Exhibit 11
SMART ONLINE, INC.
THIRD AMENDMENT TO CONVERTIBLE SECURED SUBORDINATED NOTE
PURCHASE AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT AND AMENDMENT TO CONVERTIBLE
SECURED SUBORDINATED PROMISSORY NOTES
THIS THIRD AMENDMENT TO CONVERTIBLE SECURED SUBORDINATED NOTE PURCHASE
AGREEMENT AND REGISTRATION RIGHTS AGREEMENT AND AMENDMENT TO CONVERTIBLE SECURED
SUBORDINATED PROMISSORY NOTES (this "Agreement") is entered into this 24th day
of February 2009, 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 I attached thereto, as amended on
August 12, 2008 and on November 21, 2008 (as amended, 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, in connection with the sale of the Notes, the Company entered
into the Original Purchase Agreement with the Investors named therein, the
Registration Rights Agreement dated as of November 14, 2007, as amended on
August 12, 2008 and on November 21, 2008 with the Investors named therein (as
amended, the "Original Registration Rights Agreement") and a Security Agreement
dated as of November 14, 2007 with Xxxxx Xxxxxxxx as collateral agent for the
holders of the Notes (the "Security Agreement");
WHEREAS, the Company and the Holders desire to amend the Original
Purchase Agreement and the Original Registration Rights Agreement to permit the
Company to sell Additional Notes to new investors or existing holders of Notes
in one or more Subsequent Closings;
WHEREAS, the Company and the Holders desire to amend the Notes
previously issued to provide that the conversion price of each Note be the same
and be calculated based on the lower of the five day average of the high and low
price of the Company's Common Stock on the applicable market or exchange or the
closing price of the Company's Common Stock on the day immediately preceding
conversion of the Note and to provide that the definition of "Conversion Price"
contained in any Additional Note issued on or after the date hereof shall be
conformed to the definition contained in the Notes, as hereby amended;
WHEREAS, Section 9(a) 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 named therein holding at least a majority of the
aggregate outstanding principal amount of the Notes;
WHEREAS, Section 8 of each of the Notes provides that any provision of
the Notes may be amended with the written consent of the Company and the holders
of a majority of the aggregate outstanding principal amount of the Notes;
WHEREAS, Section 3.6 of the Original Registration Rights Agreement
provides that any provision of the Registration Rights Agreement may be amended
with the written consent of the Company and the Investors named therein holding
at least a majority of the aggregate outstanding principal amount of the Notes;
and
WHEREAS, the Holders constitute a majority of the aggregate outstanding
principal amount of the Notes necessary to amend the provisions of the Original
Purchase Agreement; the Original Registration Rights Agreement and each of the
Notes.
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. Sale of Additional Notes. At any time on or before December 31,
2009, the Company may sell Additional Notes in one or more Subsequent Closings
in the aggregate principle amount of up to $6,000,000 (the "Maximum Amount") to
either existing holders of the Notes (the "Existing Investors") or to new
investors (the "New Investors"), in each case subject to the prior written
approval of the Agent. As a condition to the sale of any Additional Note to a
New Investor, the Company and New Investor will execute an Agreement to Join as
a Party to the Convertible Secured Subordinated Note Purchase Agreement and
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit A (the "Joinder Agreement"). Promptly after each such Subsequent
Closing, the Company shall amend Schedule I to the Original Purchase Agreement,
as hereby amended, and Schedule A to the Original Registration Rights Agreement,
as hereby amended, to reflect the sale of any such Additional Notes without any
action of the Holders or the parties thereto and shall distribute such revised
schedules to the parties to such agreements.
2. Amendment to Original Purchase Agreement. The terms "Investor" and
"Investors" referenced in the Original Purchase Agreement shall be automatically
amended to include any New Investor upon execution of a Joinder Agreement by the
Company and the New Investor and the terms "Note" or "Notes" shall be amended to
include any Additional Notes purchased by a New Investor or Existing Investors.
3. Amendments to Registration Rights Agreement.
(a) The terms "Investor" and "Investors" referenced in the Original
Registration Rights Agreement shall be amended to include any New Investor upon
execution of a Joinder Agreement by the Company and the New Investor and the
terms "Note" or "Notes" shall be amended to include the Additional Note
purchased by a New Investor or Existing Investors.
(b) Section 1.13 of the Registration Rights Agreement shall be
deleted and the following shall be inserted in lieu thereof
"1.13 "Maturity Date" shall have the meaning ascribed thereto in the
Notes issued on or prior to January 6, 2009."
4. Amendments to Notes.
(a) The last sentence of the first paragraph of each Note shall be
deleted and the following shall be inserted in lieu thereof:
"All unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and
payable on the earlier of (i) November 14, 2010, (ii) a Change of
Control or (iii) when, upon or after the occurrence of an Event of
Default (as defined below), such amounts are declared due and
payable by Investor or made automatically due and payable in
accordance with the terms hereof (such date upon which all amounts
payable hereunder are due is referred to herein as the "Maturity
Date")."
(b) Section 1(c) of each Note shall be deleted and the following
shall be inserted in lieu thereof:
"(c) "Conversion Price" shall mean the lowest "Applicable Conversion
Price" determined for each Note issued under the Note Purchase
Agreement. The "Applicable Conversion Price" for each Note issued
under the Note Purchase Agreement shall be calculated by multiplying
120% by the lowest of (i) the average of the high and low prices of
the Common Stock on the OTC Bulletin Board averaged over the five
(5) trading days prior to the Closing Date of the issuance of such
Note, (ii) if the Common Stock is not traded on the Over-The-Counter
market, the closing price of the Common Stock reported on the Nasdaq
National Market or the principal exchange on which the Common Stock
is listed, averaged over the five (5) trading days prior to the
Closing Date of the issuance of such Note, or (iii) the closing
price of the Common Stock on the OTC Bulletin Board, the Nasdaq
National Market or the principal exchange on which the Common Stock
is listed, as applicable, on the trading day immediately preceding
the date such Note is converted (in each case as adjusted for stock
splits, dividends or combinations, recapitalizations or similar
events)."
5. Maturity Date and Conversion Price of Additional Notes.
Notwithstanding the terms of the Original Purchase Agreement and the form of
Note attached thereto as Exhibit A, each Holder agrees that the maturity date of
any Additional Notes issued hereafter may be a date later than November 14, 2010
as determined by the Company and the purchaser of such Additional Notes, and
that the definition of "Conversion Price" set forth in such Additional Notes
shall be the same as provided in the Notes, as hereby amended.
6. Waivers. Each Holder, on behalf of itself and each other Investor
hereby waives (i) the requirement that the Company provide them with notice of
the sale on or prior to December 31, 2009 of Additional Notes up to the Maximum
Amount and the right of Investors to participate in such sale of Additional
Notes, as required pursuant to Section 1(c) of the Original Purchase Agreement
or otherwise and (ii) the requirement that the aggregate principal amount of all
Additional Notes issued in any Subsequent Closing shall not be less than
$500,000.
7. Consent of the Company and the Holders. The Company and the Holders
hereby consent to any New Investors joining as a party to the Original Purchase
Agreement, as hereby amended, and the Original Registration Rights Agreement, as
hereby amended, to the addition of the name of the purchaser of Additional Notes
to the applicable exhibit or schedule to such agreements and to the distribution
of such applicable exhibit or schedule, as amended, to the other parties to such
agreements.
8. Ratification. Except as specifically amended pursuant to this
Agreement, each of the Original Purchase Agreement, the Original Registration
Rights Agreement and the Notes remains in full force and effect in accordance
with its terms.
9. Validity. The parties agree that this Agreement is entered into in
accordance with Section 9(a) of the Original Purchase Agreement, Section 3.6 of
the Registration Rights Agreement and Section 8 of each outstanding Note.
10. 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.
11. 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.
12. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their heirs, successors and
assigns.
13. Effectiveness of Agreement. This Agreement shall become effective
upon its execution by the Company and Holders holding a majority of the
aggregate outstanding principal amount of the Notes.
[Signature page to follow]
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Convertible Secured Subordinated Note Purchase Agreement and Registration Rights
Agreement and Amendment to Convertible Secured Subordinated Promissory Notes as
of the date first above written.
COMPANY: SMART ONLINE, INC.
By: /s/ Xxxxx Xxxxxxxx
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Name: Xxxxx Xxxxxxxx
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Title: Chairman of BOD
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[Signature Page to Third Amendment to Convertible Secured Subordinated Note
Purchase Agreement and Registration Rights Agreement and Amendment to
Convertible Secured Subordinated Promissory Notes]
HOLDERS: CRYSTAL MANAGEMENT LTD.
By: /s/ Xxxxx Xxxxxxxx
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Name: Xxxxx Xxxxxxxx
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Title:
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ATLAS CAPITAL S.A.
By: /s/ Avy Xxxxxxx 24/02/2009
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Name: Avy Xxxxxxx
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Title:
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XXXXXXX XXXX
/s/ Xxxxxxx Xxxx
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THE BLUELINE FUND
By:
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Name:
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Title:
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HSBC PRIVATE BANK (SUISSE) SA
By:
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Name:
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Title:
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[Signature Page to Third Amendment to Convertible Secured Subordinated Note
Purchase Agreement and Registration Rights Agreement and Amendment to
Convertible Secured Subordinated Promissory Notes]
UBP, UNION BANCAIRE PRIVEE
By: /s/ X. Xxxxxxxxxx /s/ X. Xxxxx
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Name: X. Xxxxxxxxxx X. Xxxxx
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Title:
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[Signature Page to Third Amendment to Convertible Secured Subordinated Note
Purchase Agreement and Registration Rights Agreement and Amendment to
Convertible Secured Subordinated Promissory Notes]
Exhibit A
Form of Agreement to Join
Exhibit A
SMART ONLINE, INC.
AGREEMENT TO JOIN AS A PARTY TO THE CONVERTIBLE SECURED
SUBORDINATED NOTE PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
This Agreement to Join as a Party to the Convertible Secured
Subordinated Note Purchase Agreement and Registration Rights Agreement (this
"Agreement") is entered into as of _________ __, 2009, by and between Smart
Online, Inc., a Delaware corporation (the "Company"), and the person or entity
(a "Purchaser") listed on Schedule A attached hereto.
WHEREAS, on November 14, 2007, August 12, 2008, November 21, 2008 and
January 6, 2009, the Company sold convertible subordinated promissory notes (the
"Notes") in the aggregate principal amount of $5,800,000 pursuant to the terms
of a certain Convertible Secured Subordinated Note Purchase Agreement dated as
of November 14, 2007, as amended on August 12, 2008, November 21, 2008 and
February __, 2009 (as amended or supplemented from time to time, the "Purchase
Agreement");
WHEREAS, in connection with the sale of the Notes, the Company entered
into the Registration Rights Agreement dated as of November 14, 2007, as amended
on August 12, 2008, November 21, 2008 and February __, 2009 with the Investors
named therein (as amended or supplemented from time to time, the "Registration
Rights Agreement") and a Security Agreement dated as of November 14, 2007 with
Xxxxx Xxxxxxxx as collateral agent for the holders of the Notes (the "Security
Agreement")
WHEREAS, Section 1 of the Third Amendment to Convertible Secured
Subordinated Note Purchase Agreement and Registration Rights Agreement and
Amendment to Convertible Secured Subordinated Promissory Notes, dated as of
February __, 2009 (the "Third Amendment") provides that the Company is entitled
to include additional purchasers of its Notes as parties to the Purchase
Agreement and the Registration Rights Agreement by amending Schedule 1 to the
Purchase Agreement and Schedule A to the Registration Rights Agreement;
WHEREAS, each of the Purchasers desires to join as a party to the
Purchase Agreement and the Registration Rights Agreement in connection with its
purchase of a Note in the principal amount set forth opposite the Purchaser's
name on Schedule A hereto.
NOW, THEREFORE, in consideration of the premises, the covenants of the
parties set forth below and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, the parties hereby agree
as follows:
1. The Purchaser agrees to purchase and the Company agrees to issue and
sell to the Purchaser a Note in substantially in the form attached to the
Purchase Agreement in the principal amount set forth opposite such Purchaser's
name on Schedule A hereto and with the maturity date set forth on Schedule A
hereto (the "Additional Note"). In connection therewith, the Purchaser hereby
joins as a party and agrees to be bound by the terms and conditions of the
Purchase Agreement and the Registration Rights Agreement on the date hereof. The
Purchaser hereby acknowledges that such Purchaser has received a copy of the
Purchase Agreement, the Registration Rights Agreement and the Security Agreement
and has had the opportunity to review the terms thereof.
2. The Purchaser hereby confirms that each representation and warranty
contained in Section 3 of the Purchase Agreement, is true in all respects on and
as of the date of this Agreement as though such representations and warranties
were made by the Purchaser on and as of the date hereof. The Purchaser further
confirms that all agreements and conditions contained in the Purchase Agreement
that are required to be performed or complied with by the Purchaser on or before
the date hereof have been performed and complied with in all material respects
as of the date hereof.
3. The Purchaser hereby acknowledges and agrees that pursuant to the
Purchase Agreement and the Security Agreement, Xxxxx Xxxxxxxx is appointed as
the agent for the Investors, including the Purchaser, with respect to the
matters set forth therein.
4. The Company hereby consents to the Purchaser joining as a party to
the Purchase Agreement and the Registration Rights Agreement and to the addition
of the name of the Purchaser to Schedule I to the Purchase Agreement and to the
addition of the name of the Purchaser to the Schedule A to the Registration
Rights Agreement.
5. The Purchaser and the Company agree that Purchaser shall be treated
as an "Investor" under the Purchase Agreement and the Registration Rights
Agreement and that the Additional Note shall be deemed to be a "Note" under each
such agreement. The Purchaser and the Company further agree that no amendment to
the Purchase Agreement or the Registration Rights Agreement need be executed by
the parties thereto in order to effect such treatment.
6. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Delaware without regard to conflicts of laws
principles.
7. This Agreement may be executed in one or more counterparts.
8. This Agreement shall become effective with respect to the Purchaser
upon the receipt by the Company of the funds set forth on Schedule A.
9. The Company agrees that upon its receipt of the funds set forth on
Schedule A it shall issue to the Purchase a Note in substantially the form
attached to the Purchase Agreement with the maturity date stated in Schedule A
and that it shall amend Schedule I to the Purchase Agreement and Schedule A to
the Registration Rights Agreement to reflect the purchase of the Additional Note
by the Purchaser.
[Signature page to follow]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
COMPANY: SMART ONLINE, INC.
By:
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Name:
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Title:
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PURCHASER: [NAME OF PURCHASER]
By:
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Name:
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Title:
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[Signature page to Agreement to Join as a Party]
SCHEDULE A TO AGREEMENT TO JOIN AS A PARTY
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Name and Address Principal Amount of Maturity Date of Additional
Additional Note Note
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[Name of Purchaser $
[Address]
Attn:
Tel:
Fax:
Email:
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