
Common Stock is traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices of such Common Stock over a 5 day
period ending 3 days before the day the current fair market value of Warrant
Shares is being determined; or
(b) if the
Common Stock is actively traded over-the-counter, the fair market value shall be
deemed to be the average of the closing bid and asked prices of such Common
Stock quoted on the NASDAQ system (or similar system, including the Over the
Counter Bulletin Board) over the 5 day period ending 3 days before the day the
current fair market value of the Warrant Shares is being determined;
and
(c) if at any
time the Common Stock is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the current fair market value of
Common Stock shall be the price per share which the Company could obtain
determined by agreement of the Company and the Holder, or in the absence
thereof, by an investment banker acceptable to the Company and the Holder, and
the Company shall pay any fees of the investment banker.
5. Certificates
for Shares. Upon
the exercise of the purchase rights evidenced by this Warrant pursuant to
Section 4 hereof, the Holder shall immediately be deemed a Holder of the Shares
so purchased, and one or more certificates for the number of Shares so purchased
shall be issued in the name of the Holder as soon as practicable following the
receipt of the completed Notice of Exercise and payment of the purchase price
for such Shares, and in any event within thirty (30) days thereafter. The
Company may pay cash in lieu of issuing any fractional shares upon the exercise
of the Holder’s purchase rights under this Warrant.
6. Reservation
of Shares. The
Company covenants that, during the Exercise Period, the Company will reserve
from its authorized and un-issued shares a sufficient amount to provide for the
issuance of the Shares. The Company further covenants that such Shares, when
issued pursuant to the exercise of this Warrant, will, upon issuance, be duly
and validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
7. Adjustment
of Warrant Price and Number of Shares. The
number of and kind of securities purchasable upon exercise of this Warrant, and
the Warrant Price therefore, shall be subject to adjustment from time to time as
follows:
(a) Subdivisions,
Combinations and Other Issuances. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
outstanding Common Stock, by split-up or otherwise, or combine its outstanding
Common Stock, or issue additional shares of its capital stock as a dividend with
respect to any shares of Common Stock, the number of Shares issuable upon the
exercise of this Warrant shall forthwith be proportionately increased in the
case
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of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the Warrant Price,
but the aggregate purchase price payable for the total amount of Shares
purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification,
Exchange and Substitution. If the
Shares issuable upon exercise of this Warrant shall be changed into a different
form or class of securities of the Company, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for above), the Holder shall, on exercise of this Warrant, be
entitled to purchase, in lieu of the Shares that the Holder would have become
entitled to purchase but for such change, an amount of such other securities
equivalent to the amount that the Holder would have received had this Warrant
been exercised immediately before that change, all subject to further adjustment
as provided in this Section 7.
(c) Reorganizations,
Mergers, Consolidations or Sale of Assets. If at
any time there shall be a capital reorganization of the Company’s outstanding
equity securities (other than a combination, reclassification, exchange, or
subdivision of shares provided for elsewhere in this Warrant) or merger or
consolidation of the Company with or into another corporation (other than a
Liquidation Event), as a part of such capital reorganization, merger or
consolidation, lawful provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number and class of shares of stock or other securities or property
of the Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Shares issuable upon exercise of this
Warrant would have been entitled in such capital reorganization, merger or
consolidation if this Warrant had been exercised immediately prior thereto. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the capital reorganization, merger or consolidation such that the
provisions of this Warrant (including adjustment of the Warrant Price then in
effect and number of shares purchasable upon exercise of this Warrant) shall be
applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant. The provisions of this paragraph shall similarly apply to successive
capital reorganizations, mergers or consolidations.
(d) Notice
of Adjustments. The
Company shall give notice of each adjustment or readjustment of the amount of
Shares or other securities issuable upon exercise of this Warrant and the
Warrant Price to the registered Holder at such Holder’s address as shown on the
Company’s books within thirty (30) days after the occurrence of the event
resulting in such adjustment.
(e) No
Change Necessary. The
form of this Warrant need not be changed because of any adjustment in the amount
of Shares issuable upon its exercise. A Warrant issued after any adjustment upon
any partial exercise or in replacement may continue to express the same amount
of Shares (appropriately reduced in the case of partial exercise) as are stated
in this Warrant as initially issued, and that number of shares shall be
considered to have been so changed at the close of business on the date of
adjustment.
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(f) No
Impairment. The
Company shall not, by amendment of its Amended and Restated Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all of the provisions of this
Section 7 and in taking all such action as may be necessary or appropriate
to protect Holder’s rights under this Section 7 against impairment. If the
Company takes any action affecting the Shares other than as described above that
adversely affects Holder’s rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
8. Notice
of Certain Events. If the
Company proposes at any time to effect any Liquidation Event, then, in
connection with each such event, the Company shall give Holder at least twenty
(20) days prior written notice of the date when the same will take place (and
specifying the date on which the holders of Common Stock will be entitled to
exchange their stock for securities or other property deliverable upon the
occurrence of Liquidation Event).
9. Exercise,
Transfer and Exchange Restrictions. The
transfer, surrender or exchange of this Warrant or any of the Shares issued upon
the exercise hereof is subject to any restrictions on transfer imposed by state
and federal securities laws, including compliance with Regulation S under the
Securities Act. Any Warrant or certificate representing Shares shall bear a
legend substantially as follows:
The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended or any state securities laws, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless and until
such securities are registered under such Act and applicable state securities
laws or an opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required.
10. Loss,
Theft, Mutilation, etc. Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
B-5
11. Notices. All
notices required under this Warrant shall be deemed to have been given or made
(i) upon personal delivery, with acknowledgement received (ii) upon
confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile (with a copy of such notice sent no later
than the next business day by reputable overnight courier service, with
acknowledgement of receipt), (iii) upon receipt, when sent by reputable
overnight courier service, with acknowledgement of receipt or (iv) three
(3) business days after posting when sent by registered or certified United
States mail, postage prepaid, return receipt requested. Notices to the Company
shall be sent to the principal office of the Company (or at such other place as
the Company shall notify the Holder hereof in writing). Notices to the Holder
shall be sent to the address of the Holder at
___________________________________ (or at such other place as the Holder shall
notify the Company hereof in writing).
12. Waiver. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing, signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.
13. Successor
and Assigns. This
Warrant shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, provided that the Company shall have no
right to assign its rights, or to delegate its obligations, hereunder without
the prior written consent of Holder.
13. Registration
Rights. The
Holder of this Warrant shall have the same registration rights as are granted to
any investor in a Warrant Triggering financing. Holder may transfer registration
rights to any transferee of all or part of the Warrant.
14. Warrant
Transferable. This
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder if a written opinion of counsel to Holder reasonably
satisfactory to the Company has been delivered to the Company stating that such
transfer will not violate the registration requirements of the Securities Act or
any applicable state securities laws, provided that no such opinions shall be
required in the event of transfer to any officer, director, shareholder or
member of Holder or any affiliated person or company of Holder or any of the
foregoing persons.
15. Governing
Law.
This
Warrant shall be governed in all respects by the laws of the State of North
Carolina without regard to its principles of conflicts of law.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly
authorized officer.
SMART ONLINE,
INC.
By:
______________________________
Name:
_______________________
Title:
________________________
B-6
Appendix
A
Form
of Notice of Exercise
(Used at
Time of Exercise)
_____________________________
_____________________________
_____________________________
Attention:
Corporate
Secretary
1. The
undersigned, pursuant to the provisions of the attached Warrant, hereby elects
to exercise such Warrant with respect to ___________ shares of Common Stock (the
“Exercise Number”). Capitalized terms used but not otherwise defined herein have
the meanings ascribed thereto in the attached Warrant.
2. The
undersigned herewith tenders payment of US$____________ for such shares or that
number of shares of Company Common Stock as set forth in Section 2 of the
Warrant.
3. Please
issue a certificate or certificates representing the shares issuable in respect
hereof under the terms of the attached Warrant, as follows:
___________________________________
(Name of
Holder/Transferee)
and
deliver such certificate or certificates to the following address:
___________________________________
___________________________________
___________________________________
(Address
of Holder/Transferee)
4. The
undersigned represents that the aforesaid shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the undersigned has no
present intention of distributing or reselling such shares.
5. If the
Exercise Number is less than all of the shares of Common Stock purchasable
pursuant to the Warrant, please issue a new warrant representing the remaining
balance of such Shares, as follows:
___________________________________
(Name of
Holder/Transferee)
and
deliver such warrant to the following address:
___________________________________
___________________________________
___________________________________
(Address
of Holder/Transferee)
In
witness whereof, the undersigned Holder has caused this Notice of Exercise to be
executed as of this _____ day of ____________, 200___.
___________________________________
(Name of
Holder)
By:
______________________________
Name:
Title:
B-7
APPENDIX
C
An
Accredited Investor is defined as follows:
|
(1) |
a
natural person whose individual net worth, or joint net worth, with that
person’s spouse, at the time of purchase exceeds
$1,000,000; |
|
(2) |
a
natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person’s spouse in
excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year (the year in which
the purchase is made); |
|
(3) |
any
trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of investing in the Company, whose purchase is directed
by a sophisticated person having such knowledge and experience in
financial and business matters that she is capable of evaluating the risks
and merits of investing in the Company; |
|
(4) |
a
director or executive officer of the
Company; |
|
(5) |
an
organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000; |
|
(6) |
a
bank as defined in the Securities Act of 1933 (the “Act”), or a savings
and loan association or other institution as defined in the Act whether
acting in its individual or fiduciary capacity; a broker or dealer
registered under the Securities Exchange Act of 1934; an insurance company
as defined in the Act; an investment company registered under the
Investment Company act of 1940 or a business development company as
defined in the Act; a Small Business Investment Company licensed under the
Small Business Investment Act of 1958; an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act of 1974,
if the investment decision is made by a plan fiduciary, which is either a
bank, savings and loan association, an insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited
investors; |
|
(7) |
a
“private business development company” as defined in the Investment
Advisers Act of 1940; or |
|
(8) |
an
entity in which all of the equity owners are accredited investors.
|
C-1