UNITED STATES DISTRICT COURT
 
MIDDLE DISTRICT OF NORTH CAROLINA

   
   
MARY JANE BEAUREGARD, On Behalf of Herself and All Others Similarly Situated
         
Lead Plaintiff,
         
vs.
 
Civ. No. 07-CV-00785-WO-PTS
     
SMART ONLINE, INC., et al.
         
Defendants.
         
   
   

STIPULATION AND AGREEMENT OF PARTIAL CLASS SETTLEMENT

 
 

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This Stipulation and Agreement of Settlement, dated as of June 18, 2010, is made
and entered into pursuant to Rule 23 of the Federal Rules of Civil Procedure and
contains the terms of a settlement by and among Lead Plaintiff1on behalf of
herself and Members of the Settlement Class and the Settling Defendants, through
their respective counsel. This Stipulation is intended by the Settling Parties
to fully, finally, and forever resolve, discharge, and settle the Released
Claims against the Released Parties, upon and subject to the terms and
conditions hereof and subject to the approval by the Court.
 
I.
THE CLASS ACTION

 
On or after September 7, 2007, a class action, Gooden v. Smart Online, Inc., et
al., Civ. No. 07-CV-00785-WO-PTS (the “Action”), was filed in this Court on
October 18, 2007 as a class action alleging on behalf of purchasers of Smart
Online securities during a defined period of time violations of the federal
securities laws. The suit seeks relief on behalf of a class consisting of all
persons who purchased or otherwise acquired the publicly traded securities of
Smart Online, Inc. (“Smart Online” or the “Company”) during the Class Period and
who were damaged thereby. The class action seeks remedies under Section 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. §78j, and Securities & Exchange
Commission Rule 10b-5, 17 C.F.R. §240.10b-5, thereunder arising out of the
Defendants’ alleged misconduct.
 
By Order dated June 24, 2008, the Court appointed Mary Jane Beauregard as Lead
Plaintiff and approved her selection of Kahn Swick & Foti LLC2 and Brower Piven,
a Professional Corporation as Lead Counsel for the Class and S. Ranchor Harris,
III as Liaison Counsel for the Class.
 

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1 Capitalized terms are defined herein below at § 1. 
2 At the time of the appointment Kahn Swick & Foti LLC was known as Kahn
Gauthier Swick, LLC.

 
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The operative complaint in the Action is the Corrected Class Action Complaint
filed September 18, 2008 and captioned Beauregard v. Smart Online, Inc., et al.
 
II.
SETTLING DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY

 
The Settling Defendants have denied and continue to deny each and all of the
claims and contentions alleged by Lead Plaintiff. The Settling Defendants
expressly have denied and continue to deny all charges of wrongdoing or
liability against them or any of them arising out of any of the conduct,
statements, acts or omissions alleged, or that could have been alleged, in the
Action. The Settling Defendants also have denied and continue to deny, inter
alia, the allegations that Lead Plaintiff or Settlement Class Members have
suffered damage, that the prices of Smart Online securities were artificially
inflated by reason of alleged manipulation, misrepresentations, non-disclosures
or otherwise, or that Lead Plaintiff or the Settlement Class Members were harmed
by any of the conduct alleged in the Action.
 
Nonetheless, the Settling Defendants have concluded that further conduct of the
Action would be protracted, expensive, and distracting and that it is desirable
that the Action be fully and finally settled in the manner and upon the terms
and conditions set forth in this Stipulation. The Settling Defendants also have
taken into account the uncertainty and risks inherent in any litigation,
especially in complex cases like the instant Action. The Settling Defendants
have therefore determined that it is desirable that the Action be settled in the
manner and upon the terms and conditions set forth in this Stipulation.

 
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Neither this Stipulation nor any document referred to herein nor any action
taken to carry out this Stipulation is, may be construed as or may be used as an
admission by or against the Settling Defendants, or any of them, of any fault,
wrongdoing or liability whatsoever. Entering into or carrying out this
Stipulation (or the Exhibits hereto) and any negotiations or proceedings related
hereto shall not in any event be construed as, or be deemed to be evidence of,
an admission or concession with regard to Lead Plaintiff’s claims or contrary to
the Settling Defendants’ denials and defenses, and shall not be offered by any
of the Settling Parties or Settlement Class Members or received in evidence in
any action or proceeding in any court, administrative agency, or other tribunal
for any purpose whatsoever other than to enforce the provisions of this
Stipulation (and the Exhibits hereto) or the provisions of any related agreement
or release, or in any subsequent action against or by the Settling Defendants to
support a defense of res judicata, collateral estoppel, release, or other theory
of claim or issue preclusion or similar defense.
 
III.
CLAIMS OF LEAD PLAINTIFF AND BENEFITS OF SETTLEMENT

 
Lead Plaintiff believes that the claims asserted in the Action have merit.
However, Lead Plaintiff recognizes and acknowledges the expense and length of
continued proceedings which would be necessary to prosecute the Action against
the Defendants through trial and appeal. Lead Plaintiff has also taken into
account the uncertain outcome and the risk of any litigation, especially in
complex matters such as the Action, as well as the difficulties and delays
inherent in such litigation. Lead Plaintiff is also mindful of the inherent
problems of proof of, and possible defenses to, the violations asserted in the
Action. Lead Plaintiff believes that the Settlement set forth in this
Stipulation confers substantial immediate benefits upon and is in the best
interest of the Settlement Class.

 
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IV.
TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

 
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by Lead Plaintiff (for
herself and Settlement Class Members), and the Settling Defendants, by and
through their respective counsel or attorneys of record, that, subject to the
approval of the Court, the Action, and the Released Claims, shall be finally and
fully compromised, settled and released, and the Action shall be dismissed with
prejudice, upon and subject to the terms and conditions of the Stipulation, as
follows.
 
 
1.
Definitions

 
As used in the Stipulation the following terms have the meanings specified
below:
 
1.1           “Action” means Beauregard v. Smart Online, Inc., et al., Civ. No.
07-00785-WO-PTS, pending in the United States District Court for the Middle
District of North Carolina;
 
1.2           “Assignment Agreement” means the Agreement for Assignment of
Claims entered between Smart Online and Lead Plaintiff, pursuant to which Smart
Online assigns its claims against Sherb & Co., Jesup & Lamont, Serrano, Lustig,
Martin, and Doolan to Lead Plaintiff for the benefit of the Settlement Class;
 
1.3           “Authorized Claimant” means any Settlement Class Member whose
claim for recovery has been allowed pursuant to the terms of the Stipulation;
 
1.4           “Bar Order” means the provisions in the Judgments providing that
certain claims, as provided for in 15 U.S.C. §78u-4(f)(7) and under state and
federal law and as set forth in ¶4.3, are permanently and forever barred;
 
1.5           “Claimant” means any Class Member who submits a Proof of Claim and
Release in such form and manner, and within such time, as the Court shall
prescribe;

 
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1.6           “Claims Administrator” means a claims administration firm to be
selected by Lead Plaintiffs’ Counsel;
 
1.7           “Class Fee and Expense Application” means an application for
distributions from the Class Settlement Fund for: (a) an award of attorneys’
fees; (b) plus reimbursement of expenses incurred in connection with prosecuting
the Class Action; (c) reimbursement of time and expenses incurred in
administering the Settlement; (d) plus any interest on such attorneys’ fees and
expenses at the same rate and for the same periods as earned by the Settlement
Fund (until paid) as may be awarded by the Court; and (e) reimbursement of the
time and expenses of Lead Plaintiff in prosecuting the Action;
 
1.8           “Class Fee and Expense Award” means Lead Plaintiff’s attorneys’
fees and expenses with interest thereon, if and to the extent allowed by the
Court;
 
1.9           “Class Notice and Administration Fund,” means the fund established
for the payment of costs and expenses reasonably and actually incurred in
connection with providing notice to the Settlement Class, identifying and
locating Settlement Class Members, assisting with the filing of claims,
administering and distributing the Net Settlement Fund to Authorized Claimants,
processing Proof of Claim and Release forms and paying escrow fees and costs, if
any, pursuant to ¶2.16 below.
 
1.10         “Class Period” means the period from May 2, 2005 to September 28,
2007, inclusive;
 
1.11          “Class Settlement Fund” means the total settlement consideration,
consisting of the principal amount of $462,500 in cash, plus any interest earned
thereon, and the Smart Online Settlement Stock. The Class Settlement Fund will
be paid pursuant to ¶5.1-5.2 below;
 
1.12         “Complaint” means the Corrected Class Action Complaint filed
September 18, 2008 and captioned Beauregard v. Smart Online, Inc., et al.;

 
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1.13         “Court” means the United States District Court for the Middle
District of North Carolina;
 
1.14         “Defendants” means Smart Online and the Individual Defendants;
 
1.15         “Escrow Agent” means Brower Piven or its successor in interest;
 
1.16         “Effective Date” means the first date by which all of the events
and conditions specified in ¶7.1 of the Stipulation have been met and have
occurred;
 
1.17         “Excluded Defendants” means Serrano, Martin, Doolan, Lustig, Jesup
& Lamont and Sherb & Co., LLP;
 
1.18         “Final” means the date when the last of the following has occurred
with respect to the Judgment: (a) the date of final affirmance on an appeal of
the Judgment, the expiration of the time for a petition for or a denial of a
writ of certiorari to review the Judgment and, if certiorari is granted, the
date of final affirmance of the Judgment following review pursuant to that
grant; or (b) the date of final dismissal of any appeal from the Judgment or the
final dismissal of any proceeding on certiorari to review the Judgment; or (c)
if no appeal is filed, the expiration date of the applicable time for the filing
or noticing of any appeal from the Judgment. Any proceeding or order, or any
appeal or petition for a writ of certiorari, pertaining solely to any Plan of
Allocation and/or application for or award of attorneys’ fees or expenses, shall
not in any way delay or preclude the Judgment from becoming Final;
 
1.19         “Individual Defendants” means Nicholas A. Sinigaglia
(“Sinigaglia”), Scott Whitaker (“Whitaker”), David E.Y. Sarna (“Sarna”), Dennis
Michael Nouri, Reza Eric Nouri, Henry Nouri, Ronna Nouri (called “Ronna Loprete”
in the Complaint), Frank C. Coll (“Coll”), C. James Meese, Jr. (“Meese”),
Philippe Pouponnot (“Pouponnot”), Shlomo Elia (“Elia”), Jeffrey W. Lerose
(“Lerose”), Thomas P. Furr (“Furr”), Sherb & Co., LLP (“Sherb & Co.”), Ruben
Serrano (“Serrano”), Alan Lustig (“Lustig”), Anthony Martin (“Martin”), James
Doolan (“Doolan”), Maxim Group, LLC (“Maxim Group”), and Jesup & Lamont
Securities Corp.(“Jesup & Lamont”);

 
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1.20         “Judgment” means the final judgment to be rendered by the Court in
the Action, substantially in the form attached hereto as Exhibit B;
 
1.21         “Lead Plaintiff” means Mary Jane Beauregard;
 
1.22         “Lead Plaintiff’s Counsel” means David A.P. Brower, Brower Piven,
488 Madison Avenue, 8th Floor, New York, NY 10022 (“Brower Piven”); Lewis S.
Kahn, Kahn Swick & Foti, LLC, 650 Poydras Street, Suite 2150, New Orleans,
LA  70130 (“KSF”);.
 
1.23         “Net Settlement Fund” means the balance of the Class Settlement
Fund after payment of the items set forth in ¶5.1(a)-5.1(d).
 
1.24         “Notice” means the settlement notice, substantially in the form of
Exhibit A-1 attached hereto.
 
1.25         “Nouri Defendants” means Dennis Michael Nouri, Henry Nouri, Ronna
Nouri, and Reza Eric Nouri;
 
1.26         “Person” means an individual, corporation, limited liability
corporation, professional corporation, limited liability partnership,
partnership, limited partnership, association, joint stock company, estate,
legal representative, trust, unincorporated association, government or any
political subdivision or agency thereof, and any business or legal entity and
their spouses, heirs, predecessors, successors, representatives, or assignees;
 
1.27         “Plan of Allocation” means a plan or formula of allocation (to be
described in the publication for the benefit of Class Members) of the Settlement
Fund whereby the Settlement Fund shall be distributed to Authorized Claimants
after payment of expenses of notice and administration of the Settlement, Taxes
and Tax Expenses and such attorneys’ fees, expenses and interest and amounts to
Lead Plaintiff as may be awarded by the Court. Any Plan of Allocation is not
part of the Stipulation and Defendants shall have no responsibility or liability
with respect thereto;

 
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1.28         “Preliminary Approval Order” means the order, substantially in the
form of Exhibit A attached hereto, requesting, inter alia, the preliminary
approval of the Settlement set forth in the Stipulation, and approval for the
publication of the Notice;
 
1.29         “Released Claims” means all claims, including Unknown Claims,
demands, rights, liabilities and causes of action, arising out of, relating to,
or in connection with, the purchase or acquisition of Smart Online securities
during the Class Period and the matters alleged or that could have been alleged
in the Action, or which arise from or relate to the allegations in the
Complaint, or that have been or could have been asserted in the Action against
the Released Parties, as well as any claims in connection with the institution,
prosecution or settlement of the Action. It is the express intent of the parties
that claims against the Excluded Defendants are not being released by this
Stipulation;
 
1.30         “Released Parties” means the Settling Defendants or their past or
present subsidiaries, parents, successors and predecessors, officers, directors,
shareholders, agents, employees, attorneys, advisors, and investment advisors,
auditors, accountants and any person, firm, trust, corporation, officer,
director or other individual or entity in which any Settling Defendant has a
controlling interest or which is related to or affiliated with any Settling
Defendant, and the legal representatives, heirs, successors in interest or
assigns of such Settling Defendant.  “Released Parties” expressly does not
include Sherb & Co., Jesup & Lamont, Serrano, Lustig, Martin, and/or Doolan.
 
1.31         “Settlement” means the settlement between Lead Plaintiff, on behalf
of herself and Members of the Settlement Class, and the Settling Defendants on
the terms contained in the Stipulation and its Exhibits.

 
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1.32         “Settlement Class” means all Persons who purchased or otherwise
acquired publicly traded securities of Smart Online between May 2, 2005 through
September 28, 2007, inclusive.  Excluded from the Settlement Class are (a) the
Individual Defendants, officers, directors, and employees during the Class
Period of Smart Online, Maxim Group, Sherb & Co., and Jesup & Lamont; (b) the
immediate family, legal representatives, heirs, and assigns, of any excluded
Person; and (c) any entity in which any excluded Person has or had a controlling
interest.  Also excluded from the Settlement Class are those Persons who timely
and validly request exclusion from the Settlement Class pursuant to the Notice
of Pendency and Settlement of Class Action to be sent to Settlement Class
Members;
 
1.33         “Settlement Class Member” or “Member of the Settlement Class” means
a Person who falls within the definition of the Settlement Class set forth
above;
 
1.34         “Settlement Hearing” means a hearing held by the Court to consider
and determine whether an order approving the Settlement as fair, reasonable and
adequate and Final Judgment should be entered thereon dismissing the Action with
prejudice;
 
1.35         “Settling Defendants” means Smart Online and collectively the
following Defendants:  Maxim Group, the Nouri Defendants, Sinigaglia, Whitaker,
Sarna, Coll, Elia, Meese, Pouponnot, Lerose, and Furr;
 
1.36         “Settling Parties” means, collectively, each of the Settling
Defendants and Lead Plaintiff on behalf of herself and the Members of the
Settlement Class;
 
1.37         “Smart Online” means Smart Online, Inc. and/or their past or
present subsidiaries, parents, successors and predecessors, officers, directors,
shareholders, agents, employees, attorneys, advisors, and investment advisors
but expressly does not include the Excluded Defendants;

 
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1.38         “Smart Online Settlement Stock” means the number of shares of Smart
Online common stock that will be issued and delivered in accordance with ¶2.1
hereof;
 
1.39         “Stipulation” means this Stipulation and Agreement of Settlement,
dated as of June 18, 2010.
 
1.40          “Supplemental Agreement” means the separate agreement executed
between Lead Plaintiff’s Counsel and counsel for the Settling Defendants setting
forth an option for Smart Online to terminate the Settlement in the event that
Settlement Class Members who purchased or otherwise acquired more than a certain
number of Smart Online shares during the Class Period choose to exclude
themselves from the Settlement Class and a procedure for Lead Plaintiffs’
Counsel to sell any Smart Online Settlement Stock pursuant to ¶ 2.7;
 
1.41         “Taxes” means taxes arising with respect to the income earned by
the cash portion of the Class Settlement Fund, including any Taxes or tax
detriments that may be imposed upon the Defendants or their respective counsel
with respect to any income earned by the cash portion of the Class Settlement
Fund for any period during which the cash portion of the Class Settlement Fund
does not qualify as a “qualified settlement fund” for federal or state income
tax purposes;
 
1.42         “Tax Expenses” means expenses and costs incurred in connection with
the operation and implementation of ¶2.18 of the Stipulation (including, without
limitation, expenses of tax attorneys and/or accountants and mailing and
distribution costs and expenses relating to filing, or failing to file, the
returns described in ¶2.18);

 
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1.43         “Unknown Claims” means any Released Claims which Lead Plaintiff and
each Settlement Class Member, respectively, does not know or suspect to exist in
his, her or its favor at the time of the release of the Released Parties, which,
if known by him, her or it, might have affected his, her or its settlement with,
and release of, the Released  Parties, or might have affected his, her or its
decision not to object to this Settlement. With respect to any and all Released
Claims, the Settling Parties stipulate and agree that, upon the Effective Date,
Lead Plaintiff and Settling Defendants, shall be deemed to have, and by
operation of the Judgments shall have, waived the provisions, rights and
benefits of California Civil Code §1542, which provides:
 
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
 
Lead Plaintiff and Settling Defendants, shall be deemed to have, and by
operation of the Judgments shall have, waived any and all provisions, rights and
benefits conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or equivalent to
California Civil Code §1542. Lead Plaintiff and Defendants may hereafter
discover facts in addition to or different from those which he, she or it now
knows or believes to be true with respect to the Released  Claims, but Lead
Plaintiff and Settling Defendants, upon the Effective Date, shall be deemed to
have, and by operation of the Judgment shall have, fully, finally, and forever
settled and released any and all Released Claims, respectively, known or
unknown, suspected or unsuspected, contingent or non-contingent, accrued or
unaccrued, whether or not concealed or hidden, which now exist, or heretofore
have existed upon any theory of law or equity now existing or coming into
existence in the future, including, but not limited to, conduct which is
negligent, intentional, with or without malice, or a breach of any duty, law or
rule, without regard to the subsequent discovery or existence of such different
or additional facts. Lead Plaintiff, Settlement Class Members, and Settling
Defendants shall be deemed by operation of the Judgment to have acknowledged
that the foregoing waivers were separately bargained for and are key elements of
the Settlement of which this release is a part.

 
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2.
The Settlement

 

 
  a.
Smart Online Settlement Stock

 
2.1           The Smart Online Settlement Stock will consist of one million,
five hundred thousand (1,500,000) freely tradeable shares of Smart Online common
stock. The number of shares constituting the Smart Online Settlement Stock will
be adjusted to account for stock splits, reverse stock splits and other similar
action taken by Smart Online before distribution to the Settlement Class
Members. If Smart Online is sold, is acquired, or merges prior to distribution
of the Smart Online Settlement Stock to the Settlement Class Members, the shares
will be treated for purposes of any corporate transaction as if they had been
issued, distributed, and outstanding, and will receive the same proportionate
treatment as other shares of Smart Online common stock.
 
2.2           The Smart Online Settlement Stock shall be contributed to the
Settlement Fund as follows: (1) Smart Online will issue and distribute one
million, four hundred, and seventy-five thousand (1,475,000) shares of Smart
Online common stock to Lead Plaintiff’s Counsel pursuant to instructions
provided by Lead Plaintiff’s Counsel within ten (10) business days after the
Court enters the Judgment; (2) Henry Nouri will transfer twenty-five thousand
(25,000) shares of Smart Online Common stock to Lead Plaintiff’s Counsel
pursuant to instructions provided by Lead Plaintiff’s Counsel within ten (10)
business days after the Court enters the Judgment.
 
2.3           There will be two distributions of the Smart Online Settlement
Stock from the Settlement Fund: (1) the distribution made as part of any awards
by the Court pursuant to the Class Fee and Expenses Application to Lead
Plaintiff’s Counsel and (2) the distribution to Authorized Claimants following
claims administration.  Until distribution to Settlement Class Members, Class
Lead Counsel agrees to vote the shares of Smart Online Settlement Stock in the
same proportion as those voted by the shares that are not Smart Online
Settlement Stock and that are eligible to vote on any matter presented to
shareholders for such a vote and, if requested by Smart Online, to enter into a
voting trust agreement so providing. Lead Plaintiff’s Counsel and Smart Online
shall use best efforts to enable the Smart Online Settlement Stock to be issued
by electronic distribution.

 
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2.4           No fractional shares of Smart Online Settlement Stock will be
issued. The calculation of the number of shares to be distributed will be
rounded up or down to the nearest whole share.
 
2.5           The Smart Online Settlement Stock shall be registered or exempt
from the registration requirements of the Securities Act of 1933 under Section
3(a)(10) of the Securities Act of 1933. The Smart Online Settlement Stock shall
be freely tradable, shall not constitute “restricted securities” under the
Securities Act of 1933 and may be sold or transferred by recipients thereof who
are not affiliates of Smart Online (as that term is defined in Rule 144 of the
Securities Act of 1933) or recipients deemed to be underwriters under the
Securities Act of 1933 without registration under Section 5 of the Securities
Act of 1933 or compliance with Rule 144.
 
2.6           Smart Online agrees to request an exemption for the Smart Online
Settlement Stock from the registration requirements of the securities laws of
those states where an Authorized Claimant resides and that do not have a
self-executing exemption for securities issued with court approval in connection
with the compromise of a claim. In the event that Smart Online’s request is
denied by one or more such states, Lead Plaintiff’s Counsel shall sell, in
accordance with ¶ 2.7 of the Stipulation, the Smart Online Settlement Stock that
is allocated to that Authorized Claimant under the Plan of Allocation and
distribute the cash proceeds instead. Lead Plaintiff’s Counsel shall have no
liability for any sale, liquidation, transfer or other disposition of the Smart
Online Settlement Stock pursuant to this section absent gross negligence or
willful misconduct.

 
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2.7           Upon receipt of the Smart Online Settlement Stock, Lead
Plaintiff’s Counsel will have the right to take any measures they deem
appropriate to protect the overall value of the Smart Online Settlement Stock
prior to distribution to Authorized Claimants including, but not limited to,
sales of all or part of the Smart Online Settlement Stock into the market or in
a private sale transaction. Lead Plaintiff’s Counsel shall also have the right
to use the cash component of the Class Settlement Fund to protect the overall
value of the Class Settlement Fund.
 
2.8           To the extent that Lead Plaintiff’s Counsel decides to sell any
Smart Online Settlement Stock pursuant to ¶ 2.7, it shall do so in accordance
with the Supplemental Agreement.  Smart Online agrees to indemnify, up to a
limit of $2500.00, Lead Plaintiffs’ Counsel or the Claims Administrator for
fees, expenses, or costs it may incur, if any, in complying with the reporting
requirements of section 13 of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78m, and Regulation 13D-G thereunder, if any, as a result of the contribution
of the Smart Online Settlement Stock to the Settlement Fund pursuant to ¶ 2.2.
 

 
  b.
Cash Contribution

 
2.9           The amount of Three Hundred and Fifty Thousand Dollars ($350,000)
in cash shall be paid by Smart Online into an interest bearing account
designated by Class Lead Counsel in installments of Seventy Five Thousand
Dollars ($75,000) to be paid within ten (10) business days of the date of
execution of this Stipulation and additional installments of One Hundred
Thousand Dollars ($100,000), One Hundred Thousand ($100,000) and Seventy Five
Thousand Dollars ($75,000) to be paid on the 90th, 180th, and 270th day
anniversary of the execution of this Stipulation respectively or such sooner
periods at Smart Online’s option until the full amount of Three Hundred and
Fifty Thousand Dollars ($350,000) has been paid.
 
2.10         The amount of One Hundred and Twelve Thousand and Five Hundred
($112,500) in cash shall be paid by Maxim Group into an interest bearing account
designated by Lead Plaintiff’s Counsel within twenty (20) business days of the
date of execution of this Stipulation.

 
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2.11         The Settling Parties agree that the financial institution
designated by Lead Plaintiff’s Counsel is acceptable to them.
 

 
  c.
Assignment of Claims

 
2.12         On and as of March 26, 2010, and subject to the terms and
conditions of the Assignment Agreement, Smart Online hereby irrevocably sells,
transfers, conveys and assigns to the Lead Plaintiff for the benefit of the
Settlement Class, all right, title, and interest in any and all claims Smart
Online may have under federal or state law against Serrano, Lustig, Martin,
Doolan, Jesup & Lamont and/or Sherb & Co.  Smart Online shall receive no payment
or remuneration with respect to any recovery that may result from the assertion,
litigation, arbitration, settlement or trial of the assigned claims.
 

 
  d.
The Escrow Agent

 
2.13         Upon receipt, the Escrow Agent shall invest any cash portion of the
Class Settlement Fund in instruments backed by the full faith and credit of the
United States Government or insured by the United States Government or an agency
thereof and shall reinvest the proceeds of those instruments as they mature in
similar instruments at their then current market rates.
 
2.14         The Escrow Agent shall not disburse the Class Settlement Fund
except as provided in the Stipulation, by an order of the Court, or with the
written agreement of counsel for Lead Plaintiff, Smart Online, and Settling
Defendants.
 
2.15         Subject to further order and/or direction as may be made by the
Court, the Escrow Agent is authorized to execute such transactions as are
consistent with the terms of the Stipulation.
 
2.16         All funds held by the Escrow Agent shall be deemed and considered
to be in custodia legis of the Court and shall remain subject to the
jurisdiction of the Court.

 
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2.17         The Escrow Agent shall establish the Class Notice and
Administration Fund and deposit One Hundred and Fifty Thousand Dollars
($150,000) from the cash portion of the Settlement Fund into it.  The Class
Notice and Administration Fund shall be used to pay costs and expenses
reasonably and actually incurred in connection with providing notice to the
Settlement Class, identifying and locating Settlement Class Members, assisting
with the filing of claims, administering and distributing the Net Settlement
Fund to Authorized Claimants, processing Proof of Claim and Release forms and
paying escrow fees and costs, if any.  The Class Notice and Administration Fund
shall also be invested and earn interest as provided for in ¶2.13 of this
Stipulation.  Any portion of the Class Notice and Administration Fund remaining
after payment of the aforesaid costs and expenses shall revert to the Settlement
Fund and become part of the Net Settlement Fund.
 

 
  e.
Taxes, Tax Expenses and Related Matters

 
2.18         The Settling Parties and the Escrow Agent agree to treat the cash
portion of the Class Settlement Fund as being at all times a “qualified
settlement fund” within the meaning of Treas. Reg. §§1.468B-1 through 1.468B-5.
In addition, the Escrow Agent shall timely make such elections as are necessary
or advisable to carry out the provisions of this ¶2.18, including the
“relation-back election” (as defined in Treas. Reg. §1.468B-1) back to the
earliest permitted date.  Such elections shall be made in compliance with the
procedures and requirements contained in such regulations. It shall be the
responsibility of the Escrow Agent to timely and properly prepare and deliver
the necessary documentation for signature by all necessary parties, and
thereafter to cause the appropriate filings to occur.

 
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2.19         For the purpose of §468B of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, the “administrator” shall
be the Escrow Agent. The Escrow Agent shall timely and properly file all
informational and other tax returns necessary or advisable with respect to the
cash portion of the Class Settlement Fund (including without limitation the
returns described in Treas. Reg. §1.468B-2(k)(l)). Such returns (as well as the
election described in ¶2.18) shall be consistent with this ¶2.19 and in all
events shall reflect that all Taxes (including any estimated Taxes, interest or
penalties) on the income earned by the cash portion of the Class Settlement Fund
shall be paid out of the cash portion of the Class Settlement Fund as provided
in ¶2.19(a) hereof.
 
(a)           All (i) Taxes (including any estimated Taxes, interest or
penalties), and (ii) Tax Expenses shall be paid out of the cash portion of the
Class Settlement Fund; in all events the Defendants and their respective counsel
shall not have any liability or responsibility for any Taxes or any Tax Expenses
or the filing of any tax returns or other documents with the Internal Revenue
Service or any other state or local taxing authority. The Escrow Agent shall
indemnify and hold harmless the Defendants, and their respective counsel for
Taxes and Tax Expenses (including, without limitation, Taxes payable by reason
of any such indemnification). Further, Taxes and Tax Expenses shall be treated
as, and considered to be, a cost of administration of the Class Settlement Fund
and shall be timely paid by the Escrow Agent out of the Class Settlement Fund
without prior order from the Court. The Escrow Agent shall be obligated
(notwithstanding anything herein to the contrary) to withhold from distribution
to Authorized Claimants any funds necessary to pay such Taxes and Tax Expenses
including the establishment of adequate reserves for any Taxes and Tax Expenses
(as well as any amounts that may be required to be withheld under Treas. Reg.
§1.468B-2(1)(2)); neither the Defendants nor their respective counsel are
responsible to pay such Taxes and Tax Expenses, nor shall they have any
liability or responsibility therefor. The Settling Parties hereto agree to
cooperate with the Escrow Agent, each other, and their tax attorneys and
accountants to the extent reasonably necessary to carry out the provisions of
this ¶2.19.

 
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(b)           For the purpose of this ¶2.19, references to the Class Settlement
Fund shall include both the cash portion of the Class Settlement Fund, if any,
and the Class Notice and Administration Fund and shall also include any interest
thereon.
 

 
  f.
Termination of Settlement

 
2.20         In the event that the Effective Date does not occur or the
Settlement is not approved or is terminated for any reason, the Settlement Fund
shall be refunded as described in ¶7.4 below.
 
 
3.
Preliminary Approval, Preliminary Approval Orders and Settlement Hearing

 
3.1           Promptly after execution of this Stipulation by all parties
hereto, the Settling Parties shall submit the Stipulation together with its
Exhibits to the Court.  After filing the Stipulation, the Settling Parties shall
apply for entry of the Preliminary Approval Order requesting, inter alia, the
preliminary approval of the Settlement set forth in the Stipulation, and
approval for the publication of the Notice, which shall include the general
terms of the Settlement set forth in the Stipulation, and, as applicable, the
Plan of Allocation, the general terms of the Class Fee and Expense Application
as defined in ¶6.1 below, and the date of the Settlement Hearing as defined
below.  Lead Plaintiff’s Counsel shall be responsible for overseeing the notice
provided to the Settlement Class.
 
3.2           The Settling Parties shall request that after the Notice is
disseminated, the Court hold  the Settlement Hearing to consider and determine
whether an order approving the Settlement as fair, reasonable and adequate and
Final Judgment should be entered thereon dismissing the Action with
prejudice.  At or after the Settlement Hearing, Lead Plaintiff’s Counsel also
will request that the Court approve the Plan of Allocation and Lead Plaintiff’s
Counsel will request that the Court approve their proposed application for an
award of attorneys’ fees and expenses.

 
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4.
Releases and Bar Orders

 
4.1         Upon the Effective Date, Lead Plaintiff and each of the Settlement
Class Members shall be deemed to have, and by operation of the Judgment entered
in the Action shall have, fully, finally, and forever released, relinquished and
discharged all Released Claims against the Released Parties, whether or not such
Settlement Class Member executes and delivers a proof of claim and release.
 
4.2         Upon the Effective Date, each of the Released Parties shall be
deemed to have, and by operation of the Judgment entered in the Action, shall
have, fully, finally, and forever released, relinquished and discharged each and
all of the Settlement Class Members and Lead Plaintiff and their counsel from
all claims, including Unknown Claims, arising out of, relating to, or in
connection with the institution, prosecution, assertion, settlement or
resolution of the Action or the Released Claims.
 
4.3         The Judgment in the Action will contain a Bar Order as required by
section 21D(f)(7) of the Securities Exchange Act of 1934, 15 U.S.C. §78u-4(f)(7)
and shall be as broad as permitted by state or federal law, and shall
permanently and forever bar from filing, instituting, prosecuting, or
maintaining, directly or indirectly, in any capacity, any claims for
contribution or any other claim asserted against any Settling Defendant, whether
based in tort, contract, or any other theory, arising from, based upon, or
related to any fact or circumstance involved in the Action or in any pleading or
any other paper filed therein, or the subject matters of the Action, whether
such claim be legal or equitable, known or unknown, foreseen or unforeseen,
matured or unmatured, accrued or unaccrued, or asserted under state, federal, or
common law.
 
4.4         Upon the Effective Date, in consideration for the sum of ten dollars
($10) and for other good consideration received, Smart Online shall be deemed to
have, and by operation of the Judgment entered in the Action, shall have, fully,
finally, and forever released, relinquished and discharged Maxim Group and its
counsel from all Released Claims, including Unknown Claims.

 
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4.5         Upon the Effective Date, in consideration for the sum of ten dollars
($10) and for other good consideration received, Maxim Group shall be deemed to
have, and by operation of the Judgment entered in the Action, shall have, fully,
finally, and forever released, relinquished and discharged Smart Online and its
counsel from all Released Claims, including Unknown Claims.
 
4.6         Pending the Court’s determination of whether the Settlement should
be approved and applied in the Action, all proceedings and all further activity
between the Settling Parties regarding or directed towards the Action, and save
for those activities and proceedings relating to this Stipulation and the
Settlement and the continued prosecution of Action against the Excluded
Defendants, shall be stayed.
 
4.7         Pending the Court’s determination of whether the Settlement should
be approved, neither Lead Plaintiff, nor any of the Settling Class Members shall
commence, maintain or prosecute against the Settling Defendants, any action or
proceeding in any court or tribunal asserting any of the Released Claims.
 
 
5.
Administration and Calculation of Claims, Final Awards and Supervision and
Distribution of the Class Settlement Fund

 
5.1         The Claims Administrator, subject to such supervision and direction
of the Court and/or Lead Plaintiff’s Counsel as may be necessary or as
circumstances may require, shall administer and calculate the claims submitted
by Settlement Class Members and shall oversee distribution of the Net Settlement
Fund (defined below) to Authorized Claimants.  The Class Settlement Fund shall
be applied as follows:

 
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(a)           to pay all the costs and expenses reasonably and actually incurred
in connection with providing notice, identifying and locating Settlement Class
Members, assisting with the filing of claims, administering and distributing the
Class Settlement Fund to Authorized Claimants, processing Proof of Claim and
Release forms and paying escrow fees and costs, if any, to the extent these
costs and expenses are not paid by the Class Notice and Administration Fund;
 
(b)           to pay the Taxes and Tax Expenses described in ¶¶2.18 and 2.19
above;
 
(c)           to pay to Lead Plaintiff’s attorneys’ fees and expenses with
interest thereon (the “Class Fee and Expense Award”), if and to the extent
allowed by the Court;
 
(d)           to reimburse the time and expenses of Lead Plaintiff in the
Action, if and to the extent allowed by the Court; and
 
(e)           subject to the provisions of ¶5.2(c) below, to distribute the Net
Settlement Fund to Authorized Claimants as allowed by the Stipulation, the Plan
of Allocation, or the Court.
 
5.2         Upon the Effective Date and thereafter, and in accordance with the
terms of the Stipulation, the Plan of Allocation, or such further approval and
further order(s) of the Court as may be necessary or as circumstances may
require, the Net Settlement Fund shall be distributed to Authorized Claimants,
subject to and in accordance with the following:
 
(a)           Within one hundred and twenty (120) days after the dissemination
of notice or such other time as may be set by the Court, each Person claiming to
be an Authorized Claimant shall be required to submit to the Claims
Administrator a completed Proof of Claim and Release, substantially in the form
of Exhibit A-2 attached hereto, signed under penalty of perjury and supported by
such documents as specified in the Proof of Claim and Release and as are
reasonably available to the Authorized Claimant.

 
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(b)           Except as otherwise ordered by the Court, all Settlement Class
Members who fail to timely submit a Proof of Claim and Release within such
period, or such other period as may be ordered by the Court, or otherwise
allowed, and all Settlement Class Members whose claims are not approved by the
Court (in the event the same are rejected in whole or in part by the Claims
Administrator and the Court resolves the dispute involved) shall be forever
barred from receiving any payment pursuant to this Stipulation and the
Settlement set forth herein, but will in all other respects be subject to and
bound by the provisions of this Stipulation, the releases contained herein, and
the Judgments and be enjoined and barred from bringing any action against any of
the Settling Defendants asserting any of the Released Claims.
 
(c)           The Net Settlement Fund shall be distributed to the Authorized
Claimants substantially in accordance with a Plan of Allocation to be described
in the Class Notice and approved by the Court.  However, if there is any balance
remaining in the Net Settlement Fund after six (6) months from the date of
distribution of such Net Settlement Fund (whether by reason of tax refunds,
uncashed checks or otherwise), to the extent Lead Plaintiff’s Counsel determines
it is economically feasible such balance shall be reallocated among and
distributed to Authorized Claimants in an equitable and economic
fashion.  Thereafter, any remaining balance should be donated to an appropriate
501(c)(3) non-profit organization(s) to be selected by Lead Plaintiff’s Counsel.
 
5.3         The Plan of Allocation shall be proposed by Lead Plaintiff’s
Counsel, and the Settling Defendants shall take no position with respect to the
proposed Plan of Allocation or such plan as may be approved by the Court except
as provided in this paragraph.  Lead Plaintiff’s Counsel and the Settling
Defendants agree that in the interests of preserving value for the Settlement
Class, the Plan of Allocation shall provide that, to the extent shares of Smart
Online Settlement Stock are to be distributed to Settlement Class Members, the
Smart Online Settlement Stock shall be distributed to the Authorized Claimants
in amounts and over time periods determined by Lead Plaintiff’s Counsel to be in
the best interests of the Settlement Class as a whole. Lead Plaintiff’s Counsel
agrees to consult in good faith with Smart Online regarding any plan for
distributing shares of Smart Online Settlement Stock to Authorized Claimants.

 
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5.4         No Person shall have any claim against Lead Plaintiff, Lead
Plaintiff’s Counsel, any claims administrator, any agent designated by Settling
Defendants, Defendants’ Counsel, or their respective counsel, based on the
investment or distributions made substantially in accordance with this
Stipulation and the Settlement contained herein, the Plan of Allocation, or
further orders of the Court.
 
5.5         It is understood and agreed by the Settling Parties that the
proposed Plan of Allocation including, but not limited to, any adjustments to an
Authorized Claimant’s claim set forth therein, is not a part of the Stipulation
and is to be considered by the Court separately from the Court’s consideration
of the fairness, reasonableness and adequacy of the Settlement set forth in the
Stipulation, and any order or proceeding relating to the Plan of Allocation
shall not operate to terminate or cancel the Stipulation or affect the finality
of the Court’s Judgment approving the Stipulation and the Settlement set forth
therein, or any other orders entered pursuant to the Stipulation.

 
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6.
Lead Plaintiff’s Counsel’s Attorneys’ Fees and Reimbursement of Expenses and
Reimbursement of Lead Plaintiffs

 
6.1         Lead Plaintiff’s Counsel may submit one or more Class Fee and
Expense Applications for distributions from the Class Settlement Fund for: (a)
an award of attorneys’ fees; (b) plus reimbursement of expenses incurred in
connection with prosecuting the Class Action; (c) plus any interest on such
attorneys’ fees and expenses at the same rate and for the same periods as earned
by the Settlement Fund (until paid) as may be awarded by the Court; (d)
reimbursement of the time and expenses of Lead Plaintiff in prosecuting the
Action; and (e) reimbursement of Lead Plaintiff’s Counsel’d fees and expenses in
administering the Settlement. Lead Plaintiff’s Counsel reserve the right to make
additional applications for fees and expenses incurred.  Settling Defendants
will take no position with respect to the Class Fee and Expense Application and
such matters are not the subject of any agreement between the Settling Parties
other than the terms set forth in the Stipulation.
 
6.2         The Class Fee and Expense Award shall be transferred to Lead
Plaintiff’s Counsel from the Class Settlement Fund as Ordered, immediately after
the Court executes a written Order awarding such fees and expenses,
notwithstanding the existence of any timely filed objections thereto, or
potential appeal therefrom, subject to the obligation of each counsel to make
appropriate repayments to the Class Settlement Fund as more particularly set
forth below in ¶6.3.  Lead Plaintiff’s Counsel shall allocate the attorneys’
fees amongst counsel in the Class Action in a manner in which Lead Plaintiff’s
Counsel in good faith believe reflects the respective contributions of such
counsel to the prosecution and settlement of the Action.

 
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6.3         In the event that the Effective Date does not occur, or the order
making the Class Fee and Expense Award is reversed or modified, or the
Stipulation is terminated for any reason, and in the event that the Class Fee
and Expense Award has been paid to any extent, then any of Lead Plaintiffs’
counsel who have received a payment shall, within five (5) business days from
Lead Plaintiff’s Counsel receiving notice from Settling Defendants’ Counsel or
from a court of appropriate jurisdiction, refund to the Class Settlement Fund
the fees and expenses previously paid to them from the Class Settlement Fund,
plus interest thereon at the same rate as earned by the Class Settlement Fund,
in an amount consistent with such reversal or modification. In the event shares
of Smart Online Settlement Stock are distributed to Class Lead Counsel as part
of any Class Fee and Expense Award and Class Lead Counsel sells some or all of
those shares before termination of the Settlement, to fulfill their return
obligation herein, Lead Plaintiff’s Counsel shall, at Lead Plaintiff’s Counsel’s
option, return the actual cash amounts they received in exchange for the sale of
such shares sold (less brokerage commissions, taxes or transaction costs
actually paid) irrespective of the then current market price of Smart Online
shares and any shares they still hold as unsold, or return an equal number of
shares as they were awarded by the Court. The return obligation set forth in
this paragraph is the obligation of all Lead Plaintiff’s counsel who receive a
payment in the Action.  Each such Lead Plaintiff’s counsel’s law firm, as a
condition of receiving such fees and expenses, on behalf of itself and each
partner and/or shareholder of it, agrees that the law firm and its partners
and/or shareholders are subject to the jurisdiction of the Court for the purpose
of enforcing the provisions of this subparagraph. Without limitation, each such
law firm and its partners and/or shareholders agree that the Court may, upon
application of Settling Defendants on notice to Lead Plaintiff’s Counsel,
summarily issue orders, including, but not limited to, judgments and attachment
orders, and may make appropriate findings of or sanctions for contempt, against
them or any of them should such law firm fail timely to repay fees, expenses and
interest pursuant to this ¶6.3 of this Stipulation.
 
6.4         The procedure for and the allowance or disallowance by the Court of
any applications by Lead Plaintiff’s counsel for attorneys’ fees and expenses to
be paid out of the Class Settlement Fund are not part of the Settlement set
forth in the Stipulation, and are to be considered by the Court separately from
the Court’s consideration of the fairness, reasonableness and adequacy of the
Settlement set forth in the Stipulation, and any order or proceeding relating
either to the Class Fee and Expense Application or the  Fee and Expenses, or any
appeal from any order relating thereto or reversal or modification thereof,
shall not operate to terminate or cancel the Stipulation, or affect or delay the
finality of the Judgment in the Action.

 
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6.5         The Settling Defendants shall have no responsibility for, and no
liability whatsoever with respect to, the allocation among counsel for any Lead
Plaintiff in the Action, and/or any other Person who may assert some claim
thereto, of any fee and expense award that the Court may make in the Action.
 
 
7.
Conditions of Settlement, Effect of Disapproval, Cancellation or Termination

 
7.1         This Stipulation, the Settlement and the Effective Date shall be
conditioned on the occurrence of all of the following events:
 
(a)           Smart Online, Henry Nouri, and Maxim Group shall have paid or
caused to be paid the consideration making up the Class Settlement Fund as
required by ¶¶2.1 to 2.10 above;
 
(b)           Smart Online shall have signed and delivered to Lead Plaintiff’s
Counsel the Assignment Agreement;
 
(c)           The Board of Directors of Smart Online will have reviewed and
approved the Stipulation;
 
(d)           The Court has entered the Preliminary Approval Order, as required
by ¶3.1, above;
 
(e)           Smart Online has not exercised its option to terminate the
Stipulation pursuant to ¶7.2 hereof;
 
(f)           The Court has entered the Judgment in the Class Action in
substantially the form of Exhibit B attached hereto, respectively; and

 
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(g)           the Judgment has become Final.
 
7.2         Smart Online shall have the option to terminate the Settlement in
the event that Settlement Class Members who purchased or otherwise acquired more
than a certain number of Smart Online shares during the Class Period choose to
exclude themselves from the Settlement Class, as set forth in the Supplemental
Agreement.  The Supplemental Agreement will not be filed with the Court unless
and until a dispute arises between the Class Lead Plaintiffs and Class Settling
Defendants concerning its interpretation or application.
 
7.3         Smart Online and Lead Plaintiff shall each have the right to
terminate the settlement if the Settlement is not approved by the Court within
eight (8) months following the Settlement Hearing.  In the event either Party
wishes to terminate the Settlement on this ground, the terminating Party may do
so by providing written notice of such termination to the other Party and such
termination, if not withdrawn, shall be effective ten (10) business days
thereafter.
 
7.4         In the event the Settlement is not approved or the Stipulation shall
terminate or shall not become effective for any reason, within ten (10) business
days after written notification of such event is sent by counsel for the
Settling Defendants or Lead Plaintiff’s Counsel to the Escrow Agent, the Smart
Online Settlement Stock, together with any proceeds from the sale or other
disposition of Smart Online Settlement Stock pursuant to ¶2.7, shall be returned
to Smart Online and Henry Nouri in proportion to their respective contributions
to the Settlement Fund as set forth in ¶¶ 2.2 hereto and the cash component of
the Settlement Fund (including accrued interest), plus any amount then remaining
in the Class Notice and Administration Fund (including accrued interest), less
expenses and costs which have either been disbursed pursuant to ¶¶ 2.17 to 2.19
hereto, or are chargeable to the Class Notice and Administration Fund shall be
refunded by the Escrow Agent to Smart Online and Maxim Group in proportion to
their respective cash contributions to the Settlement Fund as set forth in
¶¶ 2.9 to 2.10 hereto. Under no circumstances shall Lead Plaintiff or Lead
Plaintiff’s Counsel be responsible for, or required to reimburse or return any
amounts disbursed or incurred for notice to Settlement Class Members or
administration of the Settlement whether such amounts are disbursed from the
Class Notice and Administration Fund or the Class Fee and Expenses Award. At the
request of counsel for Settling Defendants, the Escrow Agent or its designee
shall apply for any tax refund owed to the Class Settlement Fund and pay the
proceeds, after deduction of any reasonable fees or expenses incurred in
connection with such application(s) for refund to Smart Online and Maxim Group
in proportion to the respective contributions to the Settlement Fund as set
forth in ¶¶ 2.2 to 2.10 hereto.

 
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7.5         In the event that the Stipulation or Settlement is not approved by
the Court or the Settlement set forth in the Stipulation is terminated for any
reason, the Settling Parties shall be restored to their respective positions in
the Action as the date of this Stipulation, and all negotiations, proceedings,
documents prepared and statements made in connection herewith shall be without
prejudice to the Settling Parties, shall not be deemed or construed to be an
admission by any Settling Party of any act, matter or proposition and shall not
be used in any manner or for any purpose in any subsequent proceeding in the
Action or in any other action or proceeding.  In such event, the terms and
provisions of the Stipulation, with the exception of ¶¶1.1-1.43, 2.11-2.20,
7.1-7.8 and 8.4 herein, shall have no further force and effect with respect to
the Settling Parties and shall not be used in the Action or in any other
proceeding for any purpose, and any Judgments or orders entered by the Court in
accordance with the terms of the Stipulation shall be treated as vacated, nunc
pro tunc.  The Settling Parties agree that in the event that the Stipulation or
Settlement is not approved by the Court or the Settlement set forth in the
Stipulation is terminated for any reason, neither Lead Plaintiff nor any of the
Settling Class Members shall commence, maintain or prosecute any of the Released
Claims against the Settling Defendants, in any court or tribunal for a period of
sixty (60) days and, during this sixty (60) day period, the Settling Parties
shall engage in good faith negotiations to reach a new resolution of all
outstanding issues between them, including the Released Claims.

 
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7.6         If the Effective Date does not occur, or if the Stipulation is
terminated for any reason, neither Lead Plaintiff nor any of Lead Plaintiff’s
Counsel shall have any obligation to repay any amounts actually and properly
disbursed from or chargeable for notice to Settlement Class Members or
administration of the Settlement. In the event the amounts remaining at the time
of such termination are insufficient to pay the cost of notice to the Settlement
Class Members and administration of the Settlement properly incurred, Lead
Plaintiff’s Counsel shall pay such amounts from the Class Fee and Expense Award
prior to the return of the balance of the Class Fee and Expense Award as
provided in paragraph 6.3 above. In addition, any expenses already incurred and
properly chargeable to the Class Notice and Administration Fund pursuant to
¶2.17 hereof at the time of such termination or cancellation but which have not
been paid, shall be paid by the Escrow Agent in accordance with the terms of the
Stipulation prior to the balance being refunded.
 
7.7         Maxim Group shall have the option to exclude itself from the
Settlement in the event that Settlement Class Members who purchased or otherwise
acquired more than a certain number of Smart Online shares during the Class
Period choose to exclude themselves from the Settlement Class, as set forth in
the Supplemental Agreement. Maxim Group shall be entitled to exercise its option
to withdraw from the settlement only if Maxim Group provides lead Plaintiffs’
Counsel and Smart Online with written notice of its withdrawal from the
settlement and files that notice with the Court within four (4) days prior to
the Settlement Hearing.  In the event that Maxim Group opts to exclude itself
from the Settlement:

 
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(a)           Maxim Group and Lead Plaintiff shall be restored to their
respective positions in the Action as the date of this Stipulation, and all
negotiations, proceedings, documents prepared and statements made in connection
herewith shall be without prejudice to them, shall not be deemed or construed to
be an admission by either Maxim Group or Lead Plaintiff of any act, matter or
proposition and shall not be used in any manner or for any purpose in any
subsequent proceeding in the Action or in any other action or proceeding.
 
(b)           Any cash contribution of Maxim Group to the Settlement Fund
pursuant to ¶ 2.10 shall be refunded by the Escrow Agent to MaximGroup, less
Maxim Group’s proportionate amount of any administrative costs and expenses
already incurred pursuant to ¶ 5.1(a) at the time that Maxim Group gives notice
to exclude itself from the Settlement pursuant to ¶ 7.7.
 
(c)           There shall be no effect on the other Settling Defendants or their
respective obligations under the Stipulation and the releases given and the
Judgments entered in favor of other Settling Defendants shall remain in full
force and effect.
 
7.8         The Settling Parties agree that, with respect to any Settling
Defendant, in the event of a final order of a court of competent jurisdiction,
not subject to any further proceedings, determining the transfer of the Class
Settlement Fund, or any portion thereof, by or on behalf of such Settling
Defendant to be a preference, voidable transfer, fraudulent transfer or similar
transaction under Title  11 of the United States Code (Bankruptcy) or applicable
state law and any portion thereof is required to be refunded and such amount is
not promptly deposited in the Class Settlement Fund by any other Defendant,
then, at the election of Lead Plaintiff’s Counsel, as to such Class Settling
Defendant, the releases given and the Judgments entered in favor of such
Settling Defendant pursuant to the Stipulation shall be null and void.  The
releases given and the Judgments entered in favor of other Settling Defendants
shall remain in full force and effect.

 
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8.
Miscellaneous Provisions

 
8.1         The Settling Parties:  (a) acknowledge that it is their intent to
consummate the terms and conditions of this Stipulation; and (b) agree to
cooperate to the extent reasonably necessary to effectuate and implement all
terms and conditions of the Stipulation and to exercise their best efforts to
accomplish the foregoing terms and conditions of the Stipulation.
 
8.2         As more fully set forth in the Assignment Agreement, Settling
Defendants agree to reasonably cooperate with Lead Plaintiff in the prosecution
of her claims (including any assigned claims) against the Excluded Defendants in
the Action or other proceedings relating to or arising therefrom including in
the case of each of the Settling Defendants except for Maxim Group providing
documents and other information reasonably requested by Lead Plaintiff (which
shall be treated as part of a joint prosecution undertaking with Lead Plaintiff
or otherwise as required to permit Lead Plaintiff access to privileged documents
relevant to the assigned claims without waiving privilege as to any third
party).
 
8.3         Each Settling Defendant warrants as to himself, herself or itself
that, at the time any of the payments provided for herein are made by or on
behalf of himself, herself or itself, the payment will not render him, her or it
insolvent. This representation is made by each Settling Defendant as to himself,
herself or itself and is not made by any counsel for the Settling Defendants.
 
8.4         The Settling Parties intend this Settlement to be a final and
complete resolution of all disputes among them with respect to the Action,
provided, however, that it is the express intent of the Parties to this
Stipulation that Excluded Defendants are not Settling Defendants for purposes of
this Stipulation and that claims of Lead Plaintiff, Settlement Class Members,
and/or Smart Online against the Excluded Defendants are not being released by
this Stipulation.  The Settlement compromises claims that are contested and
shall not be deemed an admission by any Settling Party as to the merits of any
claim or defense.  While the Settling Defendants deny that any wrongdoing or
liability to Settlement Class Members with respect to the Action, the Settling
Parties agree and the Judgment in the Action will state, that the Action were
filed, prosecuted and defended in good faith and in accordance with the
applicable law and Federal Rules of Civil Procedure, including Rule 11 of the
Federal Rules of Civil Procedure, and are being settled voluntarily after
consultation with competent legal counsel.  Smart Online may issue a press
release announcing the Settlement, but may not contradict the above language.

 
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8.5         Neither the Stipulation nor the Settlement, nor any act performed or
document executed pursuant to or in furtherance of the Stipulation or the
Settlement: (a) is or may be deemed to be or may be used as an admission of, or
evidence of, the validity of any Released Claims, or of any wrongdoing or
liability of the Settling Defendants; or (b) is or may be deemed to be or may be
used as an admission of, or evidence of, any fault or omission of any of the
Settling Defendants in any civil, criminal or administrative proceeding in any
court, administrative agency or other tribunal.  The Settling Defendants may
file the Stipulation and/or the Judgment in related litigation as evidence of
the Settlement, or in any action that may be brought against them in order to
support a defense or counterclaim based on principles of res judicata,
collateral estoppel, release, good faith settlement, judgment bar or reduction
or any other theory of claim preclusion or issue preclusion or similar defense
or counterclaim.
 
8.6         All agreements made and orders entered during the course of the
Action relating to the confidentiality of information shall survive this
Stipulation.
 
8.7         All of the Exhibits to this Stipulation are material and integral
parts hereof and are fully incorporated herein by this reference.

 
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8.8         This Stipulation may be amended or modified only by a written
instrument signed by or on behalf of all Settling Parties or their respective
successors-in-interest.
 
8.9         This Stipulation and the Exhibits attached hereto, and the
Supplemental Agreement constitute the entire agreement among the Settling
Parties and no representations, warranties or inducements have been made to any
party concerning the Stipulation, its Exhibits, or the Supplemental Agreement
other than the representations, warranties and covenants contained and
memorialized in such documents.  The Stipulation supersedes and replaces any
prior or contemporaneous writing, statement or understanding.  Except as
otherwise provided herein, each Party shall bear its own costs.
 
8.10       Counsel for the Settling Parties are expressly authorized by their
respective clients to take all appropriate Action required or permitted to be
taken pursuant to the Stipulation to effectuate its terms and conditions.
 
8.11       Each counsel or other Person executing this Stipulation or any of its
Exhibits on behalf of any party hereto hereby warrants that such Person has the
full authority to do so.
 
8.12       The Stipulation may be executed in one or more counterparts.  All
executed counterparts including facsimile counterparts and each of them shall be
deemed to be one and the same instrument.  A complete set of original executed
counterparts shall be filed with the Court by Lead Plaintiff’s Counsel.
 
8.13       This Stipulation shall be binding upon, and inure to the benefit of,
the Settling Parties and their respective successors, assigns, heirs, spouses,
marital communities, executors, administrators and legal representatives.

 
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8.14       Without affecting the finality of the Judgment entered in accordance
with this Stipulation, the Court shall retain jurisdiction with respect to
implementation and enforcement of the terms of the Stipulation and Judgment, and
the Settling Parties hereto submit to the jurisdiction of the Court for purposes
of implementing and enforcing the Settlement embodied in the Stipulation and
Judgment.
 
8.15       This Stipulation and the Exhibits hereto shall be considered to have
been negotiated, executed and delivered, entered into, and to be wholly
performed, in the State of North Carolina, and the rights and obligations of the
Settling Parties to the Stipulation shall be construed and enforced in
accordance with, and governed by, the internal, substantive laws of the State of
North Carolina without giving effect to that State’s choice of law principles.
 
IN WITNESS WHEREOF, the parties hereto have caused the Stipulation to be
executed, by their duly authorized attorneys, dated as of June 18, 2010.
 
AKIN GUMP STRAUSS HAUER & FELD LLP
NICHOLAS I. PORRITT.
 
/s/ Nicholas Porritt
NICHOLAS I. PORRITT
 
1333 New Hampshire Avenue, NW
Washington, DC 20036
Telephone:  (202) 887-4000
Facsimile:  (202) 887-4268
 
THARRINGTON SMITH LLP
F. HILL ALLEN
209 Fayetteville Street
P.O. Box 1151
Raleigh, NC 27602
Telephone:  (919) 821-4711
Facsimile:  (919) 829-1583
 
Attorneys for Smart Online, Inc., Nicholas A.
Sinigaglia, Scott Whitaker, Frank C. Coll,
C. James Meese, Jr., Philippe Pouponnot,
Shlomo Elia, Jeffrey W. Lerose, and Thomas
P. Furr

 
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/s/ David Y. Sarna
DAVID Y. SARNA
625 N. Forest Drive
Teaneck, NJ 07666
Telephone:  (201) 357-2084
Facsimile:  (201) 905-5628
 
TROUTMAN SANDERS LLP
GARY S. PARSONS
 
/s/ Gary S. Parsons
GARY S. PARSONS
434 Fayetteville Street
Two Hannover Square, Suite 1900
Raleigh, NC 27601
Telephone:  (919) 835-4107
Facsimile:  (919) 829-8715
 
TROUTMAN SANDERS LLP
ELLIOT COHEN
405 Lexington Avenue
New York, NY 10174-0700
Telephone:  (212) 704-6000
Facsimile:  (212) 704-6288
 
Attorneys for Maxim Group, LLC

 
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BAKER & MCKENZIE LLP
MATTHEW ALLISON
 
/s/ Matthew Allison
MATTHEW ALLISON
One Prudential Plaza
130 East Randolph Drive
Chicago, IL 60601
Telephone:  (312) 861-8000
Facsimile:  (312) 861-2899
 
Attorneys for Dennis Michael Nouri, Reza
Eric Nouri, Henry Nouri, and Ronna Nouri

 
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BROWER PIVEN
A PROFESSIONAL CORPORATION
DAVID A. P. BROWER
 
/s/ David A.P. Brower
DAVID A.P. BROWER
488 Madison Avenue, 8th Floor
New York, New York  10022
Telephone:  (212) 501-9000
Facsimile:  (212) 501-0300
 
KAHN SWICK & FOTI, LLC
LEWIS S. KAHN
650 Poydras Street, Suite 2150
New Orleans, Louisiana  70130
Telephone:  (504) 455-1400
Facsimile:  (504) 455-1498
 
Counsel for Lead Plaintiff and the Class
 
CONNORS MORGAN SINOZICH
S. RANCHOR HARRIS, III
(N.C. State Bar #21022)
609B Eugene Court
Greensboro, NC 27401
Telephone:  (336) 333-7901
Facsimile:  (336) 333-7909
 
Liaison Counsel

 
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