Securities Purchase Agreement
Exhibit
10.46.1
Smart
Online, Inc.
0000
Xxxxxxxx Xxxxxxx, 0xx
Xxxxx
Xxxxxx,
XX 00000
The
undersigned investor (the “Investor”)
hereby confirms Investor’s agreement with Smart Online, Inc. (the “Company”) as
follows:
1. This
Securities Purchase Agreement is made as of the date set forth below between
the
Company and the Investor.
2. The
Company has authorized the sale and issuance of up to 2,352,941 shares (the
“Shares”)
of the common stock of the Company, $0.001 par value per share (the
“Common
Stock”),
and issue warrants, exercisable for a period of three (3) years after the
date
hereof, to purchase that number of shares of Common Stock equal to 50% of
the
Shares in the form of Exhibit “A” hereto (the “Warrants”)
to certain investors in a private placement (the “Offering”).
The
Company and the Investor agree that the Investor will purchase from the Company
and the Company will issue and sell to the Investor 1,568,627 Shares at a
purchase price of $2.55 per Share, for an aggregate purchase price of $4,000,000
(the “Purchase
Price”)
and the Company will issue to the Investor a Warrant to purchase 784,314
shares
of Common Stock at an exercise price of $3.00 per share, subject to the Terms
and Conditions for Purchase of Securities attached hereto as Annex I and
incorporated herein by reference as if fully set forth herein. Unless otherwise
requested by the Investor in Exhibit “B”, certificates representing the Shares
and Warrants purchased by the Investor will be registered in the Investor’s name
and address as set forth below.
3. The
Investor represents that, except as set forth below, (a) it has had no position,
office or other material relationship within the past three (3) years with
the
Company or its affiliates, (b) neither it, nor any group of which it is a
member
or to which it is related, beneficially owns (including the right to acquire
or
vote) any securities of the Company, and (c) it has no direct or indirect
affiliation or association with any National Association of Securities Dealers,
Inc. (“NASD”)
member. Exceptions:
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Please
confirm that the foregoing correctly sets forth the agreement between us by
signing in the space provided below for that purpose.
|
MAGNETAR
CAPITAL MASTER FUND, LTD
By:
Magnetar Financial LLC
Its:
Investment Manager
____________________
By:
Xxxx Xxxxxxxx
Its:
Counsel
Address:
0000
Xxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
|
AGREED
AND ACCEPTED:
Smart
Online, Inc.
By:
____________________________
Name:
Title:
Dated
as of:
February __, 2007
[SECURITIES
PURCHASE AGREEMENT SIGNATURE PAGE]
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Annex
I
Terms
and Conditions for Purchase of Securities
1. Agreement
to Sell and Purchase the Securities; Subscription Date.
1.1 Purchase
and Sale.
At the Closing (as defined in Section 2), the Company will sell to the Investor,
and the Investor will purchase from the Company, upon the terms and subject
to
the conditions set forth herein, and at the Purchase Price, the number of Shares
and Warrants described in paragraph 3 of the Securities Purchase Agreement
attached hereto (collectively with this Annex I and the other exhibits attached
hereto, this “Agreement,”
and such Shares and Warrants, the “Securities”)).
1.2 Other
Investors.
As part of the Offering, the Company proposes to enter into Securities Purchase
Agreements in the same form as this Agreement with certain other investors
(the
“Other
Investors”),
and the Company expects to complete sales of Securities to them. The Investor
and the Other Investors are sometimes collectively referred to herein as the
“Investors,”
and this Agreement, the Registration Rights Agreement and the Securities
Purchase Agreements executed by the Other Investors are sometimes collectively
referred to herein as the “Agreements.”
The Company may accept executed Agreements from Investors for the purchase
of
Securities commencing upon the date on which the Company provides the Investors
with the proposed purchase price per Share and concluding upon the date (the
“Subscription
Date”)
on which the Company has notified Canaccord Xxxxx, Inc. (in its capacity as
placement agent for the Securities, the “Placement
Agent”)
in writing that it will no longer accept Agreements for the purchase of
Securities in the Offering, but in no event shall the Subscription Date be
later
than February 23, 2007. Each Investor must execute and deliver a Securities
Purchase Agreement and a Registration Rights Agreement and must complete a
Stock
Certificate Questionnaire (in the form attached as Exhibit “A” hereto) and an
Investor Questionnaire (in the form attached as Exhibit “B” hereto) in order to
purchase Securities in the Offering. The Company and the Investor agree and
acknowledge that each Investor individually negotiated the terms of the
transactions contemplated hereby and are of
the view that the Investors are not acting as a
“group”
for purposes of Section 13(d) under the Securities Exchange Act of 1934
(the
“Exchange
Act”).
1.3 Placement
Agent Fee.
The Investor acknowledges that the Company intends to pay to the Placement
Agent
a fee in respect of the sale of Securities to the Investor from the proceeds
of
the Offering.
2. Delivery
of the Securities. The
completion of the purchase and sale of the Securities (the “Closing”)
shall occur on a date specified by the Company and the Placement Agent that
is
anticipated to be no later than February 23, 2007 (the “Closing
Date”)
and of which the Investors will be notified in advance by the Placement Agent.
Within two business days of the Closing, the Company shall deliver to the
Investor (1) one or more stock certificates representing the number of Shares
set forth in paragraph 3 of the Securities Purchase Agreement and (2) one or
more Warrants as set forth in paragraph 3 of the Securities Purchase Agreement,
each such certificate to be registered and such Warrant to be issued in the
name
of the Investor or, if so indicated on the Stock Certificate Questionnaire,
in
the name of a nominee designated by the Investor. In exchange for the delivery
of the subscription agreements, the Investor shall deliver the Purchase Price
to
the Placement Agent by wire transfer of immediately available funds pursuant
to
written instructions to be held in escrow pending closing of the Offering.
On
the Closing Date, the Company shall cause outside counsel to the Company to
deliver to the Investors a legal opinion, dated the Closing Date, substantially
in the form attached hereto as Exhibit “C” and its internal corporate counsel to
deliver to the Investors a legal opinion, dated the Closing Date, substantially
in the form attached hereto as Exhibit “D.”
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The
Company’s obligation to issue and sell the Securities to the Investor shall be
subject to the following conditions, any one or more of which may be waived
by
the Company: (a) prior receipt by the Company of an executed copy of this
Securities Purchase Agreement; (b) completion of purchases and sales of
Securities under the Agreements with the Other Investors; (c) the accuracy
of
the representations and warranties made by the Investor in this Agreement and
the fulfillment of the obligations of the Investor to be fulfilled by it under
this Agreement on or prior to the Closing;
and (d) the absence of any order, writ, injunction, judgment or decree that
questions the validity of the Agreements or the right of the Company or the
Investor to enter into such Agreements or to consummate
the transactions contemplated hereby
and thereby.
The
Investor’s obligation to purchase the Securities shall be subject to the
following conditions, any one or more of which may be waived by the Investor:
(a) the completion of purchases and sales under the Agreements with the Other
Investors for an aggregate purchase price along with the Investor of not less
than Six Million Dollars ($6,000,000); (b) the delivery of the Legal Opinion
to
the Investor by counsel to the Company; (c) the accuracy of the representations
and warranties made by the Company in this Agreement on the Closing Date; (c)
the execution and delivery by the Company of the Registration Rights Agreement,
(d) the absence of any order, writ, injunction, judgment or decree that
questions the validity of the Agreements or the right of the Company or the
Investor to enter into such Agreements or to consummate the transactions
contemplated hereby and thereby; and (e) the delivery to the Investor by the
Secretary or Assistant Secretary of the Company of a certificate stating that
the conditions specified in this paragraph have been fulfilled.
In
the event that the Closing does not occur on or before the Closing Date as
a
result of the Company’s failure to satisfy any of the conditions set forth above
(and such condition has not been waived by the Investor), the Company shall
return any and all funds paid hereunder to the Investor no later than one
Business Day following the Closing Date and the Investors shall have no further
obligations hereunder. For purposes of this Agreement, “Business
Day”
shall mean any day other than a Saturday, Sunday or other day on which the
New
York Stock Exchange is permitted or required by law to close.
3. Representations,
Warranties and Covenants of the Company.
Except as otherwise described in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2005 (and any amendments thereto filed at least
two
(2) Business Days prior to the Closing Date), the Company’s Quarterly Reports on
Form 10-Q for the quarters ended September 30, 2006, June 30, 2006 and March
31,
2006 (and any amendments thereto filed at least two (2) Business Days prior
to
the Closing Date), the Company’s Proxy Statement for its 2006 Annual Meeting of
Shareholders, and any of the Company’s Current Reports on Form 8-K filed since
November 14, 2006 (and any amendments thereto filed at least two (2) Business
Days prior to the Closing Date) (all collectively, the “SEC
Reports”),
the Company hereby represents and warrants to, and covenants with, the Investor
as of the date hereof and the Closing Date, as follows:
3.1 Organization.
The
Company is duly incorporated and validly existing in good standing under the
laws of the State of Delaware. The Company has full power and authority to
own,
operate and occupy its properties and to conduct its business as presently
conducted and is registered or qualified to do business and in good standing
in
each jurisdiction in which it owns property or transacts business and where
the
failure to be so qualified would have a material adverse effect upon the Company
and its subsidiaries as a whole or the business, financial condition,
properties, operations or assets of the Company and its subsidiaries as a whole
or the Company’s ability to perform its obligations under the Agreements in all
material respects (“Material
Adverse Effect”),
and no proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power
and
authority or qualification.
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3.2 Due
Authorization. The
Company has all requisite power and authority to execute, deliver and perform
its obligations under the Agreements. The execution and delivery of the
Agreements, and the consummation by the Company of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action and no
further action on the part of the Company or its Board of Directors or
stockholders is required. The Agreements have been validly executed and
delivered by the Company and constitute legal, valid and binding agreements
of
the Company enforceable against the Company in accordance with their terms,
except to the extent (i) rights to indemnity and contribution may be limited
by
state or federal securities laws or the public policy underlying such laws,
(ii)
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and (iii) such enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.3 No
Conflict or Default. The
execution and delivery of the Agreements, the issuance and sale of the
Securities to be sold by the Company under the Agreements, the fulfillment
of
the terms of the Agreements and the consummation of the transactions
contemplated thereby will not: (A) result in a conflict with or constitute
a material violation of, or material default (with the passage of time or
otherwise) under, (i) any bond, debenture, note, loan agreement or other
evidence of indebtedness, or any material lease,
or contract to which the Company is a party or by which the Company or their
respective properties are bound, (ii) the Certificate of Incorporation,
by-laws or other organizational documents of the Company, as amended, or
(iii) any law, administrative regulation, or existing order of any court or
governmental agency, or other authority binding upon the Company or the
Company’s respective properties; or, (B) result in the creation or
imposition of any lien, encumbrance, claim, or security interest upon any of
the
material assets of the Company or an acceleration of indebtedness pursuant
to
any obligation, agreement or condition contained in any material bond,
debenture, note or any other evidence of indebtedness or any material indenture,
mortgage, deed of trust or any other agreement or instrument to which the
Company is a party or by which it is bound or to which any of the property
or
assets of the Company is subject. No consent, approval, authorization or other
order of, or registration, qualification or filing with, any regulatory body,
administrative agency, or other governmental body is required for the execution
and delivery of the Agreements by the Company and the valid issuance or sale
of
the Securities by the Company pursuant to the Agreements, other than such as
have been made or obtained, and except for any filings required to be made
under
federal or state securities laws.
3.4 Capitalization.
The
outstanding capital stock of the Company is as described in the Company’s
Quarterly Report on Form 10-Q for the three month period ending September 30,
2006 and the private placement memorandum dated January 29, 2007, as amended
on
January 30, 2007 (the “Memorandum”) provided to Investor. The Company has not
made any material issuances of capital stock since August 21, 2006, other than
pursuant to the purchase
of shares under the Company’s employee stock option plan and the exercise
of outstanding warrants or stock options, in each case as disclosed in the
Memorandum or the SEC Reports, as well as the issuance of restricted shares
to
certain of its directors as part of its director compensation program. The
Shares to be sold pursuant to the Agreements have been duly authorized, and
when
issued and paid for in accordance with the terms of the Agreements, will be
duly
and validly issued, fully paid and nonassessable, subject to no lien, claim
or
encumbrance (except
for any such lien, claim or encumbrance created,
directly or indirectly, by the Investor). The outstanding shares of capital
stock of the Company have been duly and validly issued and are fully paid and
nonassessable, have been issued in compliance with the registration requirements
of federal and state securities laws, and were not issued in violation of any
preemptive rights or similar rights to subscribe for or purchase securities.
The
Company owns one hundred percent of all of the outstanding capital stock of
each
of its subsidiaries, free and clear of all liens, claims and encumbrances.
There
are not (i) any outstanding preemptive rights, or (ii) any rights, warrants
or
options to acquire, or instruments convertible into or exchangeable for, any
unissued shares of capital stock or other equity
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interest
in the Company not disclosed in the SEC Reports or Memorandum, or (iii) any
contract, commitment, agreement, understanding or arrangement of any kind to
which the Company is a party that would provide for the issuance or sale of
any
capital stock of the Company, any such convertible or exchangeable securities
or
any such rights, warrants or options not disclosed in the SEC Reports or the
Memorandum. There are no shareholders agreements, voting agreements or other
similar agreements with respect to the Common Stock to which the Company is
a
party.
3.5 Legal
Proceedings. There
is no material legal or governmental proceeding pending, or to the knowledge
of
the Company, threatened, to which the Company is a party or of which the
business or property of the Company is subject that is required to be disclosed
and that is not so disclosed in the SEC Reports. Other than the information
disclosed in the SEC Reports, the Company is not subject to any injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other government body.
3.6 No
Violations. To
the knowledge of the Company, it is
not in violation of its Certificate of Incorporation, bylaws or other
organizational documents, as amended. To the knowledge of the Company, it is
not
in violation of any law, administrative regulation, ordinance or order of any
court or governmental agency, arbitration panel or authority applicable to
the
Company, which violation, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect. The Company is not in default (and there
exists no condition which, with the passage of time or otherwise, would
constitute a default) in the performance of any bond, debenture, note or any
other evidence of indebtedness or any indenture, mortgage, deed of trust or
any
other material agreement or instrument to which the Company is a party or by
which the Company is bound, which such default would have a Material Adverse
Effect upon the Company.
3.7 Governmental
Permits, Etc. The
Company has all necessary franchises, licenses, certificates and other
authorizations from any foreign, federal, state or local government or
governmental agency, department or body that are currently necessary for the
operation of the business of the Company as currently conducted, except where
the failure to currently possess such franchises, licenses, certificates and
other authorizations is not reasonably likely to have a Material Adverse
Effect.
3.8 Intellectual
Property.
(a) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
(i) each of the Company has ownership of, or a license or other legal right
to
use, all patents, copyrights, trade secrets, trademarks, customer lists,
designs, manufacturing or other processes, computer software, systems, data
compilation, research results or other proprietary rights used in the business
of the Company (collectively, “Intellectual
Property”)
and (ii) all of the Intellectual Property owned by the Company consisting of
patents, registered trademarks and registered copyrights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights or the corresponding offices
of
other jurisdictions and have been maintained and renewed in accordance with
all
applicable provisions of law and administrative regulations in the United States
and/or such other jurisdictions.
(b) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
all material licenses or other material agreements under which (i) the Company
employs rights in Intellectual Property, or (ii) the Company has granted rights
to others in Intellectual Property owned or licensed by the Company are in
full
force and effect, and there is no default by the Company with respect
thereto.
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(c) The
Company believes that it has taken all steps reasonably required in accordance
with sound business practice and business judgment to establish and preserve
the
ownership of the Company’s material Intellectual Property.
(d) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
to the knowledge of the Company, (i) the present business, activities and
products of the Company do not infringe any intellectual property of any other
person; (ii) neither the Company is making unauthorized use of any confidential
information or trade secrets of any person; and (iii) the activities of any
of
the employees of the Company, acting on behalf of the Company, do not materially
violate any agreements or arrangements related to confidential information
or
trade secrets of third parties.
(e) Except
for matters which are not reasonably likely to have a Material Adverse Effect,
and except as disclosed in the SEC Reports, no proceedings are pending, or
to
the knowledge of the Company, threatened, which challenge the rights of the
Company to the use the Company’s Intellectual Property.
3.9 Financial
Statements. The
financial statements of the Company and the related notes contained in the
SEC
Reports present fairly and accurately in all material respects the financial
position of the Company as of the dates therein indicated, and the results
of
its operations, cash flows and the changes in shareholders’ equity for the
periods therein specified, subject, in the case of unaudited financial
statements for interim periods, to normal year-end audit adjustments. Such
financial statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis at the times and throughout the periods therein specified, except that
unaudited financial statements may not contain all footnotes required by
generally accepted accounting principles.
3.10
No
Material Adverse Change.
Except as disclosed in the SEC Reports or
in any press releases issued by the Company
at least two (2) Business Days prior to the Closing Date,
there has not been (i) an event, circumstance or change that has had or is
reasonably likely to have a Material Adverse Effect upon the Company, (ii)
any
obligation incurred by the Company that is material to the Company,
(iii) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, or (iv) any loss or damage (whether or not
insured) to the physical property of the Company which has had a Material
Adverse Effect.
3.11
34
Act Registration. The
Company’s Common Stock is registered pursuant to Section 12(b) of the Exchange
Act and the Company has taken no action intended to, or which to its knowledge
could have the effect of, terminating the registration of the Common Stock
under
the Exchange Act. The principal United States market in which the Company’s
common stock is quoted for trading is the Over-the-Counter Bulletin
Board.
3.12
No
Manipulation; Disclosure of Information. The
Company has not taken and will not take any action designed to or that might
reasonably be expected to cause or result in an unlawful manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares or
of
the shares of Common Stock underlying the Warrants. The Company has not
disclosed any material non-public information to the Investors.
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3.13
Accountants.
Sherb & Co., LLP, who expressed their opinion with respect to the
consolidated financial statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2005 which are to be included in
the
Registration Statement (as defined in the Registration Rights Agreement) and
the
prospectus which forms a part thereof (the “Prospectus”),
have advised the Company that they are, and to the knowledge of the Company
they
are, independent accountants as required by the Securities Act and the rules
and
regulations promulgated thereunder.
3.14
Contracts.
Except for matters which are not reasonably likely to have a Material Adverse
Effect and those contracts that are substantially or fully performed or expired
by their terms, the contracts listed as exhibits to or described in the SEC
Reports that are material to the Company and all amendments thereto, are in
full
force and effect on the date hereof, and neither the Company nor, to the
Company’s knowledge, any other party to such contracts is in breach of or
default under any of such contracts.
3.15
Taxes.
Except for tax matters which are not reasonably likely to have a Material
Adverse Effect, each of the Company and each of its Subsidiaries has filed
all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon.
3.16
Transfer
Taxes.
On the Closing Date, all stock transfer or other taxes (other than income taxes)
which are required to be paid in connection with the sale and transfer of the
Securities hereunder will be, or will have been, fully paid or provided for
by
the Company and the Company will have complied with all laws imposing such
taxes.
3.17
Investment
Company.
The Company is not an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for an investment company, within the
meaning of the Investment Company Act of 1940, as amended, and will not be
deemed an “investment company” as a result of the transactions contemplated by
this Agreement.
3.18
Insurance.
The Company maintains insurance of the types and in the amounts that the Company
reasonably believes is adequate for its businesses, including, but not limited
to, insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against by similarly situated companies, all of which
insurance is in full force and effect.
3.19
Offering
Prohibitions.
Neither the Company nor any person acting on its behalf or at its direction
has
in the past or will in the future take any action to sell, offer for sale or
solicit offers to buy any securities of the Company which would bring the offer
or sale of the Securities as contemplated by this Agreement within the
provisions of Section 5 of the Securities Act.
3.20
Related
Party Transactions. Other
than described in the SEC Reports, to
the knowledge of the Company, no transaction
has occurred between or among the Company or any of its affiliates, officers
or
directors or any affiliate or affiliates of any such officer or director that
with the passage of time are reasonably likely be required to be disclosed
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
3.21
Books
and Records.
The books, records and accounts of the Company accurately and fairly reflect,
in
reasonable detail, the transactions in, and dispositions of, the assets of,
and
the operations of, the Company. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
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4. Representations,
Warranties and Covenants of the Investor.
4.1 Investor
Knowledge and Status.
The Investor represents and warrants to, and covenants with, the Company that:
(i) the Investor is an “accredited investor” as defined in Regulation D under
the Securities Act, is knowledgeable, sophisticated and experienced in making,
and is qualified to make decisions with respect to, investments in securities
presenting an investment decision similar to that involved in the purchase
of
the Securities, and has requested, received, reviewed and considered all
information it deemed relevant in making an informed decision to purchase the
Securities; (ii) the Investor understands that the Securities are “restricted
securities” and have not been registered under the Securities Act and is
acquiring the number of Shares and Warrants set forth in paragraph 3 of the
Securities Purchase Agreement in the ordinary course of its business and for
its
own account for investment only, has no present intention of distributing any
of
such Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty
not limiting the Investor’s right to sell Securities pursuant to a Registration
Statement filed under the Registration Rights Agreement or otherwise, or other
than with respect to any claim arising out of a breach of this representation
and warranty, the Investor’s right to indemnification under Section 3 of the
Registration Rights Agreement); (iii) the Investor will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of
the
Securities except in compliance with the Securities Act, applicable state
securities laws and the respective rules and regulations promulgated thereunder;
(iv) the Investor has answered all questions in paragraph 4 of the Securities
Purchase Agreement and the Investor Questionnaire attached hereto as Exhibit
B
for use in preparation of the Registration Statement and the answers thereto
are
true and correct as of the date hereof and will be true and correct as of the
Closing Date; (v) the Investor will notify the Company promptly of any change
in
any of such information until such time as the Investor has sold all of its
Securities or until the Company is no longer required to keep the Registration
Statement effective; and (vi) the Investor has, in connection with its decision
to purchase the number of Securities set forth in paragraph 3 of the Securities
Purchase Agreement, relied upon the representations and warranties of the
Company contained herein and the information contained in the SEC Reports.
The
Investor understands that the issuance of the Securities to the Investor has
not
been registered under the Securities Act, or registered or qualified under
any
state securities law, in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the representations made by
the
Investor in this Agreement. To the best of the Investor’s knowledge, no person
(including without limitation the Placement Agent) has been authorized by the
Company to provide any representation that is inconsistent with or in addition
to those contained herein or in the SEC Reports, and the Investor acknowledges
that it has not received or relied on any such representations.
4.2 Transfer
of Securities.
The Investor agrees that it will not make any sale, transfer or other
disposition of the Securities (a “Disposition”)
other than Dispositions that are made pursuant to the Registration Statement
in
compliance with any applicable prospectus delivery requirements or that are
exempt from registration under the Securities Act. Investor has not taken and
will not take any action designed to or that might reasonably be expected to
cause or result in manipulation of the price of the Common Stock to facilitate
the subscription to, or the sale or resale of the Securities.
4.3 Power
and Authority.
The Investor represents and warrants to the Company that (i) the Investor has
full right, power, authority and capacity to enter into this Agreement and
to
consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
and (ii) this Agreement constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except
to the extent (i) rights to indemnity and contribution may be limited by state
or federal securities laws or the public policy underlying such laws, (ii)
such
enforceability may be limited by applicable bankruptcy,
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insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and (iii) such enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4 Prohibited
Transactions.
During the thirty (30) days prior to the date hereof, no Investor nor any
Affiliate of any Investor, foreign or domestic, has, directly or indirectly,
effected or agreed to effect any “short sale” (as defined in Rule 200 under
Regulation SHO), whether or not against the box, established any “put equivalent
position” (as defined in Rule 16a-1(h) under the Exchange Act) with respect to
the Company’s common stock, borrowed or pre-borrowed any shares of the Company’s
Common Stock, or granted any other right (including, without limitation, any
put
or call option) with respect to the Company’s Common Stock or with respect to
any security that includes, relates to or derived any significant part of its
value from the Company’s Common Stock or otherwise sought to hedge its position
in the Shares and Warrants (each, a “Prohibited
Transaction”).
4.5 No
Investment, Tax or Legal Advice.
The Investor understands that nothing in the SEC Reports, this Agreement, or
any
other materials presented to the Investor in connection with the purchase and
sale of the Securities constitutes legal, tax or investment advice. The Investor
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of Securities.
4.6 Confidential
Information.
The parties acknowledge and agree that as of the date hereof and as of the
Closing Date, the Company has not disclosed any material non-public information
to the Investor.
4.7 Acknowledgments
Regarding Placement Agent.
The Investor acknowledges that the Placement Agent has acted solely as placement
agent for the Company in connection with the Offering of the Securities by
the
Company, and that the Placement Agent has made no representation or warranty
whatsoever with respect to the accuracy or completeness of information, data
or
other related disclosure material that has been provided to the Investor. The
Investor further acknowledges that in making its decision to enter into this
Agreement and purchase the Securities, it has relied on its own examination
of
the Company and the terms of, and consequences of holding, the Securities.
The
Investor further acknowledges that the provisions of this Section 4.7 are
for the benefit of, and may be enforced by, the Placement Agent. Investor has
not received any general solicitation or advertising regarding the Offering
and
Investor has not been furnished with any oral or written representation or
information in connection with the Offering.
4.8 Additional
Acknowledgement.
Investor has thoroughly reviewed and the SEC Reports and the Memorandum (the
“Disclosure Documents”) prior to making this investment. Investor has been
granted a reasonable time prior to the date hereof during which we have had
the
opportunity to obtain such additional information as Investor deems necessary
to
permit Investor to make an informed decision with respect to the purchase of
the
Common Stock. After examination of the SEC Reports and other information
available, Investor is fully aware of the business prospects, financial
condition, risks associated with investment and the operating history relating
to the Company, and therefore in subscribing for the purchase of the Securities,
Investor is not relying upon any information other than information contained
in
the Disclosure Documents. The Investor acknowledges that it has independently
evaluated the merits of the transactions contemplated by this Agreement, that
it
has independently determined to enter into the transactions contemplated hereby,
that it is not relying on any advice from or evaluation by any Other Investor,
and that it is not acting in concert with any Other Investor in making its
purchase of the Securities hereunder. The Investor and, to its knowledge, the
Company acknowledge that the Investors have not taken any actions that would
deem the Investors to be members of a “group” for purposes of Section 13(d) of
the Exchange Act.
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5. Survival
of Representations, Warranties and Agreements. Notwithstanding
any investigation made by any party to this Agreement or by the Placement Agent,
all covenants, agreements, representations and warranties made by the Company
and the Investor herein shall survive the execution of this Agreement, the
delivery to the Investor of the Securities being purchased and the payment
therefor, and a party’s reliance on such representations and warranties shall
not be affected by any investigation made by such party or any information
developed thereby.
6. Legends
and Restrictions on Transfer. The
certificate or certificates for the Shares (and any securities issued in respect
of or exchange for the Shares) shall be subject to a legend or legends
restricting transfer under the Securities Act and referring to restrictions
on
transfer herein, such legend to be substantially as follows:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE BEEN ISSUED
AND SOLD IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES
ACT
OF 1933 (THE “1933 ACT”), AND APPROPRIATE EXEMPTIONS FROM REGISTRATION UNDER THE
SECURITIES LAWS OF OTHER APPLICABLE JURISDICTIONS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER THE 1933 ACT AND THE
APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE
ENTITLED TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT WITH
RESPECT TO COMPLIANCE OF THE PROPOSED SALE OR TRANSFER WITH THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT OR EXEMPTION THEREFROM. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH BONA FIDE MARGIN
TRANSACTIONS.
The
Investor expressly agrees that any sale by the Investor of Shares pursuant
to
the Registration Statement shall be sold in a manner described under the caption
“Plan of Distribution” in such Registration Statement and the Investor will
deliver a copy of the Prospectus contained in the Registration Statement to
the
purchaser or purchasers, directly or through the Investor's broker, in
connection with such sale, in each case in compliance with the requirements
of
the Securities Act and Exchange Act applicable to such sale. The Investor
further agrees that the Shares shall only be sold while the Registration
Statement is effective, unless another exemption from registration is available.
On the basis of compliance by the Investor with the foregoing covenants, upon
(a) effectiveness of the Registration Statement, (b) following any sale of
such
Shares pursuant to Rule 144 (assuming the transferor is not an affiliate of
the
Company, (c) if such Shares become eligible for sale under Rule 144(k) (to
the
extent that the applicable Investor provides a certification or legal opinion
to
the Company to that effect), or (d) if such legend is not required under
applicable requirements of the Securities Act (including controlling judicial
interpretations and pronouncements issued by the SEC), the Company shall as
soon
as practicable (but not later than five business days after surrender of the
legended certificates to the Company and notice of such surrender has been
provided pursuant to Section 8 below) cause certificates evidencing the Shares
previously issued to be replaced with certificates which do not bear the
restrictive legends specified above in this Section 7, and all Shares
subsequently issued shall not bear the restrictive legend specified above in
this Section 7; provided that the Investor shall notify the Company promptly
upon completion of the sale of all of its Shares. In the event that the Company
does not comply with the requirements of the prior sentence within five business
days after surrender of the legended certificates to the Company, and if on
or
after such date the Investor purchases (in an open market transaction or
| Securities Purchase Agreement |
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|
otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Investor
of
shares of Common Stock issuable upon such exercise that the Investor anticipated
receiving from the Company (a “Buy-In”), then the Company shall, within five
business days after the Investor's request and in the Investor's discretion,
either (i) pay cash to the Investor in an amount equal to the Investor's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”), at which point the Company's
obligation to deliver such certificates (and to issue such shares of Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to
the
Investor a certificate or certificates representing such shares of Common Stock
and pay cash to the Investor in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the closing bid price on the date of exercise. The Investor
acknowledges that the removal of the restrictive legends from certificates
representing Shares as provided in this Section 6 is predicated upon the
Company’s reliance on the Investor’s compliance with its covenants in this
Section 6.
7. Registration
of Shares; Public Statements.
7.1 In
connection with the purchase and sale of the Shares by the Investors
contemplated hereby, the Company has entered into a Registration Rights
Agreement with each Investor providing for the filing by the Company of a
Registration Statement on Form S-1 to enable the resale of the Shares by the
Investors from time to time.
7.2 The
Company agrees to disclose on a Current Report on Form 8-K the existence of
the
Offering and the material terms, thereof, including pricing, within four (4)
Business Days after the Closing. The Company will not issue any public
statement, press release or any other public disclosure listing the Investor
as
one of the purchasers of the Shares without the Investor’s prior review of the
statement and prior consent thereto, except as may be required by applicable
law
or rules of any exchange on which the Company’s securities are
listed.
8. Notices.
All
notices, requests, consents and other communications hereunder shall be in
writing, shall be delivered (A) if within the United States, by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile, or (B) if from outside the United
States, by International Federal Express (or comparable service) or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, upon the Business Day received, (ii) if delivered
by
nationally recognized overnight carrier, one (1) Business Day after timely
delivery to such carrier, (iii) if delivered by International Federal Express
(or comparable service), two (2) Business Days after timely delivery to such
carrier, (iv) if delivered by facsimile, upon electric confirmation of receipt
and shall be addressed as follows, or to such other address or addresses as
may
have been furnished in writing by a party to another party pursuant to this
paragraph:
9.
(a)
if
to the Company, to:
Smart
Online, Inc
0000
Xxxxxxxx Xxxxxxx, 0xx
Xxxxx
Xxxxxx,
XX 00000
Attention: Xxxxx
Xxxxxx, Corporate Counsel
Telephone:
(000) 000-0000
| Securities Purchase Agreement |
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with
a copy to:.
Smith,
Anderson, Blount, Dorsett,
Xxxxxxxx
& Xxxxxxxx, LLP
0000
Xxxxxxxx Xxxxxxx Xxxxxx
Xxxxxxx,
Xxxxx Xxxxxxxx 00000-0000
Attention:
Xxxxxxxx X. Xxxxxxxxx
Telephone: (000)
000-0000
(b)
if
to the Investor, at its address on the signature page to the Securities Purchase
Agreement.
10.
Amendments;
Waiver. This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the Investor. Any waiver of a provision of
this Agreement must be in writing and executed by the party against whom
enforcement of such waiver is sought.
11.
Headings.
The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
12.
Entire
Agreement; Severability. This
Agreement sets forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. If any provision
contained in this Agreement is determined to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
13.
Governing
Law. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of Delaware,
without giving effect to the principles of conflicts of law.
14.
Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other
parties.
| Securities Purchase Agreement |
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Exhibit
A
STOCK
CERTIFICATE QUESTIONNAIRE
Please
provide us with the following information:
|
1.
The
exact name in which your
Shares are to be registered (this is
the name that will appear on your
stock certificate(s)). You may
use a nominee name if appropriate:
|
|
|
2.
If
a nominee name is listed in
response
to item 1 above, the
relationship between the Investor
and such nominee:
|
|
|
3. The
mailing address of the
registered holder listed in
response to item 1 above:
|
|
|
4.
The
Social Security Number or
Tax Identification Number of the
registered holder listed in the
response to item 1 above:
|
A-1
Exhibit
B
INVESTOR
QUESTIONNAIRE
(All
information will be treated confidentially)
To:
Smart
Online, Inc.
The
undersigned hereby acknowledges the following:
This
Investor Questionnaire (“Questionnaire”)
must be completed by each potential investor in connection with the offer and
sale of the shares of the common stock, par value $0.001 per share (the
“Shares”),
of Smart Online, Inc. (the “Company”)
and of certain warrants to purchase shares of common stock, par value $0.001
per
share, of the Company (the “Warrants,” and together with the Shares, the
“Securities”).
The Securities are being offered and sold by the Company without registration
under the Securities Act of 1933, as amended (the “Securities
Act”),
and the securities laws of certain states, in reliance on the exemptions
contained in Section 4 of the Securities Act and on Regulation D promulgated
thereunder and in reliance on similar exemptions under applicable state laws.
The Company must determine that a potential investor meets certain suitability
requirements before offering or selling Securities to such investor. The purpose
of this Questionnaire is to assure the Company that each investor will meet
the
applicable suitability requirements. The information supplied by the undersigned
will be used in determining whether the undersigned meets such criteria, and
reliance upon the private offering exemption from registration is based in
part
on the information herein supplied.
This
Questionnaire does not constitute an offer to sell or a solicitation of an
offer
to buy any security. The undersigned’s answers will be kept strictly
confidential. However, by signing this Questionnaire the undersigned will be
authorizing the Company to provide a completed copy of this Questionnaire to
such parties as the Company deems appropriate in order to ensure that the offer
and sale of the Securities will not result in a violation of the Securities
Act
or the securities laws of any state and that the undersigned otherwise satisfies
the suitability standards applicable to purchasers of the Securities. All
potential investors must answer all applicable questions and complete, date
and
sign this Questionnaire. The undersigned shall print or type its responses
and
attach additional sheets of paper if necessary to complete its answers to any
item.
A. Background
Information
| Name: |
|
Business
Address:
|
|
|
(Number
and Street)
|
|
(City)
|
(State)
|
(Zip
Code)
|
| Telephone Number: ( ) |
|
Residence
Address:
|
|
|
(Number and Street)
|
|
(City)
|
(State)
|
(Zip
Code)
|
| Telephone Number: ( ) |
If
an individual:
|
Age:______
|
Citizenship:__________
|
Where
registered to vote:_________
|
B-1
If
a corporation, partnership, limited liability company, trust or other
entity:
Type
of
entity:_____________________________________________________________________________
State
of
formation:______________
Date
of formation:__________________________________
Social
Security or Taxpayer Identification
No.______________________________________________________
Send
all correspondence to (check one): ____ Residence
Address
____
Business Address
B. Status
as Accredited Investor
The
undersigned is an “accredited investor” as such term is defined in Regulation D
under the Securities Act, because at the time of the sale of the Securities
the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable):
_____ (1) a
bank as defined in Section 3(a)(2) of the Securities Act, or a savings and
loan
association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity; a broker
or dealer registered pursuant to Section 15 of the Securities Exchange Act
of
1934; an insurance company as defined in Section 2(13) of the Securities Act;
an
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that act; a
Small
Business Investment Company licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit
of
its employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary,
as
defined in Section 3(21) of such act, which is either a bank, savings and loan
association, 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 the investment decisions made solely by persons that
are accredited investors;1
_____ (2) a
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;
_____ (3) an
organization described in Section 501(c)(3) of the Internal Revenue Code of
1986, 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;
_____ (4) a
natural person whose individual net worth, or joint net worth with that person’s
spouse, at the time of such person’s purchase of the Securities exceeds
$1,000,000;
_____ (5) 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;
___________________
1 As
used
in this Questionnaire, the term “net worth” means the
excess of total assets over total liabilities. In computing net worth for
the
purpose of subsection (4), the principal residence of the investor must be
valued at cost, including cost of improvements, or at recently appraised
value
by a professional appraiser. In determining income, the investor should add
to
the investor’s adjusted gross income any amounts attributable to tax exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depreciation, contributions to an XXX or XXXXX retirement
plan, alimony payments, and any amount by which income from long-term capital
gains has been reduced in arriving at adjusted gross income.
B-2
_____ (6) a
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities offered, whose purchase is directed by
a
sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
_____ (7) an
entity in which all of the equity owners are accredited investors (as defined
above).
C. Representations
The
undersigned hereby represents and warrants to the Company as
follows:
1. Any
purchase of the Securities would be solely for the account of the undersigned
and not for the account of any other person or with a view to any resale,
fractionalization, division, or distribution thereof.
2. The
information contained herein is complete and accurate and may be relied upon
by
the Company, and the undersigned will notify the Company immediately of any
material change in any of such information occurring prior to the closing,
if
any, with respect to the purchase of Securities by the undersigned or any
co-purchaser.
3. There
are no suits, pending litigation, or claims against the undersigned that could
materially affect the net worth of the undersigned as reported in this
Questionnaire.
4 The
undersigned acknowledges that there may occasionally be times when the Company,
based on the advice of its counsel, determines that it must suspend the use
of
the Prospectus forming a part of the Registration Statement (as such terms
are
defined in the Securities Purchase Agreement to which this Questionnaire is
attached) until such time as an amendment to the Registration Statement has
been
filed by the Company and declared effective by the Securities and Exchange
Commission or until the Company has amended or supplemented such Prospectus.
The
undersigned is aware that, in such event, the Securities will not be subject
to
ready liquidation, and that any Securities purchased by the undersigned would
have to be held during such suspension. The overall commitment of the
undersigned to investments which are not readily marketable is not excessive
in
view of the undersigned’s net worth and financial circumstances, and any
purchase of the Securities will not cause such commitment to become excessive.
The undersigned is able to bear the economic risk of an investment in the
Securities.
5. The
undersigned has carefully considered the potential risks relating to the Company
and a purchase of the Securities and fully understands that the Securities
are
speculative investments which involve a high degree of risk of loss of the
undersigned’s entire investment. Among others, the undersigned has carefully
considered each of the risks described in the Company’s Annual Report on Form
10-K for the year ended December 31, 2005 and the SEC Reports referenced in
the
Securities Purchase Agreement.
6. The
following is a list of all states and other jurisdictions in which blue sky
or
similar clearance will be required in connection with the undersigned’s purchase
of the Securities:
___________________________________________
___________________________________________
___________________________________________
The
undersigned agrees to notify the Company in writing of any additional states
or
other jurisdictions in which blue sky or similar clearance will be required
in
connection with the undersigned’s purchase of the Securities.
B-3
IN
WITNESS WHEREOF, the undersigned has executed this Questionnaire on February
___, 2007, and declares under oath that it is truthful and correct.
|
_______________________________
By:
___________________________
Its:
____________________________
____________________
By:
Its:
|
|
ACCEPTED
ON BEHALF OF THE COMPANY:
|
|
| SMART ONLINE, INC. | Shares Purchased: __________ |
| BY:_________________________________ | Warrants Purchased: __________ |
|
Name:
|
|
|
Title:
|
Dollar Amount Invested: $________ |
|
Date:
February ___, 2007
|
|
B-4
Exhibit
C
FORM
OF OUTSIDE COUNSEL LEGAL OPINION
February
[__], 2007
To: The
Investors in Common Stock of Smart Online, Inc. Identified on Schedule 1
hereto
Ladies
and Gentlemen:
We
have
acted as legal counsel for Smart Online, Inc., a Delaware corporation (the
“Company”),
in
connection with the issuance of 2,352,941
shares
(the “Shares”)
of the
Company’s Common Stock, $0.001 par value per share, pursuant to those certain
Securities Purchase Agreements, dated as of February [__] 2007, including the
annex and exhibits thereto (collectively, the “Agreement”),
between the Company and the investors identified on Schedule 1 hereto (the
“Investors”).
This
opinion is being delivered to you pursuant to Section 2 of the Agreement.
Capitalized terms used herein are as defined in the Agreement unless otherwise
specifically provided herein.
The
phrases “to our knowledge” and “known to us” mean the conscious awareness by
lawyers in the “primary lawyer group” of factual matters such lawyers recognize
as being relevant to the opinion or confirmation so qualified, without
independent investigation. “Primary lawyer group” means any lawyer in this firm
(i) who signs this opinion letter, (ii) who is actively involved in negotiating
or documenting the transaction or (iii) solely as to information relevant to
a
particular opinion or factual confirmation issue, who is primarily responsible
for providing the response concerning the particular opinion or
issue.
In
connection with our opinions expressed below, we have assumed the authenticity
of all records, documents, and instruments submitted to us as originals, the
genuineness of all signatures (other than the signatures of the Company), the
legal capacity of natural persons and the conformity to the originals of all
records, documents and instruments submitted to us as copies. We have based
our
opinion only upon our review of the following records, documents and
instruments, as well as a certificate of officers of the Company (the
“Officers’
Certificate”)
relating to factual matters (collectively, the “Documents”)
and,
in our judgment, such Documents constitute all records, documents and
instruments that are necessary or appropriate to enable us to render the
opinions expressed below:
|
(a)
|
the
Agreement, including the annex and exhibits
thereto;
|
|
(b)
|
the
Registration Rights Agreement between the Company and the Investors,
dated
the date hereof (the “Registration
Rights Agreement,”
together with the Agreement, the “Transaction
Agreements”);
|
C-1
|
(c)
|
the
Company’s Amended and Restated Certificate of Incorporation (the
“Certificate
of Incorporation”);
|
|
(d)
|
the
Company’s Amended and Restated Bylaws (“Bylaws”);
|
|
(e)
|
Certificate
of Good Standing of the Company, issued by the Secretary of State
of
Delaware, dated February 5, 2007;
|
|
(f)
|
Certificate
of Authorization of the Company issued by the Secretary of State
of North
Carolina, dated February 6, 2007;
|
|
(g)
|
resolutions
of the Board of Directors of the Company adopted at a meeting held
on
February 21, 2007.
|
The
opinion expressed in Paragraph 1 below as to the incorporation, valid existence,
and good standing of the Company under the laws of the State of Delaware is
based solely on the Certificate of Good Standing of the Company identified
in
(e) above. The opinion expressed in Paragraph 8 below is based solely on the
Officers’ Certificate. As to questions of fact bearing upon the other opinions
set forth below, we have relied with your consent solely upon (1) our review
of
the Documents and (2) discussions with and information provided by management
of
the Company. We have not reviewed the files and records of the Company generally
and have relied on the Company to provide us with the Documents for review.
Based
upon and subject to the matters set forth above and to the additional
limitations and qualifications set forth below, we are of the opinion
that:
1. The
Company has been duly incorporated and is a validly existing corporation in
good
standing under the laws of the State of Delaware with
the
corporate power to conduct any lawful business activity. The Company has the
corporate power to execute, deliver and perform the Agreement including, without
limitation, the issuance and sale of the Shares.
2. Each
of
the Agreement and the Registration Rights Agreement has been duly authorized
by
all requisite corporate action, executed and delivered by the Company. Each
of
the Agreement and the Registration Rights Agreement constitutes the valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
3. The
Shares have been duly authorized and, upon issuance, delivery and payment
therefor as described in the Agreement, will be validly issued, fully paid
and
nonassessable.
4. As
of the
date hereof, the authorized capital stock of the Company consists of
__________________.
5. The
execution, delivery and performance of the Transaction Agreements and the
issuance and sale of the Shares in accordance with the Agreement will not:
(a)
violate or conflict with, or result in a breach of or default under, the
Certificate of
Incorporation or
Bylaws
of the Company, or (b) violate any applicable federal or state law, rule,
regulation law or
order
known to us of any court or other agency of government.
C-2
6. To
our
knowledge, no consent, approval, authorization or order of, and no notice to
or
filing with, any governmental agency or body or any court is required to be
obtained or made by the Company for the issue and sale of the Shares pursuant
to
the Agreement, except such as have been obtained or made and such as may be
required under certain state and federal securities laws.
7. The
offer, sale, issuance and delivery of the Shares to the Investors, in the manner
contemplated by the Agreement, are exempt from the registration requirements
of
the Securities Act, it being understood that no opinion is expressed as to
any
subsequent resale of such shares.
8. We
are
not representing the Company in any pending litigation in which it is a named
defendant, or in any litigation that is overtly threatened in writing against
it
by a potential claimant, that challenges the validity or enforceability of,
or
seeks to enjoin the performance of, the Agreement.
The
foregoing opinions are subject to the following limitations and
qualifications:
(a) The
foregoing opinions are subject to the effects of (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, receivership, moratorium and other
similar laws affecting the rights and remedies of creditors generally, now
or
hereafter in effect, (ii) general principles of equity whether applied by a
court of law or equity, and (iii) applicable laws and court decisions, now
or
hereafter in effect, that may limit or restrict the enforceability or
availability of certain terms, provisions, rights or remedies contained in
the
Transaction Agreements.
(b) We
have
assumed that the parties (other than the Company) to the Transaction Agreements
have the requisite power and authority to enter into the Transaction Agreements;
that the Transaction Agreements have been duly authorized, executed and
delivered by each such party; and that the Transaction Agreements to which
each
is a party constitute the legal, valid and binding obligations of each such
party, enforceable against each such party in accordance with their respective
terms.
(c) The
opinions set forth herein are limited to matters governed by the General
Corporation Law of the State of Delaware, laws of the State of North Carolina
(as to paragraph 6) and United States federal laws (as to paragraphs 5 and
7),
and no opinion is expressed herein as to the laws of any other jurisdiction,
except to the extent set forth in paragraph 6. We express no opinion as to
the
enforceability of provisions of the Agreement concerning choice of forum or
consent to the jurisdiction of courts, venue of actions or means of service
of
process. We express no opinion as to compliance by the Company with federal
and
state anti-fraud laws relating to the issuance and sale of securities. For
purposes of our opinions, we have disregarded the choice of law provision in
the
Transaction Agreements and, instead, have assumed that the Transaction
Agreements are governed exclusively by the internal, substantive laws and
judicial interpretations of the State of North Carolina. We express no opinion
concerning any matter respecting or affected by any laws other than the laws
that a lawyer in North Carolina exercising customary professional diligence
would reasonably recognize as being directly applicable to the Company, the
transactions contemplated by Transaction Agreements or both.
C-3
(d) With
respect to the opinions expressed in paragraph 7, we bring to your attention
that the availability of an exemption from the registration requirements of
the
Securities Act is dependent upon the existence of facts upon which the exemption
being claimed is conditioned. In determining the availability of an exemption
from registration for purposes of this opinion, we have assumed and relied
upon
without independent investigation: (i) the accuracy and completeness of the
information provided by the Company to you in connection with such offer and
sale and that such information did not include any misstatement of any material
fact or omit to state any material fact whose omission would be misleading;
(ii)
the accuracy and completeness of the representations and warranties made by
you
in the Transaction Agreements; (iii) the consummation of the transactions in
accordance with the Transaction Agreements; (iv) that the offer and sale of
the
Shares is not integrated with any other securities offering of the Company;
(v)
the
Placement Agent’s compliance with applicable securities laws and regulations
(including, without limitation, the requirements of Regulation D under the
Securities Act); (vi)
that the
Company will timely file a Form D with the Securities and Exchange Commission
and applicable state securities commissions and pay all required filing fees;
and (vii) that no party to the Transaction Agreements will take or omit to
take
any action which would cause such offer or sale not to constitute an exempted
transaction under the Securities Act.
(e) We
express no opinion as to the enforceability of the provisions of the Transaction
Agreements (i) purporting to require a party thereto to pay or reimburse
attorneys’ fees incurred by another party which provisions may be limited by
applicable statutes and decisions relating to the collection and award of
attorneys’ fees, or (ii) requiring waivers or amendments to be made only in
writing.
(f) With
respect to the opinions expressed in paragraph 6 relating to state securities
laws, we have examined the latest compilations that are available to us of
the
applicable securities, or “blue sky,” laws of California, Illinois,
Massachusetts, New York, and North Carolina only, which are the states in which
the Shares, to our knowledge, are being offered and sold on the Closing Date,
and, in certain instances, the regulations issued thereunder, but we have not
obtained special rulings of the securities commissions or other administrative
bodies or officials charged with the administration of said laws, nor have
we
obtained opinions of local counsel. The interpretation and enforcement of such
securities laws are subject to broad discretionary powers in the securities
commissions or other administrative bodies or officials of many jurisdictions
authorizing them, among other things, to withdraw the exempt status accorded
to
particular classes of, and certain transactions in, securities and to impose
special requirements with respect to sale of any securities. We have advised
the
Company to take such actions as were, in our opinion, reasonably necessary,
if
any, to secure an exemption from such laws and regulations for such offer,
issuance and sale.
(g) We
have
assumed with your permission that the actions of the Company and its officers,
directors and shareholders with respect to the Transaction Agreements and the
transactions contemplated thereby comply with the applicable provisions and
standards of Section 144 of the Delaware General Corporation Law.
C-4
In
addition, we draw to your attention that under various reports and guidelines
published by committees of the American Bar Association and the North Carolina
Bar Association, and by the TriBar Opinion Committee, certain assumptions,
qualifications and exceptions are implicit in opinions of lawyers.
This
opinion is furnished to the Investors solely for their benefit in connection
with the purchase of the Shares, and may not be relied upon by any other person
or for any other purpose without our prior written consent in each instance.
We
bring
to your attention the fact that our legal opinions are expressions of
professional judgment and are not a guarantee of a result.
Our
opinion is as of the date hereof, and we do not undertake to advise you of
matters that might come to our attention subsequent to the date hereof that
may
affect our legal opinions expressed herein.
|
Very
truly yours,
|
|
|
SMITH,
ANDERSON, BLOUNT, DORSETT,
|
|
|
XXXXXXXX
& XXXXXXXX, L.L.P.
|
C-5
Schedule
1
Investors
Herald
Investments Management Ltd.
Magnetar
Capital Master Fund, Ltd.
C-6
Exhibit
D
FORM
OF INTERNAL CORPORATE COUNSEL LEGAL OPINION
February
[__], 2007
To: The
Investors in Common Stock of Smart Online, Inc. Identified on Schedule 1
hereto
Ladies
and Gentlemen:
I
am the
corporate legal counsel for Smart Online, Inc., a Delaware corporation (the
“Company”)
and am
delivering this opinion to you in connection with the issuance of 2,352,941
shares
(the “Shares”)
of the
Company’s Common Stock, $0.001 par value per share, pursuant to Section 2 of
those certain Securities Purchase Agreements, dated as of February [__] 2007,
including the annex and exhibits thereto (collectively, the “Agreement”),
between the Company and the investors identified on Schedule 1 hereto (the
“Investors”).
Capitalized terms used herein are as defined in the Agreement unless otherwise
specifically provided herein.
Based
upon and subject to the matters set forth above and to the additional
limitations and qualifications set forth below, I am of the opinion that
the
execution, delivery and performance of the Transaction Agreements and the
issuance and sale of the Shares in accordance with the Agreement will
not violate
or conflict with, or constitute a default under any material agreement or
instrument (limited, with your consent, to agreements filed with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
and applicable rules and regulations) to which the Company is a party (the
“Material
Contracts”).
The
foregoing opinion is subject to the following limitations and
qualifications:
(a) The
foregoing opinion is subject to the effects of (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, receivership, moratorium and other
similar laws affecting the rights and remedies of creditors generally, now
or
hereafter in effect, (ii) general principles of equity whether applied by a
court of law or equity, and (iii) applicable laws and court decisions, now
or
hereafter in effect, that may limit or restrict the enforceability or
availability of certain terms, provisions, rights or remedies contained in
the
Transaction Agreements, but which, in my opinion (subject to the other
qualifications and exceptions stated elsewhere in this opinion), should not
make
them inadequate for the practical realization of the material benefits intended
to be afforded to the parties thereby.
(b) The
Material Contracts are governed by various state laws. In rendering this
opinion, I have assumed that all the Material Contracts are governed by the
laws
of the State of Washington. I express no opinion concerning any matter
respecting or affected by any laws other than the laws that a lawyer in
Washington exercising customary professional diligence would reasonably
recognize as being directly applicable to the Company, the transactions
contemplated by Transaction Agreements or both.
D-1
This
opinion is furnished to the Investors solely for their benefit in connection
with the purchase of the Shares, and may not be relied upon by any other person
or for any other purpose without my prior written consent in each instance.
I
bring
to your attention the fact that this legal opinion is an expression of
professional judgment and is not a guarantee of a result.
This
opinion is as of the date hereof, and I do not undertake to advise you of
matters that might come to my attention subsequent to the date hereof that
may
affect my legal opinion expressed herein.
|
Very
truly yours,
|
|
|
Xxxxx
X. Xxxxxx
|
|
|
Corporate
Counsel
|
D-2
Schedule
1
Investors
Herald
Investments Management Ltd.
Magnetar
Capital Master Fund, Ltd.
D-3
