Exhibit 10.29
FORM OF
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.
1
(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
2
Percentage (as defined below) by (iii) the number of 30-day periods (prorated
for partial periods) after the Target Filing Date that the Registration
Statement covering the Registrable Securities of the Investor is actually filed;
provided, however, that there shall be excluded from such period any delays
which are attributable (i) to Investor, or any other Investor who holds
Registrable Securities, with respect to information relating to the Investors,
including, without limitation, the 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
3
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 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.
4
(d) The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority of the Registrable Securities
being offered by the Registration Statement reasonably request 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.
5
(g) The Company shall use its reasonable best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
any Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order within a reasonable time and to notify each Investor
who holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof.
(h) The Company shall permit a single firm of legal counsel
designated by Investors who own a majority of the Registrable Securities offered
under the Registration Statement to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC. The role of such legal counsel to the Investors shall be to confirm
that the sections of such Registration Statement covering information with
respect to the Investors, the Investor's beneficial ownership of securities of
the Company and the Investors intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by each of
the Investors, subject to review and approval by the Company and its legal
counsel. Such legal counsel for the Investors shall not have the right to
require changes to the description of the Company, its business or other matters
not related to selling stockholders.
(i) The Company shall make generally available to its
security holders as soon as practicable, but not later than ninety (90) days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 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.
6
(k) The Company shall not be required to disclose any
confidential information in such Records to any Inspector or to any Investor
pursuant to this Agreement until and unless such Inspector and Investor shall
have entered into confidentiality agreements (in form and substance satisfactory
to the Company) with the Company with respect thereto. Each Investor agrees that
it shall, upon learning that disclosure of such Records or other information is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential. Nothing herein
(or in any other confidentiality agreement between the Company and any Investor)
shall be deemed to limit the Investor's ability to sell Registrable Securities
in a manner which is otherwise consistent with applicable laws and regulations.
(l) The Company shall (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on each national
securities exchange, if any, on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) to the extent the securities of the same class or series are not then
listed on a national securities exchange, to use reasonable efforts to arrange
for at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
(m) The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement.
(n) At the request of the holders of a majority of the
Registrable Securities offered pursuant to the Registration Statement, the
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and any
prospectus used in connection with the Registration Statement as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement.
(o) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated
7
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor.
(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
8
of one counsel selected by the Investors holding a majority of the Registrable
Securities shall be borne by the Company, provided the Company shall not be
required to pay legal fees and disbursements of such legal counsel in excess of
$15,000.
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 Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
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 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
10
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 with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act and (ii) such other
11
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
12
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.
(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
13
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.
(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.]
14
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: __________________
15