Unassociated Document


    

    


    December
6, 2010

    


    Smart
Online Inc.

    4505
Emperor Blvd.

    Durham,
NC  27703

    


    Re:        Letter Agreement for
$6,500,000.00 Term Facility

    


    Gentlemen:

    


    Israel
Discount Bank of New York ("IDB") is pleased to advise you that it holds
available for the benefit of Smart Online Inc. (the
"Borrower"), a corporation organized and in good standing under the laws of the
State of Delaware, a multi-draw term loan facility ("Credit Facility") in the
maximum principal amount of $6,500,000.00, subject to the following terms and
conditions of this letter agreement ("Letter Agreement") as set forth
below:

    


    
      
        
          
            
              	
                      Credit Facility:

                    	 
      	
                      IDB
      holds available for the benefit of Borrower the Credit Facility in the
      aggregate amount of $6,500,000.00.  Such Term Facility shall be
      evidenced by IDB's promissory note ("Note") together with the terms and
      conditions set forth in this Letter Agreement:

                    
	 
      	 
      	 
      
	
                      Purpose:

                    	 
      	
                      The
      purpose of the Credit Facility shall be for corporate working capital
      needs and to payoff current outstandings at Paragon
  Bank.

                    
	 
      	 
      	 
      
	
                      Interest and Principal
      Payments:

                    	
                        

                    	
                      (a)  
      Interest. Rate.  Each
      advance under the Credit Facility shall bear interest at a rate to be
      elected by the Borrower at the time of each advance request equal to
      either:

                       
      

                      (i)  
      Prime Rate
      Option:  A rate of interest established by IDB as its
      prime rate of interest, as determined by IDB from time to time (the “Prime
      Rate”), plus a margin of 100 basis points. Any change in the Prime Rate
      shall take effect on the date of the change in the Prime Rate;
      or

                       
      

                      (ii) 
      LIBOR Rate
      Option:  A rate of interest equal to the London interbank
      offered rate of interest, as determined by IDB two business days before
      the beginning of each interest period, or as otherwise determined from
      time to time by IDB (“LIBOR”), as such term
      is defined in the Note, plus a margin of 300 basis points for interest
      periods of two, three or four
months.

                    


            

          

        

      

    

    
    

    
       


      ISRAEL
DISCOUNT BANK OF NEW YORK · MEMBER
FDIC

      511 FIFTH AVE. NEW YORK, NY 10017-4997
· TEL: (212)
551-8500

       

      
        
          
             


          

          
            
            

            
              

            

          

          
             


          

        

      

       

      

      
      

      
      

    

    
      
        
          
            
              
                	 
      	 
      	
                        (b)  
      Interest
      Payments.  Interest on the unpaid principal balance of
      the Note from time to time outstanding shall be payable quarterly pursuant
      to the terms of the Note.

                           
      

                        (c)  
      Interest
      Rate Floor.  There shall be an interest rate floor of
      4.00% for all borrowings under the Credit Facility.

                           
      

                        Principal.

                           
      

                        The
      unpaid principal amount due under the Credit Facility may not be
      reborrowed after it is repaid.

                           
      

                        All
      amounts of interest, principal and other fees and other charges shall be
      payable no later than the Maturity Date (as defined in the Note), or upon
      the occurrence and continuation of an Event of Default (as defined in the
      Note).

                      
	 
      	 
      	 
      
	
                        Fees and Charges:

                      	 
      	
                        Borrower
      shall pay to IDB (i) an up-front fee in the amount of $10,000.00 and (ii)
      a documentation fee in the amount of $1,500.00, contemporaneously with the
      execution of this Letter Agreement.  Borrower hereby authorizes
      IDB to debit its deposit and/or operating account for the payment of such
      fees.

                      
	 
      	 
      	 
      
	
                        Collateral:

                      	 
      	
                        That
      certain (i) irrevocable standby letter of credit issued by HSBC
      Switzerland in favor of IDB in the aggregate amount of $2,500,000.00
      ("HSBC SBLC") and (ii) irrevocable standby letter of credit issued by UBS
      Switzerland in favor of Bank in the aggregate amount of $4,000,000.00
      ("UBS SBLC"), as each may be amended, assigned or otherwise renewed or
      replaced from time to time.

                      
	 
      	 
      	 
      
	
                        Deposit Account:

                      	
                          

                      	
                        From
      and after the date hereof through and including the Maturity Date (as
      defined in the Note), Borrower shall maintain a deposit account (Account
      No. ________________) ("Deposit Account") with IDB with a reserve deposit
      in the minimum amount of $250,000.00, or such lesser amount as IDB may
      require in its sole and absolute discretion, based on the total aggregate
      principal amount outstanding under the Credit Facility at the time in
      question ("Deposit Account Amount"). If the Deposit Account reaches
      $100,000.00, or such lesser amount as IDB may require in its sole and
      absolute discretion, based on the total aggregate principal amount
      outstanding under the Credit Facility at the time in question, the
      Borrower shall be required to immediately replenish the Deposit Account up
      to the lesser of (i) the Deposit Account Amount or (ii) the remaining
      interest payments to be due and payable throughout the term of the Credit
      Facility.  All payments shall be made by automatic debit from
      the Deposit Account and Borrower shall maintain balances sufficient to pay
      the payments.  Such debit will occur on each payment due date
      for interest, as specified in the
Note.

                      


              

            

          

        

      

    

     

    
      ISRAEL
DISCOUNT BANK OF NEW YORK · MEMBER
FDIC

      511 FIFTH AVE. NEW YORK, NY 10017-4997
· TEL: (212)
551-8500

       

      
        
          
             


          

          
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                        Conditions Precedent:

                      	 
      	
                        Prior
      to the Borrower’s initial and each subsequent request for an advance or
      financial accommodation under the Credit Facility, it shall have provided
      to IDB the following:

                      
	        
      	 	 
	 
      	 
      	
                        1.
         A copy of the resolutions passed by the Borrower’s Board of
      Directors, certified by its Secretary, as being in full force and effect
      authorizing the borrowing described herein, incumbency certificate for
      Borrower identifying all authorized officers with specimen signatures and
      the execution of all documents and agreements required by IDB to evidence
      and secure the Credit Facility, which shall include this Letter Agreement
      and the Note, and such other documents, all in form and substance
      acceptable to IDB and its counsel in their sole discretion;

                        2.    
      Copies of the certificates of incorporation or articles of organization of
      the Borrower;

                        3.    
      Payment of all fees, expenses and charges invoiced by IDB;

                        4.   
      Satisfactory completion of standard due diligence, including Know Your
      Customer procedures, searches and reports required by IDB;

                        5.   
      The Borrower shall open and maintain the Deposit Account with IDB with the
      Deposit Account Amount on deposit;

                        6.   
      Borrower shall have furnished to IDB, and IDB shall have approved, the
      HSBC SBLC and/or the UBS SBLC, as applicable, in IDB's sole and absolute
      discretion; and

                        7.    
      The absence of any action, suit, investigation or proceeding pending or
      threatened in any court of before any arbitrator or governmental authority
      that purports (a) to materially and adversely impact the Borrower, or (b)
      to affect any transaction contemplated hereby or the ability of the
      Borrower to perform its obligations under the Credit
    Facility.

                      
	 	 	 
	
                        Financial
      Information:

                      	
                          

                      	
                        The
      Borrower agrees that, so long as any obligations under the Credit Facility
      remain outstanding, the Borrower shall furnish to IDB:

                            
      

                        1.   
      Within 90 days after the end of each of its fiscal years, the financial
      statements of the Borrower dated as of the end of the reported fiscal
      year, which shall be audited
      by a certified public accountant acceptable to IDB, which acceptable
      accountants include Cherry Bekaert Holland, the Borrower’s current
      accounting firm, and be without material exception or qualification except
      as identified in the most recent Annual Report on Form 10-K;

                        2.   
      Within 60 days of each fiscal quarter, the financial statements of the
      Borrower dated as of the end of the reported fiscal quarter, which shall
      be  reviewed by a certified public accountant acceptable to IDB
      and be without material exceptions or qualifications except as identified
      in the most recent Annual Report on Form 10-K; and

                        3.   
      Notice of default, litigation, proceedings or investigations, and material
      changes in accounting or financing reporting
  practices.

                      


              

            

          

        

      

    

     

    
      ISRAEL
DISCOUNT BANK OF NEW YORK · MEMBER
FDIC

      511 FIFTH AVE. NEW YORK, NY 10017-4997
· TEL: (212)
551-8500


        
          
             


          

          
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                          Documentation:

                        	 
      	
                          The
      utilization of the Credit Facility will be subject to the execution and
      delivery to IDB of such agreements, documents, instruments, and
      certificates as may be requested by IDB and its counsel to evidence the
      Credit Facility and other matters relating to the Credit Facility in form
      and substance satisfactory to IDB and its counsel, in their sole
      discretion.  The loan documents shall contain normal and
      customary default provisions, as applicable.  Reasonable legal
      fees and costs shall be for the account of the
Borrower.

                        
	 
      	 
      	 
      
	
                          USA Patriot
      Act:

                        	 
      	
                          To
      comply with applicable law, the Borrower and beneficial owners of the
      Borrower shall provide IDB with verifiable information including: name,
      address, and corporate tax identification number, date of birth and social
      security number (if an individual) and other information.  This
      information may be shared with government agencies and regulators as
      required by applicable law.  The Borrower further confirms and
      represents that it is in compliance with all applicable terms and
      conditions under the USA PATRIOT Act.

                           

                        
	
                          General
      Information:

                        	 
      	
                          The
      Borrower shall supply IDB with other such information, reports, and
      statements as it may reasonably request, and agrees to cooperate with IDB
      in order to comply with the terms and conditions of this Letter
      Agreement.

                        
	 
      	 
      	 
      
	
                          General
      Indemnity:

                        	 
      	
                          Borrower
      shall indemnify IDB, its affiliates and their officers, directors,
      employees, agents and advisors (each, an “Indemnitee”) against, and hold
      each Indemnitee harmless from, any and all losses, claims, damages,
      liabilities and related expenses (including the reasonable fees, charges
      and disbursements of any counsel of any Indemnitee), incurred by any
      Indemnitee or asserted against any Indemnitee by any third party, Borrower
      its affiliates arising out of, in connection with, or as a result of the
      execution and delivery of the loan documents for the Credit Facility or
      any related agreement or instrument contemplated, the performance by the
      parties to the loan documents or their respective obligations under such
      agreements or the consummation of the transactions contemplated by such
      agreements, provided that the Borrower shall have no obligation hereunder
      to any Indemnitee with respect to damages caused directly by the gross
      negligence or willful misconduct of such Indemnitee.

                        
	 
      	 
      	 
      
	
                          Waiver; Jurisdiction

                        	
                            

                        	
                          IT
      IS UNDERSTOOD AND AGREED THAT IN THE EVENT OF ANY LITIGATION OR ACTION
      ARISING OUT OF OR RELATING TO THE CREDIT FACILITY OR THEIR BANKING
      RELATIONSHIP, THE UNDERSIGNED PARTIES UNCONDITIONALLY AND IRREVOCABLY
      WAIVE TRIAL BY JURY AND CONSENT TO THE JURISDICTION OF THE COURTS OF (I)
      THE STATE OF NEW YORK OR (II) THE UNITED STATES DISTRICT COURT FOR THE
      SOUTHERN DISTRICT OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN, NEW
      YORK.  No waiver of any terms or conditions of this Letter
      Agreement or any other loan documents shall be effective unless set forth
      in writing and executed by the Borrower and officers of
    IDB.

                        


                

              

            

          

        

      

    

     

    
      ISRAEL
DISCOUNT BANK OF NEW YORK · MEMBER
FDIC

      511 FIFTH AVE. NEW YORK, NY 10017-4997
· TEL: (212)
551-8500

    


    
      
         


      

      
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                    Applicable Law

                  	 
      	
                    This
      Letter Agreement and the terms and conditions contained herein are to be
      construed according to and governed by the internal laws of the State of
      New York.

                  
	 
      	 
      	 
      
	
                    Acceptance:

                  	
                      

                  	
                    By
      signing below, the Borrower agrees to the terms and conditions set forth
      in this Letter Agreement, which terms may not be amended or modified
      unless in a writing executed by the Borrower and
  IDB.

                  


          

        

      

    

    


    Please
indicate your agreement and acceptance of the foregoing by signing and returning
the enclosed copy of this letter as soon as possible.  Should you have
any questions, please contact the undersigned at your convenience at (212)
551-8568.

    


    
      
        
          
            
              
                	 
      	
                        Very
      truly yours,

                      
	 
      	 
      	 
      
	 
      	
                        ISRAEL
      DISCOUNT BANK OF NEW YORK

                      
	 
      	 
      	 
      
	 
      	
                        By: 

                      	/s/
      Mali Golan
	 
      	 
      	
                        

                          Mali
      Golan, AVP

                        

                      
	 
      	 
      	 
      
	 
      	
                        By: 

                      	/s/
      Michael Paul
	 
      	 
      	
                        

                          Michael
      Paul,
SVP

                        

                      


              

            

          

        

      

    

    


    Agreed
and Accepted:

    


    
      
        
          
            	
                    SMART
      ONLINE INC.

                  	 
      
	 
      	 
      	 
      	 
      
	
                    By:

                  	      
                    /s/
      Dror Zoreff

                  	 
      
	 
      	
                    Name:

                  	
                    Dror
      Zoreff

                  	 
      
	 
      	
                    Title:

                  	
                    Interim
      Chief Executive Officer

                  	 
      
	 
      	 
      	
                    and
      President

                  	 
      


          

        

      

    

    
    

    
      ISRAEL
DISCOUNT BANK OF NEW YORK · MEMBER
FDIC

      511 FIFTH AVE. NEW YORK, NY 10017-4997
· TEL: (212)
551-8500

    
 

    
      
         


      

      
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