REGISTRATION RIGHTS AGREEMENT
Exhibit
10.6
THIS
REGISTRATION RIGHTS AGREEMENT is made as of the 14th
day of
November, 2007 by and among
Smart
Online, Inc., a Delaware corporation (the “Company”),
and
each of the investors listed on Schedule
A
hereto
(each of which is referred to in this Agreement as an “Investor”
and
collectively, the “Investors”).
RECITALS
WHEREAS,
the
Company and the Investors are parties to the Convertible Secured Subordinated
Note Purchase Agreement of even date herewith (the “Note
Purchase Agreement”)
pursuant to which the Company is selling to the Investors and the Investors
are
purchasing certain Convertible Secured Subordinated Notes (collectively,
the
“Notes”),
which
are convertible into shares of Common Stock (the “Conversion
Shares”);
and
WHEREAS,
in
order to induce the Company to enter into the Note Purchase Agreement and
to
induce the Investors to invest funds in the Company pursuant to the Note
Purchase Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investors to cause the Company to
register the Conversion Shares;
NOW,
THEREFORE,
the
parties hereby agree as follows:
1. Definitions. For
purposes of this Agreement:
1.1 “Affiliate”
means,
with respect to any specified Person, any other Person who, directly or
indirectly, controls, is controlled by, or is under common control with such
Person.
1.2 “Common
Stock”
means
shares of the Company’s common stock, par value $0.001 per share.
1.3 “Damages”
means
any loss, damage,
or liability (joint or several) to which a party hereto may become subject
under
the Securities Act, the Exchange Act, or other federal or state law, insofar
as
such loss, damage,
or liability (or any action in respect thereof) arises out of or is based
upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement of the Company, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) an omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make
the
statements therein not misleading; or (iii) any violation or alleged violation
by the indemnifying party
(or
any
of its agents or Affiliates) of
the
Securities Act, the Exchange Act, any state securities law, or any rule or
regulation promulgated under the Securities Act, the Exchange Act, or any
state
securities law.
1.4 “Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
1.5 “Excluded
Registration”
means
(i)
a
registration relating to
the
sale of securities to employees of the Company or
a
subsidiary pursuant
to a stock option, stock purchase, or similar plan;
(ii) a
registration relating
to an
SEC Rule 145 transaction; (iii)
a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities; or (iv)
a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities that are also being
registered.
1
1.6 “Form
S-1”
means
such form under the Securities Act as in effect on the date hereof or any
successor registration form under the Securities Act subsequently adopted
by the
SEC.
1.7 “Form
S-2”
means
such form under the Securities Act as in effect on the date hereof or any
successor registration form under the Securities Act subsequently adopted
by the
SEC.
1.8 “Form
S-3”
means
such form under the Securities Act as in effect on the date hereof or any
registration form under the Securities Act subsequently adopted by the SEC
that
permits incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
1.9 “GAAP”
means
generally accepted accounting principles in the United States.
1.10 “Holder”
means
any holder of Registrable Securities who is a party to this
Agreement.
1.11 “Immediate
Family Member”
means
a
child,
stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships, of a natural person referred to
herein.
1.12 “Initiating
Holders”
means,
collectively, Holders who properly initiate a registration request under
this
Agreement.
1.13 “Maturity
Date”
shall
have the meaning ascribed thereto in the Notes.
1.14 “Person”
means
any individual, corporation, partnership, trust, limited liability company,
association or other
entity.
1.15 “Registrable
Securities”
means
(i) the Conversion Shares; and
(ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right, or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares referenced in clause (i)
above;
excluding in all cases, however, any Registrable Securities sold by a Person,
or
any Conversion Shares issued upon conversion of a Note sold by a Person,
in a
transaction in which the applicable rights
under this
Agreement
are not
assigned pursuant
to Section
3.1.
1.16 “Registrable
Securities then outstanding”
means
the number of shares determined by adding the number
of
shares of outstanding Common
Stock that
are
Registrable Securities
and
the
number
of shares of Common
Stock issuable (directly
or indirectly) pursuant
to then exercisable and/or
convertible securities that are Registrable Securities.
2
1.17 “SEC”
means
the Securities and Exchange Commission.
1.18 “SEC
Rule 144”
means
Rule 144 promulgated by the SEC under the Securities Act.
1.19 “SEC
Rule 144(k)”
means
Rule 144(k) promulgated by the SEC under the Securities Act.
1.20 “SEC
Rule 145”
means
Rule 145 promulgated by the SEC under the Securities Act.
1.21 “Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
1.22 “Selling
Expenses”
means
all underwriting discounts, selling commissions, and stock transfer taxes
applicable to the sale of Registrable Securities, and fees and disbursements
of
counsel for any Holder, except for
the
fees and disbursements of the Selling Holder Counsel borne and paid by the
Company as
provided in Section 2.6.
2. Registration
Rights.
The
Company covenants and agrees as follows:
2.1 Demand
Registration.
(a) Form
S-1 Demand.
If
at any
time after the Maturity Date, the Company receives a request from Holders
of
a
majority of the Registrable Securities then outstanding that the Company
file
a
Form
S-1
registration
statement with
respect to at least forty percent (40%)
of the
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of Selling Expenses, would exceed $5 million),
then the Company shall (i) within ten (10) days after the date such request
is
given, give notice thereof (the “Demand
Notice”)
to all
Holders other than the Initiating Holders; and (ii) as soon as practicable,
and
in any event within one hundred eighty (180) days after the date such request
is
given by the Initiating Holders, file a
Form
S-1
registration statement under the Securities Act covering all Registrable
Securities that the Initiating
Holders
requested to
be
registered and any
additional Registrable Securities requested to be included in such registration
by any other Holders, as specified by notice given by each such Holder to
the
Company within twenty (20) days of the date the Demand Notice is given, and
in
each case, subject
to the limitations of Section 2.1(c)
and
Section
2.3.
(b) Form
S-3 Demand.
If at
any time when it is eligible to use a Form S-3 registration statement, the
Company receives a request from Holders of at least thirty percent (30%)
of the
Registrable Securities then outstanding that the Company file a Form S-3
registration statement with respect to outstanding Registrable Securities
of
such Holders having an anticipated aggregate offering price, net of Selling
Expenses, of at least $2 million, then the Company shall (i) within ten (10)
days after the date such request is given, give a Demand Notice to all Holders
other than the Initiating Holders; and (ii) as soon as practicable, and in
any
event within ninety (90) days after the date such request is given by the
Initiating Holders, file a Form S-3 registration statement under the Securities
Act covering all Registrable Securities requested to be included in such
registration by any other Holders, as specified by notice given by each such
Holder to the Company within twenty (20) days of the date the Demand Notice
is
given, and in each case, subject to the limitations of Section
2.1(c)
and
Section 2.3.
3
(c) Notwithstanding
the foregoing obligations, if the Company furnishes to Holders requesting
a
registration pursuant to this Section
2.1
a
certificate signed by the Company’s chief executive officer stating that in the
good faith judgment of the Company’s Board of Directors it would be materially
detrimental to the Company and its stockholders for such registration statement
to either become effective or remain effective for as long as such registration
statement otherwise would be required to remain effective, because such action
would be
materially detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore necessary to defer the filing of
such
registration statement,
then the
Company shall have the right to defer taking action with respect to such
filing,
and any time periods with respect to filing or effectiveness thereof shall
be
tolled correspondingly, for a period of not more than sixty (60)
days
after the request of the Initiating Holders is given; provided,
however,
that
the Company may not invoke this right more than twice in any twelve (12)
month
period; and provided
further
that the
Company shall not register any securities for its own account or that of
any
other stockholder during such sixty (60) day period other than an
Excluded Registration.
(d) The
Company shall not be obligated to effect, or to take any action to effect,
any
registration pursuant to Section
2.1(a)
(i)
during the period that is sixty
(60) days before the Company’s good faith estimate of the date of filing of, and
ending on a date that is one
hundred eighty (180)
days
after the effective date of, a Company-initiated registration, provided,
that
the Company is actively employing in good faith commercially reasonable efforts
to cause such registration statement to become effective; (ii)
after the Company has effected one registration
pursuant
to Section
2.1(a);
or
(iii) if the Initiating Holders propose to dispose of shares of Registrable
Securities that may be immediately registered on Form S-3 pursuant to a request
made pursuant to Section
2.1(b).
The
Company shall not be obligated to effect, or to take any action to effect,
any
registration pursuant to Section
2.1(b)
(i)
during the period that is thirty (30) days before the Company’s good faith
estimate of the date of filing of, and ending on a date that is one
hundred eighty (180)
days
after the effective date of, a Company-initiated registration, provided,
that
the Company is actively employing in good faith commercially reasonable efforts
to cause such registration statement to become effective; or (ii) if the
Company
has effected one registration pursuant to Section
2.1(b)
within
the six (6) month period immediately preceding the date of such
request. A
registration shall not be counted as “effected” for purposes of this
Section
2.1(d)
until
such time as the applicable registration statement has been declared effective
by the SEC, unless the Initiating Holders withdraw their request for such
registration, elect not to pay the registration expenses therefor, and
forfeit their right to one demand registration statement pursuant
to Section
2.6,
in which
case such withdrawn registration statement shall be counted as “effected” for
purposes of this Section 2.1(d).
2.2 Company
Registration. If
the
Company proposes to register (including, for this purpose, a registration
effected by the Company for stockholders other than the Holders) any of its
Common
Stock
under
the Securities Act in connection with the public offering of such securities
solely for cash (other than in
an
Excluded Registration), the Company shall, at such time, promptly give each
Holder notice of such registration. Upon the request of each Holder given
within
twenty (20) days after such notice is given by the Company, the Company shall,
subject to the provisions of Section
2.3,
cause to
be registered all of the Registrable Securities that each such Holder has
requested to be included in such registration. The Company shall have the
right
to terminate or withdraw any registration initiated by it under this
Section
2.2
before
the effective date of such registration, whether or not any Holder has elected
to include Registrable Securities in such registration. The expenses
(other
than Selling Expenses) of
such
withdrawn registration shall be borne by the Company in accordance with
Section
2.6.
4
2.3 Underwriting
Requirements.
(a) If,
pursuant to Section 2.1,
the
Initiating Holders intend
to
distribute the Registrable Securities covered by their request by means of
an
underwriting, they shall so advise the Company as a part of their request
made
pursuant to Section
2.1,
and the
Company shall include such information in the Demand Notice.
The
underwriter(s)
will be
selected by the Company and shall be reasonably acceptable to a majority
in
interest of the Initiating Holders. In such event, the right of any Holder
to
include such Holder’s Registrable Securities in such registration shall be
conditioned upon such Holder’s participation in such underwriting and the
inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
Section
2.4(e))
enter
into an underwriting agreement in customary form with the underwriter(s)
selected for such underwriting. Notwithstanding any other provision of this
Section
2.3,
if the
underwriter(s) advise(s) the Initiating Holders in writing that marketing
factors require a limitation on the number of shares to be underwritten,
then
the Initiating Holders shall so advise all Holders of Registrable Securities
that otherwise would be underwritten pursuant hereto, and the number of
Registrable Securities that may be included in the underwriting shall be
allocated among such
Holders
of Registrable Securities, including the Initiating Holders, in proportion
(as
nearly as practicable) to the number of Registrable Securities owned
by
each Holder
or in
such other proportion as shall mutually be agreed to by all such selling
Holders;
provided,
however,
that
the number of Registrable Securities held by the Holders to be included in
such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting. To
facilitate the allocation of shares in accordance with the above provisions,
the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
(b) In
connection with any offering involving an underwriting of shares of the
Company’s capital stock pursuant to Section
2.2,
the
Company shall not be required to include any of the Holders’ Registrable
Securities in such underwriting unless the Holders accept the terms of the
underwriting as agreed upon between the Company and its underwriters, and
then
only in such quantity as the underwriters in their sole discretion determine
will not jeopardize the success of the offering by the Company. If the total
number of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the number of securities
to
be sold (other than by the Company) that the underwriters in their reasonable
discretion determine is compatible with the success of the offering, then
the
Company shall be required to include in the offering only that number of
such
securities, including Registrable Securities, which the underwriters and
the
Company in their sole discretion determine will not jeopardize the success
of
the offering. If
the
underwriters determine that less than all of the Registrable Securities
requested to be registered can be included in such offering, then the
Registrable Securities that are included in such offering shall be allocated
among
the selling Holders in
proportion (as nearly as practicable to)
the
number of Registrable Securities owned
by
each
selling
Holder
or in
such other proportions as shall mutually be agreed to by all such selling
Holders. To
facilitate the allocation of shares in accordance with the above provisions,
the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares. Notwithstanding
the foregoing, in no event shall (i)
the
number of Registrable Securities included in the offering be reduced unless
all
other securities (other than securities to be sold by the Company) are first
entirely excluded from the offering, or
(ii) the
number of Registrable Securities included in the offering be reduced below
thirty percent (30%) of the total number of securities included in such
offering. For purposes of the provision in this Section
2.3(b)
concerning apportionment, for any selling Holder
that
is
a
partnership, limited liability company, or corporation, the partners, members,
retired partners, retired members, stockholders, and Affiliates of such Holder,
or the estates and Immediate Family Members of any such partners, retired
partners, members, and retired members and any trusts for the benefit of
any of
the foregoing Persons, shall be deemed to be a single “selling Holder,” and any
pro rata reduction with respect to such “selling Holder” shall be based upon the
aggregate number of Registrable Securities owned by all Persons included
in such
“selling Holder,” as defined in this sentence.
5
2.4 Obligations
of the Company.
Whenever
required under this Section
2
to
effect the registration of any Registrable Securities, the Company shall,
as
expeditiously as reasonably possible:
(a) prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its commercially reasonable efforts to
cause
such registration statement to become effective and, upon the request of
the
Holders of a majority of the Registrable Securities registered thereunder,
keep
such registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
registration statement has been completed; provided,
however,
that
such one hundred twenty (120) day period shall be extended for a period of
time
equal to the period the Holder refrains, at the request of an underwriter
of
Common Stock (or other securities) of the Company, from selling any securities
included in such registration;
(b) prepare
and file with the SEC such amendments and supplements to such registration
statement, and the prospectus used in connection with such registration
statement, as may be necessary to comply with the Securities Act in order
to
enable the disposition of all securities covered by such registration
statement;
(c) furnish
to the selling Holders such numbers of copies of a prospectus, including
a
preliminary prospectus, as required by the Securities Act, and such other
documents as the Holders may reasonably request in order to facilitate their
disposition of their Registrable Securities;
(d) use
its
commercially reasonable efforts to register and qualify the securities covered
by such registration statement under such other securities or blue-sky laws
of
such jurisdictions as shall be reasonably requested by the selling Holders;
provided
that
the
Company shall not be required to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions, unless
the Company is already subject to service in such jurisdiction and except
as may
be required by the Securities Act;
6
(e) in
the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
with
the underwriter(s)
of such
offering;
(f) use
its
commercially reasonable efforts to cause all such Registrable Securities
covered
by such registration statement to be listed on a national securities exchange
or
trading system and each securities exchange and trading system (if any) on
which
similar securities issued by the Company are then listed;
(g) promptly
make available for inspection by the selling Holders, any
underwriter(s)
participating in any disposition pursuant to such registration statement,
and
any attorney or accountant or other agent retained by any such underwriter
or
selected by the selling Holders, all financial and other records, pertinent
corporate documents, and properties of the Company, and cause the Company’s
officers, directors, employees, and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant, or agent,
in each
case, as necessary or advisable to verify the accuracy of the information
in
such registration statement and to conduct appropriate due diligence
in
connection therewith;
(h) notify
each selling Holder, promptly after the Company receives notice thereof,
of the
time when such registration statement has been declared effective or a
supplement to any prospectus forming a part of such registration statement
has
been filed; and
(i) after
such registration statement becomes effective, notify each selling Holder
of any
request by the SEC that the Company amend or supplement such registration
statement or prospectus.
2.5 Furnish
Information.
It
shall be a condition precedent to the obligations of the Company to take
any
action pursuant to this Section
2
with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as is reasonably required to effect the registration of such Holder’s
Registrable Securities.
2.6 Expenses
of Registration.
All
expenses (other than Selling Expenses) incurred in connection with
registrations, filings, or qualifications pursuant to Section 2,
including all registration, filing, and qualification fees; printers’ and
accounting fees; fees and disbursements of counsel for the Company; and the
reasonable fees and disbursements of one counsel for the selling
Holders (“Selling
Holder Counsel”),
shall
be borne and paid by the Company; provided,
however,
that
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section
2.1 if
the
registration request is subsequently withdrawn at the request of the Holders
of
a majority of the Registrable Securities to be registered (in which case
all
selling Holders shall bear such expenses pro rata based upon the number of
Registrable Securities that were to be included in the withdrawn registration),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one registration pursuant to Section
2.1(a)
or
Section
2.1(b),
as the
case may be; provided
further
that if,
at the time of such withdrawal, the Holders shall have learned of a material
adverse change in the condition, business, or prospects of the Company from
that
known to the Holders at the time of their request and have withdrawn the
request
with reasonable promptness after learning of such information then the Holders
shall not be required to pay any of such expenses and shall not forfeit their
right to one registration pursuant to Section
2.1(a)
or
Section
2.1(b).
All
Selling Expenses relating to Registrable Securities registered pursuant to
this
Section
2
shall be
borne and paid by the Holders pro rata on the basis of the number of Registrable
Securities registered on their behalf.
7
2.7 Delay
of Registration.
No
Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any registration pursuant to this Agreement as the result
of
any controversy
that might arise with respect to the interpretation or implementation of
this
Section
2.
2.8 Indemnification.
If any
Registrable Securities are included in a registration statement under this
Section
2:
(a) To
the
extent permitted by law, the Company will indemnify and hold harmless each
selling Holder, and the partners, members, officers, directors, and stockholders
of each such Holder; legal counsel and accountants for each such Holder;
any
underwriter (as defined in the Securities Act) for each such Holder; and
each
Person, if any, who controls such Holder or underwriter within the meaning
of
the Securities Act or the Exchange Act, against any Damages, and the Company
will pay to each such Holder, underwriter, controlling Person, or other
aforementioned Person any legal or other expenses reasonably incurred thereby
in
connection with investigating or
defending any
claim
or
proceeding from which Damages may result, as such expenses are incurred;
provided,
however,
that
the indemnity agreement contained in this Section
2.8(a)
shall
not apply to amounts paid in settlement of any such claim
or
proceeding if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld, nor shall the Company be
liable for any Damages to the extent that they arise out of or are based
upon
actions or omissions made in reliance upon and in conformity with written
information furnished by or on behalf of any such Holder, underwriter,
controlling Person, or other aforementioned Person expressly for use in
connection with such registration.
(b) To
the
extent permitted by law, each selling Holder, severally and not jointly,
will
indemnify and hold harmless the Company, and each of its directors, each
of its
officers who has signed the registration statement, each Person (if any),
who
controls the Company within the meaning of the Securities Act, legal counsel
and
accountants for the Company, any underwriter (as defined in the Securities
Act),
any other Holder selling securities in such registration statement, and any
controlling Person of any such underwriter or other Holder, against any Damages,
in each case only to the extent that such Damages arise out of or are based
upon
actions or omissions made in reliance upon and in conformity with written
information furnished by or on behalf of such selling Holder expressly for
use
in connection with such registration; and each such selling Holder will pay
to
the Company and each other aforementioned Person any legal or other expenses
reasonably incurred thereby in connection with investigating or
defending any
claim
or
proceeding from which Damages may result, as such expenses are incurred;
provided,
however,
that
the indemnity agreement contained in this Section
2.8(b)
shall
not apply to amounts paid in settlement of any such claim
or
proceeding if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; and provided
further
that in
no event shall the aggregate amounts payable by any Holder by way of indemnity
or contribution under Sections
2.8(b)
and
2.8(d) exceed
the proceeds from the offering received
by such Holder (net
of
any Selling Expenses
paid by
such Holder),
except
in the case of fraud or willful misconduct by such Holder.
8
(c) Promptly
after receipt by an indemnified party under this Section 2.8 of
notice
of the commencement of any action (including any governmental action) for
which
a party may be entitled to indemnification hereunder, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party
under this Section
2.8,
give the
indemnifying party notice of the commencement thereof. The indemnifying party
shall have the right to participate in such action and, to the extent the
indemnifying party so desires, participate jointly with any other indemnifying
party to which notice has been given, and to assume the defense thereof with
counsel mutually satisfactory to the parties; provided,
however,
that an
indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain
one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such action. The failure to give notice to
the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section
2.8,
to the
extent that such failure materially prejudices the indemnifying party’s ability
to defend such action. The failure to give notice to the indemnifying party
will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section
2.8.
(d) To
provide for just and equitable contribution to joint liability under the
Securities Act in any case in which either (i) any party otherwise entitled
to
indemnification hereunder makes a claim for indemnification pursuant to this
Section
2.8
but it
is judicially determined (by the entry of a final judgment or decree by a
court
of competent jurisdiction and the expiration of time to appeal or the denial
of
the last right of appeal) that such indemnification may not be enforced in
such
case, notwithstanding the fact that this Section
2.8
provides
for indemnification in such case, or (ii) contribution under the Securities
Act
may be required on the part of any party hereto for which indemnification
is
provided under this Section 2.8,
then,
and in each such case, such parties will contribute to the aggregate losses,
claims, damages, liabilities, or expenses to which they may be subject (after
contribution from others) in such proportion as is appropriate to reflect
the
relative fault of each
of
the
indemnifying party and the indemnified party in connection with the statements,
omissions, or other actions that resulted in such loss, claim, damage,
liability, or expense, as well as to reflect any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or allegedly untrue statement of a material fact, or the
omission or alleged omission of a material fact, relates to information supplied
by the indemnifying party or by the indemnified party and the parties’ relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission; provided,
however,
that,
in any such case, (x) no Holder will be required to contribute any amount
in
excess of the public offering price of all such Registrable Securities offered
and sold by such Holder pursuant to such registration statement, and (y)
no
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation; and provided
further
that in
no event shall a Holder’s liability pursuant to this Section
2.8(d),
when
combined with the amounts paid or payable by such Holder pursuant to
Section
2.8(b),
exceed
the proceeds from the offering received
by such Holder (net
of
any Selling Expenses paid
by such
Holder),
except
in the case of willful misconduct or fraud by such Holder.
9
(e) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall
control.
(f) Unless
otherwise superseded by an underwriting agreement entered into in connection
with the underwritten public offering, the obligations of the Company and
Holders under this Section
2.8
shall
survive the completion of any offering of Registrable Securities in a
registration under this Section
2,
and
otherwise shall survive the termination of this Agreement.
2.9 Reports
Under Exchange Act.
With a
view to making available to the Holders the benefits of SEC Rule 144 and
any
other rule or regulation of the SEC that may at any time permit a Holder
to sell
securities of the
Company to the public without registration or pursuant to a registration
on Form
S-3, the Company shall:
(a) make
and
keep available
adequate current public
information,
as
those terms are understood and defined in SEC Rule 144, at all
times;
(b) use
commercially reasonable efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities
Act and
the Exchange Act (at any time after the Company has become subject to such
reporting requirements); and
(c) furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith
upon request (i) to
the
extent accurate, a
written
statement by the Company that it has complied with the reporting requirements
of
SEC Rule 144, the Securities Act, and the Exchange Act, or that it qualifies
as
a registrant whose securities may be resold pursuant to Form S-3 (at any
time
after the Company so qualifies); (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by
the Company; and (iii) such other information as may be reasonably requested
in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration (at any time after the
Company has become subject to the reporting requirements under the Exchange
Act)
or pursuant to Form
S-3
(at any time after the Company so qualifies to use such form).
10
2.10 Limitations
on Subsequent Registration Rights.
From
and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities
then
outstanding, enter into any agreement with any holder or prospective holder
of
any securities of the Company that (i) would allow such holder or
prospective holder (i) to include such securities in any registration unless,
under the terms of such agreement, such holder or prospective holder may
include
such securities in any such registration only to the extent that the inclusion
of such securities will not reduce the number of the Registrable Securities
of
the Holders that are included or (ii) allow such holder or prospective holder
to
initiate a demand for registration of any securities held by such holder
or
prospective holder.
2.11 Term.
The
agreements of the Company contained in this Agreement shall continue in full
force and effect so long as any Holder holds any Notes or Registrable
Securities, but shall terminate with respect to each Holder when such Holder
no
longer holds any Notes or Registrable Securities.
3. Miscellaneous.
3.1 Successors
and Assigns.
The
rights under this Agreement
may be assigned
(but
only
with all related obligations)
by
a
Holder to a transferee of
Notes or
Registrable Securities;
provided, however, that (x) the Company is, within a reasonable time after
such
transfer, furnished with written notice of the name and address of such
transferee and the Registrable Securities
or Notes
with respect to which
such
rights
are
being
transferred; and (y) such transferee agrees in
a
written instrument delivered
to
the
Company
to be
bound by and
subject to the
terms
and
conditions of
this
Agreement.
The
terms and conditions of this Agreement inure to the benefit of and are binding
upon the respective successors and permitted assignees of the parties. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and permitted
assignees any rights, remedies, obligations or liabilities under or by reason
of
this Agreement, except as expressly provided herein.
3.2 Governing
Law. This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of Delaware, regardless of the laws that might otherwise govern
under
applicable principles of conflicts of law.
3.3 Counterparts;
Facsimile.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument. This Agreement may also be executed and delivered by facsimile
signature and in two or more counterparts, each of which shall be deemed
an
original, but all of which together shall constitute one and the same
instrument.
3.4 Titles
and Subtitles.
The
titles and subtitles used in this Agreement are for convenience only and
are not
to be considered in construing or interpreting this Agreement.
11
3.5 Notices.
All
notices and other communications given or made pursuant to this Agreement
shall
be in writing and shall be deemed effectively given
upon the
earlier of actual receipt or: (i) personal delivery to the party to be notified;
(ii) when sent, if sent by electronic mail or facsimile during the recipient’s
normal business hours, and if not sent during normal business hours, then
on the
recipient’s next business day; (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid;
or (iv)
one (1) business
day
after
the
business day of
deposit
with a nationally recognized overnight courier, freight prepaid, specifying
next-day delivery, with written verification of receipt. All communications
shall be sent to the respective parties at their addresses as set forth on
Schedule
A
hereto,
or to the
principal office of the Company and to the attention of the Chief Executive
Officer, in the case of the Company, or to such
email address, facsimile number, or address as subsequently modified by written
notice given in accordance with this Section
3.5.
If
notice is given to the Company, a copy shall also be sent to Smith, Anderson,
Blount, Dorsett, Xxxxxxxx & Xxxxxxxx, LLP, 0000 Xxxxxxxx Xxxxxxx Xxxxxx,
Xxxxxxx, Xxxxx Xxxxxxxx 00000-0000, Attention: Xxxxxxxx X. Xxxxxxxxx, (000)
000-0000 (facsimile).
3.6 Amendments
and Waivers.
Any
term
of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, and
either retroactively or prospectively) only with the written consent of the
Company and the holders of a majority of the principal amount of the Notes
then
outstanding, or upon conversion of the Notes, a majority of the Registrable
Securities then outstanding.
Any
amendment, termination, or waiver effected in accordance with this Section
3.6
shall be
binding on all parties hereto, regardless of whether any such party has
consented thereto. No waivers of or exceptions to any term, condition, or
provision of this Agreement, in any one or more instances, shall be deemed
to be
or construed as a further or continuing waiver of any such term, condition,
or
provision.
3.7 Severability.
In
case
any one or more of the provisions contained in this Agreement is for any
reason
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of this
Agreement, and such invalid, illegal, or unenforceable provision shall be
reformed and construed so that it will be valid, legal, and enforceable to
the
maximum extent permitted by law.
3.8 Aggregation
of Stock. All
shares of Registrable Securities held or acquired by Affiliates shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement and such Affiliated persons may apportion such
rights as among themselves in any manner they deem appropriate.
3.9 Entire
Agreement.
This
Agreement (including any Schedules and Exhibits hereto) constitutes the full
and
entire understanding and agreement among
the
parties with respect to the subject matter hereof, and any other written
or oral
agreement relating to the subject matter hereof existing between the parties
is
expressly canceled.
3.10 Delays
or Omissions.
No
delay or omission to exercise any right, power, or remedy accruing to any
party
under this Agreement, upon any breach or default of any other party under
this
Agreement, shall impair any such right, power, or remedy of such nonbreaching
or
nondefaulting party, nor shall it be construed to be a waiver of or acquiescence
to any such breach or default, or to any similar breach or default thereafter
occurring, nor shall any waiver of any single breach or default be deemed
a
waiver of any other breach or default theretofore or thereafter occurring.
All
remedies, whether under this Agreement or by law or otherwise afforded to
any
party, shall be cumulative and not alternative.
[Remainder
of Page Intentionally Left Blank]
12
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date
first
written above.
SMART
ONLINE, INC.
By:
/s/ Xxxxx X.
Xxxxxxx
Name:
Xxxxx X.
Xxxxxxx
Title:
President and
CEO
INVESTORS:
|
CRYSTAL
MANAGEMENT LTD.
|
By:
/s/ Xxxxx
Xxxxxxxx
Name:
Xxxxx
Xxxxxxxx
Title:
ATLAS
CAPITAL S.A.
By:
/s/ X.
Xxxxxx
/s/ X.
Xxxx
Name:
X.
Xxxxxx X.
Xxxx
Title:
Management General
Management
XXXXXXX
XXXX
/s/
Xxxxxxx X.
Xxxx
THE
BLUELINE FUND
By:
/s/ P.
Pouponnot
Name:
Pouponnot,
Philippe
Title:
13
SCHEDULE
A
Investors
|
Crystal
Management Ltd.
Xxxxxx
Xxxxx, Adv.
Gibor
Sport House (28th floor)
7,
Menahem Begin (Betzalel) St.
Ramat
Gan 00000
Xxxxxx
Fax.:
x000 (0) 000-0000
|
|
Xxxxxxx
Xxxx
0000
Xxxx Xxxxxxxxxx Xxxx
Xxxx
Xxxxx, XX 00000
Fax:
|
|
Atlas
Capital, X.X.
Xxx
xx Xxxxx 000, XX - 0000
Xxxxxx
Xxxxxxxxxxx
Fax:
|
|
The
Blueline Fund
Xxxxxx
Xxxxx
Xxxx
Xxxxxx
X.X.
Xxx 000 XX
Xxxxxx
Town, Grand Cayman
Cayman
Islands
Fax:
|
14
