Exhibit 10.28
FORM OF
SUBSCRIPTION AGREEMENT
Smart Online, Inc.
0000 Xxxxxxxx Xxxxxxx
0xx Xxxxx
Xxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Gentlemen:
(1) Pursuant to prior understandings and discussions, the
undersigned ("Subscriber") hereby agrees to purchase from Smart Online, a
Delaware corporation (the "Company"), for a purchase price of Five Dollars
($5.00) per share the number of shares of Common Stock, par value $0.001 per
share ("Common Stock") set forth on the signature page of this Agreement. (The
Common Stock is sometimes hereinafter referred to collectively as the
"Securities.") Subscriber hereby acknowledges (i) that this subscription shall
not be deemed to have been accepted by the Company until the Company indicates
its acceptance by returning to Subscriber an executed copy of this subscription,
and (ii) that acceptance by the Company of this subscription is conditioned upon
the information and representations of Subscriber hereunder being complete, true
and correct as of the date of this subscription and as of the date of closing of
sale of the Securities to Subscriber. As a condition to Subscriber's purchase of
the Securities pursuant to this Agreement, Subscriber and the Company will
execute and deliver to one another a copy of the Registration Rights Agreement
in substantially the form attached hereto as APPENDIX A (the "Registration
Rights Agreement") and a Dribble Out Agreement in the form attached hereto as
APPENDIX B (the "Dribble Out Agreement").
(2) Until actual delivery of the purchase price to the Company and
acceptance by the Company of the purchase price and this Subscription Agreement,
the Company shall have no obligation to Subscriber. The Company may revoke a
prior acceptance of this Subscription Agreement at any time prior to delivery to
and acceptance by the Company of the purchase price for the Securities.
(3) Subscriber hereby represents and warrants to the Company as
follows:
(a) DISCLOSURE. Subscriber has carefully reviewed the
Summary Private Placement Memorandum and Draft Registration Statement, including
financial information, provided by the Company, including all risk factors, and
fully understands all risks associated with investment in the Company,
including, without limitation, the risks posed by prior disclosures made by the
company to its shareholders and investors in connection with a reorganization
and private placement, and the remedies such shareholders have, including the
company's planned rescission offer.
(b) AUTHORIZATION. Subscriber has full power and authority
to enter into this Agreement. This Agreement constitutes Subscriber's valid and
legally binding obligation, enforceable in accordance with its terms except as
limited by (i) applicable bankruptcy, insolvency, receivership, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) general principals of equity, the
application of which may deny the Company the right to specific performance,
injunctive relief and other equitable remedies.
(c) EXPERIENCE. Subscriber is experienced in evaluating and
investing in private placement transactions of securities of technology
companies such as the Company, has such knowledge and experience in financial
and business matters that Subscriber is capable of evaluating the merits and
risks of Subscriber's investment in the Securities, is able to bear the economic
risk of the investment and is prepared to hold the shares for an indefinite
period of time.
(d) INVESTMENT. Subscriber is acquiring the Securities for
investment for Subscriber's own account and not with a view to, or for resale in
connection with, any distribution thereof, and Subscriber has no present
intention of selling or distributing the Securities. Subscriber does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person with
respect to any of the Securities other than as set forth in this Agreement.
Subscriber understands that the Securities to be purchased by Subscriber have
not been registered under the Securities Act of 1933, as amended (the "Act") by
reason of a specific exemption from the registration provisions of the Act which
depends upon, among other things, the bona fide nature of the investment intent
as expressed herein.
(e) RELIANCE UPON SUBSCRIBER REPRESENTATIONS. Subscriber
understands that the Securities are not registered under the Act on the grounds
that the sale provided for in this Agreement and the issuance of Securities
hereunder is being made in reliance upon an exemption from the registration
requirements of the Act pursuant to Section 4(2) thereof as a transaction by an
issuer of Securities not involving a public offering or pursuant to Section 4(6)
thereof as a transaction by an issuer of securities solely to accredited
investors, and is similarly exempt under applicable state securities laws, and
that the Company's reliance on such exemption is predicated on Subscriber's
representations as set forth in this Agreement.
(f) RESTRICTED SECURITIES. Subscriber acknowledges that the
Securities have not been registered under the Act or any applicable state
securities law and that the Securities may not be sold, assigned, pledged,
hypothecated or transferred, unless there exists an effective registration
statement therefor under the Act and all applicable state securities laws or the
Company has received an opinion of counsel, reasonably acceptable to counsel for
the Company, or other reasonable assurances, that such sale, assignment, pledge,
hypothecation or transfer is exempt from registration. Subscriber understands
that in the absence of an effective registration statement covering the
Securities or an exemption therefrom under the Act and all applicable state
securities laws, the Securities must be held indefinitely. In particular,
Subscriber is aware that the Securities may not be sold pursuant to Rule 144
promulgated under the Act, unless all conditions of Rule 144 are met. Among the
conditions for the use of Rule 144 may be the availability of current and
adequate information to the public about the Company. Such information is not
now available and, except as set forth in the Registration Rights Agreement, the
Company has no obligation to make such information available. Notwithstanding
the foregoing, no opinion of counsel shall be required by the Company in
connection with the transfer of the Securities to an entity that is a direct or
indirect wholly-owned subsidiary of Subscriber.
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(g) LEGENDS.
(i) Each certificate representing the Securities
shall, in addition to any legends required elsewhere, bear the following legend
as appropriate for stock certificates and warrant agreements:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
TRANSFERRED UNLESS THERE EXISTS AN EFFECTIVE REGISTRATION STATEMENT
THEREFOR UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
APPLICABLE STATE SECURITIES LAWS OR THE ISSUER HEREOF HAS RECEIVED AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL OF THE ISSUER,
THAT SUCH SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR TRANSFER IS EXEMPT
FROM REGISTRATION.
(ii) Each certificate representing Securities shall
also bear any legend required by any applicable state securities law or by any
other agreement to which the holder thereof is a party or by which the holder
thereof is bound.
(h) NO PUBLIC MARKET. Subscriber understands that no public
market now exists for any of the securities issued by the Company and that it is
uncertain whether a public market will ever exist for the Securities.
(i) ACCESS TO INFORMATION. Subscriber has received all
information that Subscriber considers necessary or appropriate for deciding
whether to purchase Securities. Subscriber has had an opportunity to ask
questions and receive answers from the Company's management regarding the terms
and conditions of the offering of the Securities and the business, properties,
prospects and financial condition of the Company and to obtain additional
information from the Company (to the extent that the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to Subscriber or
to which Subscriber had access.
(j) ACCREDITED INVESTOR. Subscriber recognizes it is
important under the Act and state securities law that the Company determine if
potential investors are "accredited investors," as defined in APPENDIX C
attached hereto. Subscriber represents that Subscriber is an "accredited
investor" by reason of the following: __________________________________
(indicate number from APPENDIX C). Subscriber further represents that Subscriber
is a citizen of the state of _______________________. Subscriber is not a
resident of any other jurisdiction.
(4) The representations, warranties, understandings, acknowledgments
and agreements in this Agreement are true and accurate as of the date hereof,
shall be true and accurate as of the date of the acceptance hereof by the
Company and shall survive thereafter.
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(5) This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of Delaware, as such laws are
applied by Delaware courts to agreements entered into and to be performed in
Delaware, and shall be binding upon Subscriber, the Subscriber's heirs, estate,
legal representatives, successors and assigns and shall inure to the benefit of
the Company and its successors and assigns.
(6) Subscriber agrees not to transfer or assign this Agreement, or
any of Subscriber's interest herein, without the express written consent of the
Company.
(7) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior or contemporaneous representations, warranties, agreements and
understandings in connection therewith. This Agreement may be amended only by a
writing executed by all parties hereto. This Agreement may be executed in one or
more counterparts.
(The remainder of this page is intentionally left blank.)
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IN WITNESS WHEREOF, Subscriber has executed this Subscription Agreement
this ____ day of ___________, 2005.
SUBSCRIPTION
________________ Number of Shares of Common Stock
$_______________ Total payment enclosed
______________________________ ______________________________
(Address) (Name of Subscriber)
______________________________ ______________________________
______________________________ (Signature)
______________________________
(Address)
______________________________
Social Security Number
ACCEPTANCE
The foregoing Subscription Agreement is accepted on this the ____ day of
____________, 2005.
SMART ONLINE, INC.
By: ___________________________
Xxxxxxx Xxxxx, President
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APPENDIX A
----------
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
________________, 2005, by and among Smart Online, Inc., a Delaware corporation
with its headquarters located at 0000 Xxxxxxxx Xxxxxxx, Xxxxxx, Xxxxx Xxxxxxxx
00000 (the "Company"), and the undersigned (together with its affiliates and any
assignees or transferees of all of its respective rights hereunder, the
"Investors").
WHEREAS:
A. In connection with the Subscription Agreement by and among the
parties hereto dated as of the date hereof (the "Subscription Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Investors shares of the Company's common stock
(the "Common Stock"), upon the terms and subject to the limitations and
conditions set forth in such Subscription Agreement; and
B. To induce the Investors to execute and deliver the Subscription
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Investors hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall
have the following meanings:
(i) "Investors" means any person who acquires shares
of Common Stock of the Company, or any security of the Company
pursuant to which the holder has a right to receive shares of
Common Stock of the Company upon exercise or conversion of such
security, who agrees to become bound by the provisions of this
Agreement or a counterpart of this Agreement, and permitted
transfers and assignees of Investors in accordance with Section
9 hereof.
(ii) "Listing Date" the date on which the Common
Stock of the Company becomes listed on the OTCBB.
(iii) "OTCBB" the Over-the-Counter Bulletin Board.
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(iv) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the 1933
Act and pursuant to Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous basis
("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(v) "Registrable Securities" means (x) all shares of
Common Stock sold by the Company pursuant to the Subscription
Agreement or pursuant to a warrant issued to Investor at the
time of purchase of such shares of common stock; and (z) all
shares of capital stock issued or issuable as a dividend on or
in exchange for or otherwise with respect to the foregoing.
(vi) "Registration Statement" means a registration
statement of the Company under the 1933 Act.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Subscription
Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. No later than April 30, 2005
(the "Target Filing Date"), the Company shall prepare and file with the SEC a
Registration Statement on Form X-0, XX-0 or SB-2 as determined by the Company in
its sole discretion (or, if such Forms are not then available, on such form of
Registration Statement as is then available) to effect a registration of the
Registrable Securities covering the resale of the Registrable Securities. The
Company may also include in such Registration Statement in its sole discretion,
shares for sale by the Company or the Company may file a separate Registration
Statement covering shares to be sold by the Company before, at the same time or
after the Company files a Registration Statement covering resale of Registrable
Securities by Investors.
(b) PAYMENTS BY THE COMPANY. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
reasonably practicable. If (i) the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not filed by the Target Filing Date, then the Company will make
payments to the Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(b) as liquidated damages by reason of any
such delay in their ability to sell the Registrable Securities (which remedy
shall be exclusive of any other remedies available at law or in equity). The
Company shall pay to each holder of Registrable Securities an amount (the
"Damage Amount") equal to the product obtained by multiplying (i) the purchase
price (the "Purchase Price") paid for the Registrable Securities by the
Investor, by (ii) the Applicable Percentage (as defined below) by (iii) the
number of 30-day periods (prorated for partial periods) after the Target Filing
Date that the Registration Statement covering the Registrable Securities of the
Investor is actually filed; provided, however, that there shall be excluded from
such period any delays which are attributable (i) to Investor, or any other
Investor who holds Registrable
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Securities, with respect to information relating to the Investors, including,
without limitation, the plan of distribution or beneficial ownership of
securities, or (ii) to the failure of any Investor (or legal counsel to the
Investor) to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably prompt manner or (iii) any person or entity
named in the Prospectus as an underwriter. The term "Applicable Percentage"
means one half of one percent. (For example, if the Registration Statement is
filed thirty days after the Target Filing Date, the Company would pay as the
Damage Amount $500 for each $100,000 of the Purchase Price. In the sole
discretion of the Company, the Company may issue to Investor in lieu of the cash
payment described above, a number of shares of Common Stock of the Company equal
to the quotient derived by dividing (i) the Damage Amount, by (ii) Purchase
Price per share (as defined above).
(c) ELIGIBILITY FOR FORM S-3; CONVERSION TO FORM S-3. If the
Company meets the registration eligibility and transaction requirements for the
use of Form S-3 (or any successor form) for registration of the offer and sale
by the Investor and any other Investors of their Registrable Securities before
the earlier of the dates stated in clauses (ii) and (iii) in the definition of
the Registration Period (as defined in Section 3(a) below), the Company shall
file a Registration Statement on Form S-3 (or such successor form) with respect
to the Registrable Securities covered by the Registration Statement, filed
pursuant to Section 2(a) (and include in such Registration Statement on Form S-3
the information required by Rule 429 under the 0000 Xxx) or convert the
Registration Statement, filed pursuant to Section 2(a) to a Form S-3 pursuant to
Rule 429 under the 1933 Act and cause such Registration Statement (or such
amendment) to be declared effective as soon as practicable after filing. If the
Company becomes eligible to use Form S-3 during the Registration Period, the
Company agrees to use reasonable efforts to file all reports required to be
filed by the Company with the SEC in a timely manner so as to remain eligible or
become eligible, as the case may be, and thereafter to maintain its eligibility,
for the use of Form S-3. After such Registration Statement on Form S-3 become
effective, subject to Section 3 hereof, the Company shall maintain such
Registration Statement in effect until the earlier of clauses (ii) and (iii) in
the definition of Registration Period in Section 3(a) hereof.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
(a) The Company shall prepare promptly, and use reasonable
efforts to file with the SEC not later than the Target Filing Date, a
Registration Statement with respect to the number of Registrable Securities
provided in Section 2(a), and thereafter use its best efforts to cause such
Registration Statement relating to Registrable Securities to become effective as
soon as possible after such filing, and use reasonable efforts to keep the
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) 270 days after the effective date of the
Registration Statement; (ii) the date on which all of the Registrable Securities
have been sold by Investor and (iii) the date on which the Registrable
Securities of Investor (in the opinion of counsel to the Company) may be
immediately sold to the public without registration or restriction (including
without limitation as to volume by Investor) under the 1933 Act (the
"Registration Period"), which Registration Statement (including any
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amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading. The right of other Investors to have the Registration Statement
remain in effect shall not confer any rights on Investor.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the Investor as set forth
in the Registration Statement.
(c) If requested, the Company shall furnish to one legal
counsel for all Investors whose Registrable Securities are included in a
Registration Statement (i) promptly (but in no event more than two (2) business
days) after the same is prepared and publicly distributed, filed with the SEC,
or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) promptly (but in no event more than
two (2) business days) after the Registration Statement is declared effective by
the SEC, such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by Investor. The Company will immediately notify
one legal counsel representing all Investors where Registrable Securities are
included in a Registration Statement by facsimile of the effectiveness of each
Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC (which comments
shall promptly be made available to one legal counsel representing all Investors
whose Registration Securities are included in a Registration Statement upon
request), with a view towards causing the Registration Statement or any
amendment thereto to be declared effective by the SEC as soon as reasonably
practicable, and (ii) promptly file an acceleration request as soon as
reasonably practicable (but in no event more than two (2) business days)
following the resolution or clearance of all SEC comments. If applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review, the Company shall promptly file
with the SEC a final prospectus as soon as reasonably practicable (but in no
event more than two (2) business days) following receipt by the Company from the
SEC of an order declaring the Registration Statement effective.
(d) The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority of the
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Registrable Securities being offered by the Registration Statement reasonably
request or qualify for an exemption for resale afforded companies listed in a
Standard & Poor's corporate handbook or similar publications, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be reasonably necessary to maintain such
registrations and qualifications in effect during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (i) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (ii) subject itself
to general taxation in any such jurisdiction, (iii) file a general consent to
service of process in any such jurisdiction, (iv) provide any undertakings that
cause the Company undue expense or burden, (v) make any change in its charter or
bylaws, or (vi) spend more than $10,000 in filing fees and legal fees and
expenses for such "blue sky" compliance.
(e) If the Company has not selected an underwriter for the
offering, and in the event Investors who hold a majority of the Registrable
Securities being offered by the Registration Statement select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
(f) As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than sixty (60) consecutive
trading days (or a total of not more than ninety (90) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
(g) The Company shall use its reasonable best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
any Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order within a reasonable time and to notify
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each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof.
(h) The Company shall permit a single firm of legal counsel
designated by Investors who own a majority of the Registrable Securities offered
under the Registration Statement to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC. The role of such legal counsel to the Investors shall be to confirm
that the sections of such Registration Statement covering information with
respect to the Investors, the Investor's beneficial ownership of securities of
the Company and the Investors intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by each of
the Investors, subject to review and approval by the Company and its legal
counsel. Such legal counsel for the Investors shall not have the right to
require changes to the description of the Company, its business or other matters
not related to selling stockholders.
(i) The Company shall make generally available to its
security holders as soon as practicable, but not later than ninety (90) days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 0000 Xxx) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
(j) Until the Registration Statement ceases to be effective,
the Company shall make available for inspection following reasonable prior
written notice by (i) any underwriter participating in any disposition pursuant
to a Registration Statement, (ii) one firm of attorneys or other agents retained
by the Investors who own a majority of the Registrable Securities, and (iii) one
firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the release of such Records is ordered
pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or (b) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement. The Company shall not be required to allow such
inspection more than once per calendar year. Following such due diligence
review, Investor may require the Company to withdraw the Registrable Securities
of such Investor from the Registration Statement, if the Company does not make
changes to the Registration Statement requested by such Investor.
(k) The Company shall not be required to disclose any
confidential information in such Records to any Inspector or to any Investor
pursuant to this Agreement until and unless such Inspector and Investor shall
have entered into confidentiality agreements (in
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form and substance satisfactory to the Company) with the Company with respect
thereto. Each Investor agrees that it shall, upon learning that disclosure of
such Records or other information is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. Nothing herein (or in any other confidentiality agreement
between the Company and any Investor) shall be deemed to limit the Investor's
ability to sell Registrable Securities in a manner which is otherwise consistent
with applicable laws and regulations.
(l) The Company shall (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on each national
securities exchange, if any, on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) to the extent the securities of the same class or series are not then
listed on a national securities exchange, to use reasonable efforts to arrange
for at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
(m) The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement.
(n) At the request of the holders of a majority of the
Registrable Securities offered pursuant to the Registration Statement, the
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and any
prospectus used in connection with the Registration Statement as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement.
(o) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
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(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
(c) In the event the Company or Investors holding a majority
of the Registrable Securities being registered determine to engage the services
of an underwriter, each Investor agrees to enter into and perform such
Investor's obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
(d) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(f) or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor if requested by the Company (i)
agrees to sell such Investor's Registrable Securities on the basis provided in
any underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to Section 5 below.
Notwithstanding the foregoing, there is no obligation on the part of the Company
or any underwriter to include Registrable Securities of Investor in the
securities to be purchased or sold by the underwriter.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Investors holding a majority of the
Registrable Securities shall be
13
borne by the Company, provided the Company shall not be required to pay legal
fees and disbursements of such legal counsel in excess of $15,000.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any
underwriter (as defined in the 0000 Xxx) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement of a material fact in a Registration Statement or the omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any violation by the
Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(c) with respect to the number of
legal counsel, the Company shall reimburse the Indemnified Person, promptly as
such expenses are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person, or any of their legal counsel, expressly for use in
connection with the preparation of such Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified
14
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which
an Investor is participating, each such Investor agrees severally and not
jointly to indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other shareholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such shareholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor,
or its legal counsel, expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between
15
such Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority of the Registrable Securities included in the Registration Statement to
which the Claim relates (with the approval of a majority-in-interest of the
Investors), if the Investors are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied
16
with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act and
(ii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Subscription Agreement, and
(vi) such transferee shall not be a "U.S. Person" as that term defined in
Regulation S promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority of the Registrable Securities, except that any
person or entity who acquires Registrable Securities may become a part to this
Agreement by the Company and such person or entity signing a counterpart of this
Agreement. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. In the event the Company
becomes a subsidiary of any company whose Common Stock is publicly traded
("Holding Company"), and the Investor receives shares of Common Stock of such
Holding Company, all obligations of the Company under this Agreement shall
terminate upon such Holding Company assuming this Agreement, which may be done
without the consent or approval of Investor.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective
17
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Xxxxxxx Xxxxx
Smart Online, Inc.
Xxxx Xxxxxx Xxx 00000
Xxxxxxxx Xxxxxxxx Xxxx, XX 00000-0000
Telephone: (000) 000-0000
E-mail: xxxxxx@xx.xxxxxxxxxxx.xxx
With copies to:
Xxxxxxx Xxxxxxx & Xxxxxxxx, P.A.
Xxxx Xxxxxx Xxxxxx 00000
Xxxxxxxx Xxxxxxxx Xxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Email: xxxxxxxxx@x0xxxx.xxx
If to an Investor:
to the address set forth immediately below such
Investor's name on the signature pages to the
Subscription Agreement, or on the address set forth
immediately below such Investor's name on the agreement
entered into pursuant to Section 9 of this Agreement.
(c) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
(d) THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(e) In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
18
(f) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
(g) Subject to the requirements of Section 9 hereof, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
(h) The headings in this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
(j) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(k) Except as otherwise provided herein, all consents and
other determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable Securities,
determined as if the all options, warrants and convertible securities then
outstanding have been issued and/or converted into Registrable Securities.
(l) The Company and each Investor acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
parties acknowledge that the remedy at law for breach of its obligations under
this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach of any of the provisions under this Agreement, that the other
parties shall be entitled, in addition to all other available remedies in law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
(m) The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
19
(n) No Investor may bring any legal or other action or
proceeding for breach of this Agreement or arising out of any matter related to
this Agreement, unless the Investors who own a majority of the Registrable
Securities consent to the bringing of such action. Any claim may be settled by
the Company and the Investors who own a majority of the Registrable Securities.
[The Remainder of this Page is Blank.]
20
IN WITNESS WHEREOF, the Company and the undersigned Investors have
caused this Agreement to be duly executed as of the date on the first page of
this Agreement.
SMART ONLINE, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
INVESTOR:
___________________________________
By: _______________________________
Name: _____________________________
Title: ____________________________
Address: __________________________
___________________________________
Telephone: ________________________
Facsimile: ________________________
Email: ____________________________
Initial Number of Registrable Securities: __________________
21
APPENDIX B
----------
DRIBBLE OUT AGREEMENT
AGREEMENT dated as of ________________, 2005 between Smart Online, Inc.,
Delaware corporation (the "Company"), and _____________ (Subscriber").
WHEREAS, Subscriber has purchased shares of Common Stock (the "Purchased
Shares") from the Company and the Company desires Subscriber to agree to limit
its sales of the Purchased Shares in return for granting Subscriber the right to
have the Purchased Shares registered. The Purchased Shares are hereinafter
individually and collectively referred to as the "Securities").
NOW, THEREFORE, the parties hereby agree as follows:
(1) REGISTRATION OF WARRANT SHARES. The Company agrees to enter into
the Registration Rights Agreement with Subscriber.
(2) "DRIBBLE-OUT" AGREEMENT.
(a) In consideration for the Registration Rights Agreement,
Subscriber hereby agrees that, except as permitted under subsection (c) of this
Section, during the Dribble Out Period, as defined herein, Subscriber will not:
(i) Sell any of the Securities or other securities
of the Company or Holding Company received on account of ownership of the
Securities (the "Dribble-Out Securities").
(ii) Transfer, assign or otherwise dispose of any of
the Dribble-Out Securities.
(iii) Pledge, hypothecate or otherwise create a lien
on any of the Lock-Up Securities.
(iv) Loan to any person or entity any shares or other
securities of the Company or Holding Company.
(v) Sell short any shares or other securities of the
Company or Holding Company.
(vi) Acquire a put option or grant a call option with
respect to any shares or other securities of the Company or Holding Company.
(vii) Enter into any agreement concerning any of the
foregoing transactions, or otherwise facilitate any other person conducting any
of the foregoing transactions.
22
(b) For purposes of this Section, Holding Company shall mean
any company whose stock is publicly traded (i) with which the Company merges or
consolidates or (ii) of which the Company or its successor becomes a subsidiary.
For purposes of this Section, the Dribble Out Period shall mean the period
beginning on the date of this Agreement and ending six (6) months after the
effective date of the first registration statement of the Company that registers
for resale the Dribble-Out Securities (the "Effective Date"). Notwithstanding
the foregoing, after the Effective Date Subscriber may sell (if permitted under
a registration statement), during any rolling thirty-day period during the
Dribble Out Period, up to 25% of the Dribble-Out Securities owned by Subscriber
on the Effective Date. The Board of Directors of the Company or Holding Company
may terminate the Dribble Out Period or allow Subscriber to take a prohibited
action prior to termination of the Dribble Out Period with respect to some or
all of the Dribble-Out Securities owned by the Subscriber, if the Board provides
all other Subscribers of the Company or Holding Company who have the same
Dribble Out Period with the same termination or waiver at the same time and to
the same extent as for Subscriber.
(c) Notwithstanding the foregoing, provided the transferee
first signs an agreement on substantially the terms set forth herein and
reasonably acceptable to the Company or Holding Company, Subscriber may transfer
securities of the Company or Holding Company without payment or other
consideration: (i) if Subscriber is an individual, to any family member, (ii) if
Subscriber is a corporation, to any direct or indirect parent or subsidiary or
any shareholder of Subscriber, (iii) if Subscriber is a partnership, to any
partner of Subscriber, (iv) if Subscriber is a limited liability company, to any
member of Subscriber, and (v) if Subscriber is a trust, to any beneficiary of
such trust.
(d) Subscriber further agrees that before and after
termination of the Dribble Out Period, Subscriber will comply with all
securities laws, rules and regulations when purchasing or reselling securities
of the Company or Holding Company, including, without limitation, those
prohibiting sales and purchases of securities while in possession of material
nonpublic information.
(e) The Dribble-Out Securities of Subscriber shall have a
legend in form and substance acceptable to the Company and Holding Company
referring to the restrictions of this Agreement and the Company or Holding
Company may instruct the transfer agent of the Company or Holding Company to
stop any transfer of any securities in violation of this Agreement and may take
any other action required to avoid violation of this Agreement, including,
without limitation, obtaining an injunction.
(f) The provisions of this Section shall continue in effect
after the Dribble-Out Securities are registered pursuant to the Registration
Rights Agreement.
(g) STOP TRANSFER INSTRUCTIONS. Subscriber agrees that the
Company may issue instructions to its transfer agent that prohibit transfer in
violation of this Agreement.
(h) LEGENDS. The Company may place a legend on the Dribble
Out Securities referring to the restrictions contained in this Agreement.
23
(3) The representations, warranties, understandings, acknowledgments
and agreements in this Agreement are true and accurate as of the date hereof,
shall be true and accurate as of the date of the acceptance hereof by the
Company and shall survive thereafter.
(4) This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of Delaware, as such laws are
applied by Delaware courts to agreements entered into and to be performed in
Delaware, and shall be binding upon Subscriber, the Subscriber's heirs, estate,
legal representatives, successors and assigns and shall inure to the benefit of
the Company and its successors and assigns.
(5) Subscriber agrees not to transfer or assign this Agreement, or
any of Subscriber's interest herein, without the express written consent of the
Company.
(6) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior or contemporaneous representations, warranties, agreements and
understandings in connection therewith. This Agreement may be amended only by a
writing executed by all parties hereto. This Agreement may be executed in one or
more counterparts.
(The remainder of this page is intentionally left blank.)
24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SMART ONLINE, INC.
By: __________________________ By: ______________________
Xxxxxxx Xxxxx, President Name:_____________________
Title:____________________
Address: ________________
________________
________________
________________
25
APPENDIX C
An Accredited Investor is defined as follows:
(1) a natural person whose individual net worth, or joint net worth, with
that person's spouse, at the time of purchase exceeds $1,000,000;
(2) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year (the
year in which the purchase is made);
(3) any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of investing in the Company, whose purchase is directed
by a sophisticated person having such knowledge and experience in
financial and business matters that she is capable of evaluating the
risks and merits of investing in the Company;
(4) a director or executive officer of the Company;
(5) an organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(6) a bank as defined in the Securities Act of 1933 (the "Act"), or a
savings and loan association or other institution as defined in the Act
whether acting in its individual or fiduciary capacity; a broker or
dealer registered under the Securities Exchange Act of 1934; an
insurance company as defined in the Act; an investment company
registered under the Investment Company act of 1940 or a business
development company as defined in the Act; a Small Business Investment
Company licensed under the Small Business Investment Act of 1958; an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, which is either a bank, savings and loan
association, an insurance company, or registered investment adviser, or
if the employee benefit plan has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(7) a "private business development company" as defined in the Investment
Advisers Act of 1940; or
(8) an entity in which all of the equity owners are accredited investors.
