EXHIBIT 4.1
SMART ONLINE, INC.
FIRST AMENDMENT TO
CONVERTIBLE SECURED SUBORDINATED NOTE PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO CONVERTIBLE SECURED SUBORDINATED NOTE PURCHASE
AGREEMENT (this "Agreement") is entered into this 12th day of August 2008, by
and among Smart Online, Inc., a Delaware corporation (the "Company"), and each
of the undersigned holders (the "Holders," and individually, a "Holder") of
Secured Subordinated Convertible Promissory Notes (the "Notes") issued pursuant
to that certain Convertible Secured Subordinated Note Purchase Agreement dated
as of November 14, 2007, by and among the Company and the Investors referenced
on Schedule A attached thereto (the "Original Purchase Agreement"). Capitalized
terms used but not defined herein shall have the meanings assigned to them in
the Original Purchase Agreement.
RECITALS
WHEREAS, the Original Purchase Agreement provides that the aggregate
principal amount of the Notes which may be issued in Subsequent Closings of the
sale of Notes under the Original Purchase Agreement shall be no more than
$5,200,000, and the Company and the Holders desire to amend the Original
Purchase Agreement to increase this amount by $6,800,000 to $12,000,000;
WHEREAS, the Original Purchase Agreement requires that each Investor
participate in Subsequent Closings equal to such Investor's pro rata share of
the Subsequent Closing Amount, and the Company and the Holders desire to amend
the Original Purchase Agreement to permit participation by some or all of the
Investors in an amount to be determined by the Company and the Investors
participating in such Subsequent Closing;
WHEREAS, the Company and the Holders desire to make certain amendments to
the representations and warranties of the Company made in the Original Purchase
Agreement; and
WHEREAS, Section 9(a) of each of the Original Purchase Agreement provides
that any provision of the Agreement may be amended with the written consent of
the Company and the Investors holding at least a majority of the aggregate
outstanding principal amount of the Notes (the "Requisite Percentage").
WHEREAS, the Holders constitute the Requisite Percentage necessary to amend
the provisions of the Original Purchase Agreement.
NOW, THEREFORE, in consideration of the promises and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Amendments to Original Purchase Agreement.
(a) Section 1(c) of the Original Purchase Agreement is hereby deleted and
amended and restated in its entirety to read as follows:
"(c) Subsequent Closing; Delivery. Subject to compliance with federal
and applicable state securities laws, at any time after the date of
this Agreement but on or prior to the third anniversary hereof, the
Company may elect to sell and issue to the Investors, and, upon such
election, the Investors shall purchase from the Company in one or more
subsequent closings (each, a "Subsequent Closing"), additional Notes
(the "Additional Notes"); provided that the aggregate principal amount
of all Additional Notes issued in all Subsequent Closings pursuant to
this Agreement does not exceed $12,000,000. Each time the Company
elects to sell Additional Notes in a Subsequent Closing, the Company
shall provide to each Investor written notice of such election (the
"Subsequent Closing Notice"), which notice shall include the aggregate
principal amount of the Additional Notes the Company proposes to sell
in such Subsequent Closing (which amount shall not be less than
$500,000) (the "Subsequent Closing Amount"), the anticipated date upon
which such Subsequent Closing will occur (which date shall not be more
than fifteen (15) days after the Company provides such notice to the
Investors) and the Investor's pro rata share of the Subsequent Closing
Amount (which shall be calculated by dividing the principal amount of
the Note purchased by such Investor in all prior Closings (as
hereinafter defined) by the aggregate principal amount of all Notes
purchased in all prior Closings). At each Subsequent Closing, each
Investor shall purchase an Additional Note equal to such Investor's
pro rata share of the Subsequent Closing Amount, or such other amount
as the Investors participating in such Subsequent Closing and the
Company shall agree. If an Investor does not desire to participate in
a Subsequent Closing (a "Nonparticipating Investor"), it shall notify
the other Investors in writing and the other Investors may (but shall
not be required to) purchase the amount allocated to the
Nonparticipating Investor based on such Investor's pro rata share of
the Notes issued in prior Closings or in such amounts as shall be
agreed by the Company and the Investors participating in such
Subsequent Closing (the "Participating Investors"). The
Nonparticipating Investor shall be relieved of its obligation to
participate in a Subsequent Closing only to the extent that
Participating Investors have elected to purchase the Subsequent
Closing Amount allocated to such Nonparticipating Investor. All such
sales of Additional Notes shall be made on the terms and conditions
set forth in this Agreement and the exhibits attached hereto. Any
Additional Notes sold and issued pursuant to this Section 1(d) shall
be deemed to be "Notes" for all purposes under this Agreement. Should
any such sales be made, the Company shall prepare a revised Schedule I
to this Agreement reflecting such sales. At each Subsequent Closing,
the Company will deliver to each of the Investors participating in
such Subsequent Closing the respective Note to be purchased by such
Investor, against
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receipt by the Company of the corresponding Purchase Price set forth on
Schedule I hereto. Each of the Notes will be registered in such Investor's
name in the Company's records. The Initial Closing and each Subsequent
Closing, if any, shall each be considered a "Closing" for the purposes of
this Agreement and the date of each such Closing shall be a "Closing
Date.""
(b) The initial paragraph of Section 2 is hereby deleted and amended and
restated in its entirety to read as follows:
"Except as otherwise described in the Company's most recent Annual
Report on Form 10-K (and any amendments thereto filed at least two (2)
Business Days prior to the Closing Date), the Company's Quarterly
Reports on Form 10-Q filed after the Company's most recent Annual
Report on Form 10-K (if any) (and any amendments thereto filed at
least two (2) Business Days prior to the Closing Date), the Company's
Proxy Statement for its most recent Annual Meeting of Shareholders,
and any of the Company's Current Reports on Form 8-K filed after the
filing of the Company's most recent Form 10-Q or Form 10-K (and any
amendments thereto filed at least two (2) Business Days prior to the
Closing Date) (all collectively, the "SEC Reports"), the Company
hereby represents and warrants to, and covenants with, the Investor as
of the date hereof and the applicable Closing Date, as follows:"
(c) The first two sentences of Section 2(d) are hereby deleted and amended
and restated in their entirety to read as follows:
"The outstanding capital stock of the Company is as described in the
Company's most recently filed Quarterly Report on Form 10-Q or Annual
Report on Form 10-K. The Company has not made any material issuances
of capital stock since the last day of the quarterly or annual period,
as applicable, of the Company's most recently filed Quarterly Report
on Form 10-Q or Annual Report on Form 10-K, other than pursuant to the
purchase of shares under the Company's employee stock equity plans and
the exercise of outstanding warrants or stock options, in each case as
disclosed in the SEC Reports, as well as the issuance of restricted
shares to certain of its directors as part of its director
compensation program and the issuance of restricted shares to certain
of its employees under our 2004 Equity Compensation Plan."
(d) Schedule 1 to the Original Purchase Agreement shall be amended to
include the schedule set forth in Exhibit A hereto.
2. Ratification. Except as specifically amended pursuant to this
Agreement, the Original Purchase Agreement remains in full force and effect in
accordance with its terms.
3. Validity. The parties agree that this Agreement is entered into in
accordance with Section 9(a) of the Original Purchase Agreement.
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4. Governing Law. This Agreement and all actions arising out of or in
connection with this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to the conflicts of laws
or choice of law provisions thereof.
5. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their heirs, successors and assigns.
[Signature page to follow]
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[Signature page to First Amendment to
Convertible Secured Subordinated Note Purchase Agreement]
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Convertible Secured Subordinated Note Purchase Agreement as of the date first
above written.
COMPANY: SMART ONLINE, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title: President/CEO
HOLDERS: CRYSTAL MANAGEMENT LTD.
By: /s/ Xxxxx Xxxxxxxx
----------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Beneficial Owner
ATLAS CAPITAL S.A.
By: /s/ Avy Xxxxxxx
----------------------------------------
Name: Avy Xxxxxxx
Title: Member of the Management
XXXXXXX XXXX
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THE BLUELINE FUND
By:
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Name:
---------------------------------
Title:
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EXHIBIT A
SCHEDULE I
Schedule of Investors
Subsequent Closing Held on August 12, 2008
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INVESTOR'S NAME AND ADDRESS Initial Closing
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Note Principal Amount
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Crystal Management Ltd. US$250,000
Xxxxxx Xxxxx, Adv.
Gibor Sport House (28th floor)
7, Menahem Begin (Betzalel) St.
Ramat Gan 52521
Israel
Fax.: x000 (0) 000-0000
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Atlas Capital, S.A. US$1,250,000
Xxx xx Xxxxx 000, XX - 0000
Xxxxxx
Xxxxxxxxxxx
Fax:
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Total: US$1,500,000
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