Document:

Exhibit 10.44

    
      

    

     

    Exhibit
      10.44

     

    

    THIS
      WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
      APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
      JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED
      FOR
      INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
      OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN
      THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
      ANY
      APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
      APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN EXEMPTION FROM REGISTRATION
      AVAILABLE SO THAT SUCH REGISTRATION IS NOT REQUIRED AND SUCH FOREIGN
      JURISDICTION LAWS HAVE BEEN SATISFIED.

     

    

    

    SMART
      ONLINE, INC.

    STOCK
      PURCHASE WARRANT AND AGREEMENT

     

    WHEREAS,
      on
      November 13, 2006 Atlas Capital, S.A., (the “Holder”)
      issued
      an irrevocable standby letter of credit (the “Letter
      of Credit”)
      to
      secure a revolving credit arrangement (the “Line
      of Credit”)
      for
      Smart Online, Inc. (the “Company”)
      with
      Wachovia Bank, NA ("Wachovia")
      in the
      amount of $1.3 million. 

     

    WHEREAS,
      the
      Company desires to increase the amount of the Line of Credit by $1.2 million
      and
      Wachovia requires a corresponding $1.2 million increase in the Holder’s Letter
      of Credit (the “Letter
      of Credit Increase”).

     

    WHEREAS,
      as
      consideration for the Holder’s agreement to the Letter of Credit Increase, the
      parties have agreed to enter into this Stock Purchase Warrant and Agreement
      (the
“Agreement”),
      which
      represents the issuance of a stock purchase warrant (the “Warrant”)
      to the
      Holder convertible into common stock of the Company at a price of $2.70 (the
      “Exercise
      Price”).

     

    WHEREAS,
      the
      Corporation has received comments from its outside legal counsel regarding
      the
      Agreement and the Warrant.

    

     

    NOW,
      THEREFORE, in
      consideration of the premises, covenants and agreements set forth in this
      Agreement and other good and valuable consideration, the receipt and legal
      sufficiency of which they hereby acknowledge, and intending to be legally bound,
      the parties agree as follows:

     

    

    
      
        
          
          

        

        
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    1.    Issuance
      of Warrant; Term; Price.

    

    1.1    Number
      and Type.
      During
      the Term, this Warrant shall be exercisable by the Holder into up to the number
      of shares of common stock of the Company determined by dividing the Letter
      of
      Credit Increase by the Exercise Price (the “Warrant
      Stock”).
      

    

    1.2.    Term.
      This
      Warrant shall be exercisable at the Holder’s option: (a) at any time the Company
      is in default under the Line of Credit or (b) within thirty (30) business days
      of the termination of the Line of Credit. If (a) this Warrant is not exercised
      within thirty (30) business days of the termination of the Line of Credit,
      or
      (b) if the Holder has not provided the Company with a new or revised letter
      of
      credit reflecting the Letter of Credit Increase by January 22, 2007, all rights
      and obligations of the parties under this Agreement and this Warrant shall
      terminate.

     

    2.    Stock
      Splits and Reverse Stock Splits.
      If at
      any time on or after the date hereof the Company shall subdivide its outstanding
      shares of common stock into a greater number of shares, the Exercise Price
      in
      effect immediately prior to such subdivision shall thereby be proportionately
      reduced and the number of shares of common stock receivable upon exercise of
      this Warrant shall thereby be proportionately increased; and, conversely, if
      at
      any time on or after the date hereof the outstanding number of shares of common
      stock shall be combined into a smaller number of shares, the Exercise Price
      in
      effect immediately prior to such combination shall thereby be proportionately
      increased and the number of shares receivable upon exercise of this Warrant
      shall thereby be proportionately decreased.

    

    3.     No
      Impairment.
      The
      Company will not, by amendment and/or restatement of its certificate of
      incorporation or through any reorganization, recapitalization, transfer of
      assets, consolidation, merger, dissolution, issue or sale of securities or
      any
      other voluntary action, avoid or seek to avoid the observance or performance
      of
      any of the terms to be observed or performed hereunder by the Company and in
      the
      taking of all such action (including, without limitation, amending its
      certificate of incorporation) as may be necessary or appropriate in order to
      protect the rights of the Holder against impairment.

    

    4.    No
      Fractional Shares.
      No
      fractional shares of Warrant Stock will be issued in connection with any
      exercise hereunder. In lieu of any fractional shares that would otherwise be
      issuable, the Company shall pay cash equal to the product of such fraction
      multiplied by the fair market value of one share of Warrant Stock on the date
      of
      exercise, as determined in good faith by the Company's Board of
      Directors.

    

    5.    Reservation
      of Stock.
      The
      Company covenants that during the Term, the Company will reserve from its
      authorized and unissued common stock a sufficient number of shares to provide
      for the issuance of shares of common stock upon the exercise of this Warrant.
      The Company agrees that its issuance of this Warrant shall constitute full
      authority to its officers who are charged with the duty of executing stock
      certificates to execute and issue the necessary certificates for common stock
      upon the exercise of this Warrant. All common stock issuable hereunder shall,
      upon payment therefore in accordance herewith, be duly authorized, validly,
      issued, fully paid and nonassessable.

    

    
      
        
          
          

        

        
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    6.    Exercise
      of Warrant.
      This
      Warrant may be exercised by the Holder by the surrender of this Warrant at
      the
      principal office of the Company, accompanied by payment in full of the purchase
      price of the Warrant Stock purchased thereby and the completed subscription
      form
      attached hereto. This Warrant shall be deemed to have been exercised immediately
      prior to the close of business on the date of exercise as provided above, and
      the person or entity entitled to receive the shares or other securities issuable
      upon such exercise shall be treated for all purposes as the holder of such
      shares of record as of the close of business on such date. As promptly as
      practicable, the Company shall issue and deliver to the person or entity
      entitled to receive the same a certificate or certificates for the number of
      full shares of Warrant Stock issuable upon such exercise, together with cash
      in
      lieu of any fraction of a share as provided above. The shares of Warrant Stock
      issuable upon exercise hereof shall, upon their issuance, be fully paid and
      nonassessable. In the event of partial exercise hereof, the Company shall,
      without charge to the Holder, promptly issue a replacement Warrant for the
      unexercised portion hereof.

    

    7.    Representations
      of the Company.
      The
      Company hereby represents and warrants to the Holder as follows:

    

    7.1    The
      Company has the full legal right, power, capacity and authority to enter into
      this Agreement and the transactions contemplated hereby and to perform its
      obligations pursuant to the terms of this Agreement. This Agreement constitutes
      that Company’s valid and legally binding obligation, enforceable in accordance
      with its terms except as limited by (i) applicable bankruptcy, insolvency,
      receivership, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, and (ii) general
      principals of equity, the application of which may deny the Buyer the right
      to
      specific performance, injunctive relief and other equitable
      remedies.

    

    7.2    The
      Company has not engaged in any general solicitation or advertising as defined
      under Regulation D of the Securities Act of 1933, as amended (the “Securities
      Act”)
      in
      connection with the transfer of the Warrant as contemplated by this Agreement.
      

    

    8.    Representations
      of the Holder.
      The
      Holder hereby represents and warrants to the Company as follows:

     

    8.1.    The
      Holder has the full legal right, power, capacity and authority to enter into
      this Agreement and the transactions contemplated hereby and to perform its
      obligations pursuant to the terms of this Agreement. This Agreement constitutes
      the Holder’s valid and legally binding obligation, enforceable in accordance
      with its terms except as limited by (i) applicable bankruptcy, insolvency,
      receivership, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, and (ii) general
      principals of equity, the application of which may deny the Company the right
      to
      specific performance, injunctive relief and other equitable
      remedies.

    

    
      8.2    The
        Holder has carefully reviewed all current public information regarding the
        Company, including financial information and risk factors, and fully understands
        the risk associated with investment in the Company.

    

     

    

    
      
        
          
          

        

        
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    8.3    The
      Holder is experienced in evaluating and investing in private placement
      transactions of securities of technology companies such as the Company,
      acknowledges that it is able to fend for itself, can bear the economic risk
      of
      its investment, has such knowledge and experience in financial and business
      matters that it is capable of evaluating the merits and risks of the investment
      in the Warrant and the Warrant Stock, and is prepared to hold the Warrant and
      the Warrant Stock for an indefinite period of time. The Holder also represents
      it has not been organized for the purpose of acquiring the Warrant or the
      Warrant Stock. The Holder recognizes that its acceptance of the Warrant and
      Warrant Stock as consideration for the extension of the Standby Letter of Credit
      involves substantial risks, and has taken full cognizance of and understands
      such risks. The Holder also acknowledges and is aware that the Warrant and
      the
      Warrant Stock are a speculative investment involving a high risk of loss by
      it
      of its entire investment.

    

    8.4    The
      Holder is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act, a copy of which definition is attached hereto as Exhibit
      A.

    

    8.5    The
      Holder is acquiring the Warrant and the Warrant Stock for its own account,
      for investment and not with a view to, or for resale in connection with,
      any distribution thereof within the meaning of the Securities Act. The Holder
      has no present intention of selling or distributing the
      Warrant or the Warrant Stock.
      The
      Holder does not have any contract, undertaking, agreement or arrangement with
      any person to sell, transfer or grant participation to such person or to any
      third party with respect to the Warrant or the Warrant Stock other than as
      set
      forth in this Agreement. The Holder understands that the Warrant and, when
      applicable, the Warrant Stock, being transferred to it under this Agreement
      has
      not been registered under the Securities Act by reason of a specific exemption
      from the registration provisions of the Securities Act, which depend upon,
      among
      other things, the bona fide nature of the investment intent as expressed
      herein.

    

    8.6    The
      Holder understands that the Warrant and, when applicable, the Warrant Stock
      are
      not registered under the Securities Act on the grounds that the sale provided
      for in this Agreement and the issuance of the Warrant and, when applicable,
      the
      Warrant Stock hereunder is being made in reliance upon an exemption from the
      registration requirements of the Securities Act pursuant to Section 4 thereof
      and that the Company’s reliance on such exemption is predicated on the Holder’s
      representations as set forth in this Agreement.

    

    8.7    The
      Holder acknowledges that the Warrant, and, when applicable, the Warrant Stock,
      has not been registered under the Securities Act and may not be sold, assigned,
      pledged, hypothecated or transferred, unless there exists an effective
      registration statement therefore under the Securities Act and all applicable
      state securities laws or the Company has received an opinion of counsel,
      reasonably acceptable to counsel for the Company, or other reasonable
      assurances, that such sale, assignment, pledge, hypothecation or transfer is
      exempt from registration. The Holder understands that in the absence of an
      effective registration statement covering the Warrant or the Warrant Stock
      or an
      exemption from the Securities Act and all applicable state securities laws,
      the
      Warrant and the Warrant Stock must be held indefinitely. In particular, the
      Holder is aware that neither the Warrant nor the Warrant Stock may be sold
      pursuant to Rule 144 promulgated under the Securities Act, unless all conditions
      of Rule 144 are met. Among the conditions for use of Rule 144 may be the
      availability of current and adequate information to the public about the
      Company. Notwithstanding the foregoing, no opinion of counsel shall be required
      by the Company in connection with the transfer of the Warrant or the Warrant
      Stock to an entity that is a direct or indirect wholly-owned subsidiary of
      the
      Holder.

    

    
      
        
          
          

        

        
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    8.8    Each
      certificate representing the Warrant Stock if and when issued shall, in addition
      to any legends required elsewhere, bear the following legend:

    

    THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY
      NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR TRANSFERRED UNLESS THERE EXISTS
      AN EFFECTIVE REGISTRATION STATEMENT THEREFORE UNDER THE SECURITIES ACT OF 1933,
      AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS OR THE ISSUER HEREOF HAS
      RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL OF THE
      ISSUER, THAT SUCH SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR TRANSFER IS EXEMPT
      FROM REGISTRATION.

    

    Each
      certificate representing the Warrant Stock shall also bear any legend required
      by any applicable state securities law or by any other agreement to which the
      Holder of the certificate is a party or by which the Holder of the certificate
      thereof is bound.

    

    8.9    The
      Holder has received all information that it considers necessary or appropriate
      for deciding whether to accept the issuance of the Warrant and, when applicable,
      the issuance of the Warrant Stock. The Holder has had an opportunity to ask
      questions and receive answers from the Company’s management regarding the
      Warrant and, when applicable, the Warrant Stock and the business, properties,
      prospects and financial conditions of the Company and to obtain additional
      information from the Company (to the extent that the Company possessed such
      information or could acquire it without reasonable effort or expense) necessary
      to verify the accuracy of any information furnished to the Holder or to which
      the Holder had access.

    

    9.    Mutual
      Indemnification. Each party hereto covenants and agrees to indemnify, defend,
      protect and hold harmless the other party and each of their officers, directors,
      employees, stockholders, assigns, successors and affiliates from, against and
      in
      respect of all liabilities, losses, claims, damages, punitive damages, causes
      of
      action, lawsuits, administrative proceedings (including informal proceedings),
      investigations, audits, demands, assessments, adjustments, judgments, settlement
      payments, deficiencies, penalties, fines, interest (including interest from
      the
      date of such damages) and costs and expenses (including without limitation
      reasonable attorneys’ fees and disbursements of every kind, nature and
      description) suffered, sustained, incurred or paid by the other party or each
      of
      their officers, directors, employees, stockholders, assigns, successors or
      affiliates in connection with, resulting from or arising out of, directly or
      indirectly (a) any breach of any representation or warranty of the indemnifying
      party set forth in this Agreement or (b) any nonfulfillment of any covenant
      or
      agreement by the indemnifying party under this Agreement.

    

    
      
        
          
          

        

        
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    10.    Notice
      of Proposed Transfers.
      Prior
      to any proposed transfer of this Warrant or the Warrant Stock received on the
      exercise of this Warrant (the "Securities"),
      unless there is in effect a registration statement under the Securities Act
      of
      1933, as amended (the "Securities
      Act"),
      covering the proposed transfer, the Holder shall give written notice to the
      Company of the Holder’s intention to effect such transfer. Each such notice
      shall describe the manner and circumstances of the proposed transfer in
      sufficient detail, and shall, if the Company so reasonably requests, be
      accompanied by either (i) written opinion of legal counsel to the effect that
      the proposed transfer of the Securities may be effected without registration
      under the Securities Act, or (ii) a "no action" letter from the Securities
      Exchange Commission (the "Commission")
      to the
      effect that the transfer of such Warrant Stock without registration will not
      result in a recommendation by the staff of the Commission that action be taken
      with respect thereto, whereupon the holder of the Warrant Stock shall be
      entitled to transfer the Warrant Stock in accordance with the terms of the
      notice delivered by the holder to the Company; provided,
      however,
      no such
      registration statement or opinion of counsel shall be necessary for a transfer
      by a holder to any affiliate of such holder, or a transfer by a holder which
      is
      a partnership to a partner of such partnership or a retired partner of such
      partnership who retires after the date hereof, or to the estate of any such
      partner or retired partner or the transfer by gift, will or intestate succession
      of any partner to his spouse or lineal descendants or ancestors, if the
      transferee agrees in writing to be subject to the terms hereof to the same
      extent as if such transferee were the original holder hereunder. Each
      certificate evidencing the Warrant Stock transferred as above provided shall
      bear the appropriate restrictive legend set forth above, except that such
      certificate shall not bear such restrictive legend if in the opinion of counsel
      for the Company such legend is not required in order to establish compliance
      with any provisions of the Securities Act.

    

    11.    Replacement
      of Warrants.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Warrant, and in the case of
      any
      such loss, theft or destruction, upon receipt of an indemnity reasonably
      satisfactory to the Company, or in the case of any such mutilation upon
      surrender and cancellation of this Warrant the Company will execute and deliver,
      in lieu thereof, a new warrant of like tenor.

    

    12.    Miscellaneous.
      This
      Warrant shall be governed by the laws of the State of Delaware. The headings
      in
      this Warrant are for purposes of convenience of reference only, and shall not
      be
      deemed to constitute a part hereof. The invalidity or unenforceability of any
      provision hereof shall in no way affect the validity or enforceability of any
      other provisions. All notices and other communications from the Company to
      the
      Holder shall be delivered personally or mailed by first class mail, postage
      prepaid, to the address furnished to the Company in writing by the Holder who
      shall have furnished an address to the Company in writing, and if mailed shall
      be deemed given three days after deposit in the U.S. Mail.

    

    13.    Amendment.
      Any
      term of this Warrant may be amended with the written consent of the Company
      and
      Holder. Any amendment effected in accordance with this Section
      13
      shall be
      binding upon Holder and the Company.

    

    [Signatures
      on Following Page]

    

    
      
        
          
          

        

        
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    [Signature
      Page to Stock Purchase Warrant and Agreement]

    

    

    IN
      WITNESS WHEREOF, the Holder has executed this Agreement this 15th 
      day of
      January, 2007.

    

    

    
      	 	
              ATLAS
                CAPITAL, S.A.

            
	 	 
	 	 
	 	 
	 	
              By: /s/
                [unintelligible] /s/ Avy Lugassy

            
	 	
              Name:
                

            
	 	
              Title:
                

            

    

    

    

    

    ACCEPTANCE

    

    The
      foregoing Agreement is accepted by the Company this 15th
      day of
      January, 2007.

    

    

    
      	 	
              SMART
                ONLINE, INC.

            
	 	 
	 	 
	 	 
	 	
              By: 
                /s/
                Michael
                Nouri                  
                

            
	 	
              Name:
                

            
	 	
              Title:
                

            

    

    

    

    
      
        
          
          

        

        
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    EXHIBIT
      A

     

    DEFINITION
      OF ACCREDITED INVESTOR 

     

    From
      Rule 501(a) of the Securities Act of 1933, as amended (the
“Act”)

     

     

    Accredited
      investor
      shall
      mean any person who comes within any of the following categories, or who the
      issuer reasonably believes comes within any of the following categories, at
      the
      time of the sale of the securities to that person:

     

    
      	 	
              1.

            	
              Any
                bank as defined in section
                3(a)(2)
                of
                the Act, or any savings and loan association or other institution
                as
                defined in section 3(a)(5)(A) of the Act whether acting in its individual
                or fiduciary capacity; any broker or dealer registered pursuant to
                section
                15
                of
                the Securities Exchange Act of 1934; any insurance company as defined
                in
                section
                2(a)(13)
                of
                the Act; any investment company registered under the Investment Company
                Act of 1940 or a business development company as defined in section
                2(a)(48)
                of
                that Act; any Small Business Investment Company licensed by the U.S.
                Small
                Business Administration under section 301(c) or (d) of the Small
                Business
                Investment Act of 1958; any plan established and maintained by a
                state,
                its political subdivisions, or any agency or instrumentality of a
                state or
                its political subdivisions, for the benefit of its employees, if
                such plan
                has total assets in excess of $5,000,000; any employee benefit plan
                within
                the meaning of the Employee Retirement Income Security Act of 1974
                if the
                investment decision is made by a plan fiduciary, as defined in section
                3(21) of such act, which is either a bank, savings and loan association,
                insurance company, or registered investment adviser, or if the employee
                benefit plan has total assets in excess of $5,000,000 or, if a
                self-directed plan, with investment decisions made solely by persons
                that
                are accredited investors;

            

    

     

    
      	 	
              2.

            	
              Any
                private business development company as defined in section
                202(a)(22)
                of
                the Investment Advisers Act of
                1940;

            

    

     

     

    
      	 	
              3.

            	
              Any
                organization described in section
                501(c)(3) of the Internal Revenue Code,
                corporation, Massachusetts or similar business trust, or partnership,
                not
                formed for the specific purpose of acquiring the securities offered,
                with
                total assets in excess of
                $5,000,000;

            

    

     

    
      	 	
              4.

            	
              Any
                director, executive officer, or general partner of the issuer of
                the
                securities being offered or sold, or any director, executive officer,
                or
                general partner of a general partner of that
                issuer;

            

    

     

    
      	 	
              5.

            	
              Any
                natural person whose individual net worth, or joint net worth with
                that
                person's spouse, at the time of his purchase exceeds
                $1,000,000;

            

    

     

     

     

    

    
      
        
          
          

        

        
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              6.

            	
              Any
                natural person who had an individual income in excess of $200,000
                in each
                of the two most recent years or joint income with that person's spouse
                in
                excess of $300,000 in each of those years and has a reasonable expectation
                of reaching the same income level in the current
                year;

            

    

     

    
      	 	
              7.

            	
              Any
                trust, with total assets in excess of $5,000,000, not formed for
                the
                specific purpose of acquiring the securities offered, whose purchase
                is
                directed by a sophisticated person as described in Rule
                506(b)(2)(ii);
                and

            

    

     

    
      	 	
              8.

            	
              Any
                entity in which all of the equity owners are accredited
                investors.

            

    

     

    

    

    

    
      
        
          
          

        

        
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    NOTICE
      OF EXERCISE

    

    

    

     

    The
      undersigned hereby subscribes for _____ shares of the common stock of Smart
      Online, Inc. (the “Company”)
      pursuant to the terms of the Stock Purchase Warrant and Agreement between the
      Company and the undersigned dated January ___, 2007 (the “Agreement”).
      The
      undersigned certifies to the Company that its representations, warranties and
      covenants contained in the Agreement remain true and correct in all respects.
      The certificate(s) for such shares shall be issued in the name of the
      undersigned or as otherwise indicated below:

    

    

    
      	 	
              ____________________________

              
                Signature

              

            
	 	 
	 	
              Address:  
                ___________________

                              
                ___________________

                              
                ___________________Exhibit 10.45

    
      

    

     

    Exhibit
      10.45

     

    

      SMART
        ONLINE, INC.

      

      REVISED
        BOARD COMPENSATION POLICY

      

      (effective
        February 2, 2007)

      

      1.    Introduction.
        Smart
        Online, Inc. (the “Company”) will compensate non-management directors through
        the payment of Board retainers based on election of the Board in consideration
        of the services provided by such directors and in recognition of their
        responsibilities to the company and potential liabilities associated therewith.
        Management directors are not entitled to receive any directors’ compensation
        outlined in this policy.

      

      2.    Board
        Member Fees.
        Each
        non-management member of the Board of Directors not serving as Chairman of
        the
        Board shall be entitled to monetary and equity compensation in following
        amounts:

      

      A.    Monetary
        Compensation.
        

      

      (1)    Each
        such
        director shall be paid a fee of $1,500 per month, due and payable by the
        fifteenth (15th)
        day of
        each month.

      

      (2)    If
        such
        director also serves as the Chairman of the Company’s Audit Committee, then such
        director shall be paid a fee of $2,000 per month, due and payable by the
        fifteenth (15th)
        day of
        each month, in place of the compensation set forth in Section 2.A.(1),
        above.

      

      (3)    If
        such
        director also serves in any capacity on any other committee of the Board,
        then
        such director shall be paid a fee of $250 per month for each such committee
        on
        which such director serves, due and payable by the fifteenth (15th)
        day of
        each month, such fees to be paid in addition to the amounts

       

      B.    Equity
        Compensation.
        Each
        such director shall, at the sole discretion of the director, be awarded pursuant
        to the Company’s 2004 Equity Compensation Plan either:

      

      (1)    Upon
        such
        director’s appointment or election to the Board, a non-statutory stock option
        grant representing 20,000 shares of the Company’s common stock, having an
        exercise price equal to the fair market value of the Company’s common stock on
        the date of grant. In addition, at the time of the annual meeting of the
        Company’s stockholders, each non-management member of the Board who is
        re-elected to the Board, and who has been serving on the Board for at least
        six
        months prior to the date of the annual meeting, shall be granted an additional
        non-statutory stock option, having an exercise price equal to the fair market
        value of the Company’s common stock on the date of grant. All options granted
        under this Section 2.B.(1) shall vest either (a) quarterly over a year’s time,
        or (b) one the one year anniversary of the award; in either case, provided
        that
        the optionee is a member of the Board of Directors on the applicable vesting
        date; or

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      (2)    Upon
        such
        director’s appointment or election to the Board, an award of 10,000 shares of
        restricted common stock of the Company, valued at the fair market value of
        the
        Company’s common stock on the date of the award. In addition, at the time of the
        annual meeting of the Company’s stockholders, each non-management member of the
        Board who is re-elected to the Board, and who has been serving on the Board
        for
        at least six months prior to the date of the annual meeting, shall be awarded
        additional shares of restricted common stock of the Company, valued at the
        fair
        market value of the Company’s common stock on the date of the award. The
        contractual restrictions on all restricted stock awards granted under this
        Section 2.B.(2) shall lapse quarterly over a year’s time, provided that the
        person is a member of the Board of Directors on the applicable lapse
        date.

      

      3.    Chairman
        of the Board Fees.
        If a
        non-management member of the Board of Directors serves as Chairman of the
        Board,
        she or he shall be entitled to monetary and equity compensation in following
        amounts:

      

      A.    Monetary
        Compensation.
        Such a
        Chairman of the Board shall be paid a fee of $4,000 per month, due and payable
        by the fifteenth (15th)
        day of
        each month.

      

      B.    Equity
        Compensation.
        Each
        such director shall, at the sole discretion of the director, be awarded pursuant
        to the Company’s 2004 Equity Compensation Plan either:

      

      (1)    Upon
        such
        director’s appointment or election to the Board, a non-statutory stock option
        representing 30,000 shares of the Company’s common stock, having an exercise
        price equal to the fair market value of the Company’s common stock on the date
        of grant. In addition, at the time of the annual meeting of the Company’s
        stockholders, each non-management member of the Board who is re-elected to
        the
        Board, and who has been serving on the Board for at least six months prior
        to
        the date of the annual meeting, shall be granted an additional non-statutory
        stock option, having an exercise price equal to the fair market value of
        the
        Company’s common stock on the date of grant. All options granted under this
        Section 3.B.(1) shall vest either (a) quarterly over a year’s time, or (b) one
        the one year anniversary of the award; in either case, provided that the
        optionee is a member of the Board of Directors on the applicable vesting
        date;
        or

       

      (2)    Upon
        such
        director’s appointment or election to the Board, an award of 15,000 shares of
        restricted common stock of the Company, valued at the fair market value of
        the
        Company’s common stock on the date of the award. In addition, at the time of the
        annual meeting of the Company’s stockholders, each non-management member of the
        Board who is re-elected to the Board, and who has been serving on the Board
        for
        at least six months prior to the date of the annual meeting, shall be awarded
        additional shares of restricted common stock of the Company, valued at the
        fair
        market value of the Company’s common stock on the date of the award. The
        contractual restrictions on all restricted stock awards granted under this
        Section 3.B.(2) shall lapse quarterly over a year’s time, provided that the
        person is a member of the Board of Directors on the applicable lapse
        date.

      

      4.    Reimbursement
        for Expenses.
        Each
        non-management director is eligible for expense reimbursement for reasonable
        travel and lodging expenses incurred in connection with his or her attendance
        at
        Board and committee meetings, in accordance with the same standards applicable
        to members of the Company’s executive management. The Company will ensure all
        such reasonable expenses are processed and paid expeditiously upon submission
        to
        the company with the required forms and
        receipts.

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