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Registration Rights Agreement - SMART ONLINE INC - 9-30-2004

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Registration Rights Agreement - SMART ONLINE INC - 9-30-2004 Powered By Docstoc
					APPENDIX B REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 1, 2004, by and among Smart Online, Inc., a Delaware corporation with its headquarters located at 2530 Meridian Parkway, Durham, North Carolina 27713 (the "Company"), and the undersigned and signatories of counterparts of this Agreement (together with their respective affiliates and any assignees or transferees of all of their respective rights hereunder, the "Investors"). WHEREAS: A. In connection with the Subscription Agreement by and among the parties hereto dated on or after February 1, 2004 (the "Subscription Agreement"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Investors shares of the Company's common stock (the "Common Stock"), upon the terms and subject to the limitations and conditions set forth in such Subscription Agreement; and B. To induce the Investors to execute and deliver the Subscription Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Investors hereby agree as follows: 1. DEFINITIONS. (a) As used in this Agreement, the following terms shall have the following meanings: (i) "Investors" means any person who acquires shares of Common Stock of the Company, or any security of the Company pursuant to which the holder has a right to receive shares of Common Stock of the Company upon exercise or conversion of such security, who agrees to become bound by the provisions of this Agreement or a counterpart of this Agreement and permitted transfers and assignees of Investors in accordance with Section 9 hereof. (ii) "Listing Date" the date on which the Common Stock of the Company becomes listed on the OTCBB. (iii) "OTCBB" the Over-the-Counter Bulletin Board.

(iv) "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). (v) "Registrable Securities" means (x) all shares of Common Stock sold by the Company on or after February 1, 2004 but before the date a Registration Statement covering the Reistrable Securities, including, without limitation, any shares issued pursuant to Section 2(b) of this Agreement (the "Damages Shares"); (y) all shares of Common Stock issued, or issuable pursuant to warrants or other securities, issued to any broker, dealer, finder or other person in connection with the sale of Registrable Securities; and (z) all shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to any of the foregoing. (vi) "Registration Statement" means a registration statement of the Company under the 1933 Act. (b) Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Subscription Agreement. 2. REGISTRATION. (a) MANDATORY REGISTRATION. No later than the earlier of (i) thirty (30) days after the date the Company raises at least $7,000,000 from one or more sales of shares of its securities occurring on or after February 1, 2004 and (ii) July 1, 2004 (the "Target Filing Date"), the Company shall prepare and file with the SEC a Registration Statement on Form S-1, SB-1 or SB-2 as determined by the Company in its sole discretion (or, if such Forms are not then available, on such form of Registration Statement as is then available) to effect a registration of the Registrable Securities covering the resale of the Registrable Securities. The Company may also include in such Registration Statement in its sole discretion, shares for sale by the Company or the Company may file a separate Registration Statement covering shares to be sold by the Company before, at the same time or after the Company files a Registration Statement covering resale of Registrable Securities by Investor. (b) PAYMENTS BY THE COMPANY. The Company shall use its best efforts to obtain effectiveness of the Registration Statement as soon as reasonably practicable. If (i) the Registration Statement covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof is not filed by the Target Filing Date, then the Company will make payments to the Investors in such amounts and at such times as shall be determined pursuant to this Section 2(b) as liquidated damages by reason of any such delay in their ability to sell the Registrable Securities (which remedy shall be exclusive of any other remedies available at law or in equity). The Company shall pay to each holder of Registrable Securities an amount (the "Damage Amount") equal to the product obtained by multiplying (i) the purchase price (the "Purchase Price") paid for the Registrable Securities by the Investor, by (ii) the Applicable 2

Percentage (as defined below) by (iii) the number of 30-day periods (prorated for partial periods) after the Target Filing Date that the Registration Statement covering the Registrable Securities of the Investor is actually filed; provided, however, that there shall be excluded from such period any delays which are attributable (i) to Investor, or any other Investor who holds Registrable Securities, with respect to information relating to the Investors, including, without limitation, the plan of distribution or beneficial ownership of securities, or (ii) to the failure of any Investor (or legal counsel to the Investor) to conduct their review of the Registration Statement pursuant to Section 3(h) below in a reasonably prompt manner or (iii) any person or entity named in the Prospectus as an underwriter. The term "Applicable Percentage" means two percent (2%). (For example, if the Registration Statement is filed thirty days after the Target Filing Date, the Company would pay as the Damage Amount $2,000 for each $100,000 of the Purchase Price. In the sole discretion of the Company, the Company may issue to Investor in lieu of the cash payment described above, a number of shares of Common Stock of the Company equal to the quotient derived by dividing (i) the Damage Amount, by (ii) Purchase Price per share (as defined above). (c) ELIGIBILITY FOR FORM S-3; CONVERSION TO FORM S-3. If the Company meets the registration eligibility and transaction requirements for the use of Form S-3 (or any successor form) for registration of the offer and sale by the Investor and any other Investors of their Registrable Securities before the earlier of the dates stated in clauses (ii) and (iii) in the definition of the Registration Period (as defined in Section 3(a) below), the Company shall file a Registration Statement on Form S-3 (or such successor form) with respect to the Registrable Securities covered by the Registration Statement, filed pursuant to Section 2(a) (and include in such Registration Statement on Form S-3 the information required by Rule 429 under the 1933 Act) or convert the Registration Statement, filed pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933 Act and cause such Registration Statement (or such amendment) to be declared effective as soon as practicable after filing. If the Company becomes eligible to use Form S-3 during the Registration Period, the Company agrees to use reasonable efforts to file all reports required to be filed by the Company with the SEC in a timely manner so as to remain eligible or become eligible, as the case may be, and thereafter to maintain its eligibility, for the use of Form S-3. After such Registration Statement on Form S-3 become effective, subject to Section 3 hereof, the Company shall maintain such Registration Statement in effect until the earlier of clauses (ii) and (iii) in the definition of Registration Period in Section 3(a) hereof. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall have the following obligations: (a) The Company shall prepare promptly, and use reasonable efforts to file with the SEC not later than the Target Filing Date, a Registration Statement with respect to the number of Registrable Securities provided in Section 2 (a), and thereafter use its best efforts to cause such Registration Statement relating to Registrable Securities to become effective as soon as possible after such filing, and use reasonable efforts to keep the Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) 270 days after the effective date of the Registration Statement; (ii) the date on which all of the Registrable 3

Securities have been sold by Investor and (iii) the date on which the Registrable Securities of Investor (in the opinion of counsel to the Company) may be immediately sold to the public without registration or restriction (including without limitation as to volume by Investor) under the 1933 Act (the "Registration Period"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. The right of other Investors to have the Registration Statement remain in effect shall not confer any rights on Investor. (b) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Investor as set forth in the Registration Statement. (c) If requested, the Company shall furnish to one legal counsel for all Investors whose Registrable Securities are included in a Registration Statement (i) promptly (but in no event more than two (2) business days) after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of each Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of the Registration Statement referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) promptly (but in no event more than two (2) business days) after the Registration Statement is declared effective by the SEC, such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by Investor. The Company will immediately notify one legal counsel representing all Investors where Registrable Securities are included in a Registration Statement by facsimile of the effectiveness of each Registration Statement or any post-effective amendment. The Company will promptly respond to any and all comments received from the SEC (which comments shall promptly be made available to one legal counsel representing all Investors whose Registration Securities are included in a Registration Statement upon request), with a view towards causing the Registration Statement or any amendment thereto to be declared effective by the SEC as soon as reasonably practicable, and (ii) promptly file an acceleration request as soon as reasonably practicable (but in no event more than two (2) business days) following the resolution or clearance of all SEC comments. If applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review, the Company shall promptly file with the SEC a final prospectus as soon as reasonably practicable (but in no event more than two (2) business days) following receipt by the Company from the SEC of an order declaring the Registration Statement effective. 4

(d) The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investors who hold a majority of the Registrable Securities being offered by the Registration Statement reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be reasonably necessary to maintain such registrations and qualifications in effect during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) subject itself to general taxation in any such jurisdiction, (iii) file a general consent to service of process in any such jurisdiction, (iv) provide any undertakings that cause the Company undue expense or burden, (v) make any change in its charter or bylaws, or (vi) spend more than $10,000 in filing fees and legal fees and expenses for such "blue sky" compliance. (e) If the Company has not selected an underwriter for the offering, and in the event Investors who hold a majority of the Registrable Securities being offered by the Registration Statement select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. (f) As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and use its best efforts promptly to prepare a supplement or amendment to any Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request; provided that, for not more than sixty (60) consecutive trading days (or a total of not more than ninety (90) trading days in any twelve (12) month period), the Company may delay the disclosure of material non-public information concerning the Company (as well as prospectus or Registration Statement updating) the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company (an "Allowed Delay"); provided, further, that the Company shall promptly (i) notify the Investors in writing of the existence of material non-public information giving rise to an Allowed Delay and (ii) advise the Investors in writing to cease all sales under such Registration Statement until the end of the Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be bound by the first sentence of this Section 3(f) with respect to the information giving rise thereto. 5

(g) The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order within a reasonable time and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. (h) The Company shall permit a single firm of legal counsel designated by Investors who own a majority of the Registrable Securities offered under the Registration Statement to review such Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof) a reasonable period of time prior to their filing with the SEC. The role of such legal counsel to the Investors shall be to confirm that the sections of such Registration Statement covering information with respect to the Investors, the Investor's beneficial ownership of securities of the Company and the Investors intended method of disposition of Registrable Securities shall conform to the information provided to the Company by each of the Investors, subject to review and approval by the Company and its legal counsel. Such legal counsel for the Investors shall not have the right to require changes to the description of the Company, its business or other matters not related to selling stockholders. (i) The Company shall make generally available to its security holders as soon as practicable, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. (j) Until the Registration Statement ceases to be effective, the Company shall make available for inspection following reasonable prior written notice by (i) any underwriter participating in any disposition pursuant to a Registration Statement, (ii) one firm of attorneys or other agents retained by the Investors who own a majority of the Registrable Securities, and (iii) one firm of attorneys retained by all such underwriters (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (b) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to allow such inspection more than once per calendar year. Following such due diligence review, Investor may require the Company to withdraw the Registrable Securities of such Investor from the Registration Statement, if the Company does not make changes to the Registration Statement requested by such Investor. 6

(k) The Company shall not be required to disclose any confidential information in such Records to any Inspector or to any Investor pursuant to this Agreement until and unless such Inspector and Investor shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto. Each Investor agrees that it shall, upon learning that disclosure of such Records or other information is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and any Investor) shall be deemed to limit the Investor's ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations. (l) The Company shall (i) cause all the Registrable Securities covered by the Registration Statement to be listed on each national securities exchange, if any, on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) to the extent the securities of the same class or series are not then listed on a national securities exchange, to use reasonable efforts to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. (m) The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. (n) At the request of the holders of a majority of the Registrable Securities offered pursuant to the Registration Statement, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and any prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement. (o) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. 4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five (5) business days prior to the first anticipated 7

filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor. (b) Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statements hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statements. (c) In the event the Company or Investors holding a majority of the Registrable Securities being registered determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statement. (d) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. (e) No Investor may participate in any underwritten registration hereunder unless such Investor if requested by the Company (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 5 below. Notwithstanding the foregoing, there is no obligation on the part of the Company or any underwriter to include Registrable Securities of Investor in the securities to be purchased or sold by the underwriter. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualification fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and 8

disbursements of one counsel selected by the Investors holding a majority of the Registrable Securities shall be borne by the Company, provided the Company shall not be required to pay legal fees and disbursements of such legal counsel in excess of $15,000. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, (ii) the directors, officers, partners, employees, agents and each person who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter (as defined in the 1933 Act) for the Investors, and (iv) the directors, officers, partners, employees and each person who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an "Indemnified Person"), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or selfregulatory organization, whether commenced or threatened, in respect thereof, "Claims") to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement of a material fact in a Registration Statement or the omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading; (ii) any untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6 (c) with respect to the number of legal counsel, the Company shall reimburse the Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person, or any of their legal counsel, expressly for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. 9

(b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter and any other shareholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such shareholder or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation by such Investor, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor, or its legal counsel, expressly for use in connection with such Registration Statement; and subject to Section 6(c) such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the 10

Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by Investors holding a majority of the Registrable Securities included in the Registration Statement to which the Claim relates (with the approval of a majority-in-interest of the Investors), if the Investors are entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act and (ii) such other 11

information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (v) such transfer shall have been made in accordance with the applicable requirements of the Subscription Agreement, and (vi) such transferee shall be an "accredited investor" as that term defined in Rule 501 of Regulation D promulgated under the 1933 Act. 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company and Investors who hold a majority of the Registrable Securities, except that any person or entity who acquires Registrable Securities may become a part to this Agreement by the Company and such person or entity signing a counterpart of this Agreement. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. In the event the Company becomes a subsidiary of any company whose Common Stock is publicly traded ("Holding Company"), and the Investor receives shares of Common Stock of such Holding Company, all obligations of the Company under this Agreement shall terminate upon such Holding Company assuming this Agreement, which may be done without the consent or approval of Investor. 11. MISCELLANEOUS. (a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective 12

five days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Michael Nouri Smart Online, Inc. Post Office Box 12794 Research Triangle Park, NC 27709-2794 Telephone: (919) 765-5000 E-mail: dnouri@us.smartonline.com With copies to: Daniels Daniels & Verdonik, P.A. Post Office Drawer 12218 Research Triangle Park, NC 27709-2218 Telephone: (919) 544-5444 Facsimile: (919) 544-5920 Email: jverdonik@d2vlaw.com If to an Investor: to the address set forth immediately below such Investor's name on the signature pages to the Subscription Agreement. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. (e) In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. (f) This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This 13

Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. (g) Subject to the requirements of Section 9 hereof, this Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. (h) The headings in this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement. (i) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (j) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (k) Except as otherwise provided herein, all consents and other determinations to be made by the Investors pursuant to this Agreement shall be made by Investors holding a majority of the Registrable Securities, determined as if the all options, warrants and convertible securities then outstanding have been issued and/or converted into Registrable Securities. (l) The Company and each Investor acknowledges that a breach by it of its obligations hereunder will cause irreparable harm by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the parties acknowledge that the remedy at law for breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach of any of the provisions under this Agreement, that the other parties shall be entitled, in addition to all other available remedies in law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required. (m) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (n) No Investor may bring any legal or other action or proceeding for breach of this Agreement or arising out of any matter related to this Agreement, unless the Investors who own a majority of the Registrable Securities consent to the bringing of such action. Any 14

claim may be settled by the Company and the Investors who own a majority of the Registrable Securities. (o) In determining a majority of the Registrable Securities, Investors are deemed to own all Registrable Securities issuable pursuant to any options, warrants convertible securities or other rights to acquire Registrable Securities, whether or not then exercisable or convertible. [The Remainder of this Page is Blank.] 15

IN WITNESS WHEREOF, the Company and the undersigned Investors have caused this Agreement to be duly executed as of the date on the first page of this Agreement. SMART ONLINE, INC. By:__________________________________ Name:________________________________ Title:_______________________________ INVESTOR: By:__________________________________ Name:________________________________ Title:_______________________________ Address:_____________________________ Telephone:___________________________ Facsimile:___________________________ Email:_______________________________ Initial Number of Registrable Securities: _________________ 16

EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Smart Online, Inc. a Delaware corporation (the "Company"), and Michael Nouri (the "Employee"), dated as of the 1st day of April, 2004. WITNESSETH THAT WHEREAS, the Company and the Employee wish to contract for the employment by the Company of the Employee, and the Employee wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; and WHEREAS, the Company is an enterprise whose success is attributable largely to the creation and maintenance of certain Confidential Data (as defined below) and during the period of employment the Employee will be situated to have access to and be knowledgeable with respect to the Confidential Data as well as the customers of the Company; and WHEREAS, Company has a legitimate protectible business interest in the creation and maintenance of its Confidential Data and the protection of the identity of, and related information concerning, its customers and the Company's customer lists; and WHEREAS, the Company wishes to protect its Confidential Data from disclosure by the Employee by means of the restrictive covenants contained in this Agreement and the Employee agrees to such covenants in exchange for the Company's grant of options hereunder, employment of the Employee under the terms of this Agreement, and for other additional good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged; NOW, THEREFORE, it is hereby agreed as follows: 1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and the Employee shall serve the Company, on the terms and conditions set forth in this Agreement. Such employment pursuant to the terms of this Agreement shall commence on June1, 2004, and shall terminate on the first to occur of (i) the termination of this Agreement as provided herein, or (ii) December 31, 2005; provided, however, that if neither party has given written notice to the other, at least one hundred eighty (180) days prior to the expiration date then in effect, of the intention not to renew the Agreement beyond such expiration date or the expiration date for any renewal period, then the term of this Agreement shall automatically extend for an additional two (2) years at the conclusion of the expiration date for the initial term or renewal period as applicable. The term during which this Agreement is in effect is referred to herein as the "Employment Period." 2. POSITION AND DUTIES. (a) During the Employment Period, the Employee shall serve as a full-time employee of the Company as President, Chief Executive Officer and Treasurer, with such duties

and responsibilities as are customarily assigned to such position and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the Board of Directors. (b) During the Employment Period, the Employee shall devote his loyalty, attention, and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee under this Agreement, use the Employee's best efforts to carry out such responsibilities faithfully and efficiently. (c) The Employee shall supervise and manage the Company's worldwide operations and activities. 3. COMPENSATION. (a) Base Salary. The Employee's base salary initially shall be $170,000 per annum, payable monthly, which salary shall be evaluated annually and is subject to such increases as the Board of Directors of the Company approves (in either case, as applicable for such periods, "Annual Base Salary"). (b) Other Benefits. In addition, during the Employment Period the Employee shall be entitled to participate, in accordance with the relevant provisions thereof, in all applicable incentive, savings, and retirement plans, practices, policies, and programs of the Company (including but not limited to disability, health, life and dental insurance) for which senior management employees are eligible generally. (c) All compensation hereunder shall be subject to all applicable federal and state withholding, payroll and other taxes. 4. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. The Company shall be entitled to terminate the Employee's employment because of the Employee's Disability during the Employment Period. "Disability" means that the Employee has been unable, for a period of thirty (30) consecutive calendar days, to perform the Employee's duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the date of receipt of such notice by the Employee (the "Disability Effective Date"). (b) By the Company. (i) The Company may terminate the Employee's employment during the Employment Period for Cause or Without Cause. A termination of the 2

Employee's employment with Cause shall be effective when communicated to the Employee by written notice. "Cause" means: A. participation in a fraud or theft against the Company; B. any chemical dependence which materially adversely affects the performance of his duties and responsibilities to the Company; C. breach of Employee's fiduciary obligations to the Company in a material respect; D. Employee repeatedly willfully fails to perform his duties after written notice with reasonable opportunity to cure; E. material breach of the Company's policies or any material provision of this Agreement; F. gross misconduct resulting in substantial loss to the Company or damage to the reputation of the Company; or G. knowing material violation of securities laws, rules or regulations. (ii) "Without Cause" means termination of Employee's employment for some reason other than that listed in Paragraph 4(b)(i) above. A termination of the Employee's employment Without Cause shall be effective when communicated to the Employee by written notice. (c) By the Employee. The Employee may signify his intention to terminate his employment at any time upon the giving of one hundred eighty (180) days' notice ("Notice Period") to the Company of his intent to do so. Upon the expiration of the Notice Period the termination will be effective and the Date of Termination will be effective as referred to below. The Company reserves the right to accelerate the effective "Date of Termination" in its discretion after the inception of the Notice Period. (d) Date of Termination. The "Date of Termination" means the date of the Employee's death, the Disability Effective Date, the date on which the termination of the Employee's employment by the Company for Cause or Without Cause is effective, or the date on which the termination of the Employee's employment by the Employee is effective, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Termination by the Company without Cause or by the Employee for Good Reason. If the Company terminates the employment of the Employee without Cause (as defined in Section 4(b) above) or if the Employee terminates his employment for Good Reason (as 3

defined below) at any time during which the Employee does not directly, or indirectly through one or more intermediaries, control the Company: (i) the Company shall pay the Employee the portion of his base salary in effect at the time of termination as he may be entitled to receive for services rendered prior to the date of such termination; (ii) the Company shall pay the Employee for any accrued but unused vacation; (iii) for a period of twelve (12) months following the date on which the Employee's employment with the Company terminates, the Company shall continue to pay the Employee his base salary in effect at the time of his termination of employment and shall continue to provide the Employee with all benefits specified in this Agreement, with no adverse tax consequences to the Employee, as if he had remained employed by the Company pursuant to this Agreement during the entire such twelve (12) month period; and (iv) the Company shall take all action necessary to provide that the all stock options held by the Employee shall become fully vested and exercisable, to the extent not already fully vested and exercisable, as of the date of such termination of employment. For purposes of this Agreement, the Employee shall be deemed to have terminated his employment for "Good Reason" if he voluntarily terminates his employment with the Company under any of the following circumstances: (i) any demotion or diminution in the Employee's position, title, reporting position or duties; (ii) any reduction in the Employee's base salary; (iii) failure to reelect Employee as a member of the Company's board of directors; (iv) relocation of the Employee's office to a location more than thirty (30) miles outside of Research Triangle Park, North Carolina; or (v) any material breach of this Agreement by the Company. (b) Termination on Account of Death or Disability. If the Company terminates the employment of the Employee on account of Disability (as defined in Section 4(a) above) of the Employee, or in the event of the Employee's death, the Company shall pay or provide to the Employee or his beneficiary such compensation and benefits as are set forth in subsections (a)(i), (a)(iii) and (a)(iv) above. 4

(c) Termination with Cause. If the Company terminates the employment of the Employee with Cause (as defined in Section 4(b) above), the Company shall pay the Employee or his beneficiary such compensation as is set forth in subsections (a)(i) and (a)(ii) above. 6. CHANGE IN CONTROL. (a) If a Change in Control (as defined in subsection (b) below) occurs and, following the Change in Control either (i) Employee remains employed with the surviving entity for such period of time as shall be specified by the board of directors (or other governing body) of such surviving entity at the time of such Change in Control, (ii) Employee's employment is terminated by the Company without Cause, or (iii) Employee terminates his employment for Good Reason as described in Section 5(a), the Company shall make a lump sum payment to the Employee on the expiration date of the period of time referred to in clause (i) or the effective date of the termination referred to in clause (ii) or (iii), as applicable, of an amount equal to the lesser of (x) 2.99 times that highest amount of the annual cash compensation (including cash bonuses and other cash-based benefits, including for these purposes amounts earned or payable whether or not deferred) received from the Company during any of the five calendar years preceding such date and (y) the largest amount payable to the Employee that would not trigger an excise tax payable by the Employee pursuant to Section 280G of the Internal revenue Code of 1986, as amended. Such payment shall be in addition to the payments and benefits provided in Section 5 (a)(i), 5(a)(ii) and 5(a)(iv) but in lieu of any other salary or benefits under this Agreement. (b) For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) the date on which any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty percent (30%) or more of the outstanding Common Stock of the Company (excluding for this purpose any person or entity beneficially owning more than 50% of the Common Stock of the Company as of the date hereof); or (ii) the date the shareholders of the Company approve a definitive agreement to (A) merge or consolidate the Company with or into another corporation other than with respect to a merger or consolidation which would result in the voting securities of the Company beneficially owned by Employee immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation; (B) sell or otherwise dispose of all or substantially all of the assets of the Company; or (C) dissolve or liquidate the Company. 5

7. EXPENSES. The Company agrees to reimburse the Employee for reasonable and necessary expenses incurred by the Employee in the furtherance of the Company's business in accordance with such procedures as the Company may from time to time establish. 8. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants that: (a) the Employee is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of duties hereunder or other rights of the Company hereunder; and (b) to the best of the Employee's knowledge, the Employee is under no physical or mental disability rendering him incapable of performing the essential functions involved in his anticipated duties or that would otherwise hinder the performance of duties under this Agreement. 9. COVENANT NOT TO COMPETE. The Employee covenants that during the "Noncompetition Period," as defined in paragraph 15, and within the "Noncompetition Area," as defined in paragraph 16, he shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency (other than the Company) engage in the "Business," as defined in paragraph 17. Specifically, but without limiting the foregoing, the Employee agrees that during such period and within such area, he shall not do any of the following: (a) be the owner of the outstanding capital stock of any corporation which conducts a business of a like or similar nature to the "Business" (other than stock of a corporation traded on a national securities exchange or automated quotation system); (b) be an officer or director of any corporation which conducts a business of a like or similar nature to the "Business"; (c) be a member of any partnership which conducts a business of a like or similar nature to the "Business"; or (d) be a consultant to, an owner of or an employee of any other business which conducts a business of a like or similar nature to the Business. 10. NONDISCLOSURE COVENANT. (a) The parties acknowledge that the Company is an enterprise whose success is attributable largely to the ownership, use and development of certain valuable confidential and proprietary information (the "Confidential Data"), and that the Employee's employment with the Company will involve the Employee's access to and work with such information. The Employee acknowledges that his relationship with the Company is a confidential relationship. The Employee covenants and agrees that (i) he shall keep and maintain the Confidential Data in strictest confidence, and (ii) he shall not, either directly or indirectly, use any Confidential Data for his own benefit, or divulge, disclose, or communicate any Confidential Data in any manner whatsoever to any person or entity other than the employees or agents of the Company having a need to know such Confidential Data, and only to the extent necessary to perform their responsibilities on behalf of the Company, and other than in the performance of the Employee's duties in the employment by the Company. The Employee's agreement not to disclose Confidential Data shall apply to all Confidential Data, whether or not the Employee participated in the development thereof. Upon termination of employment for any reason, the Employee will 6

return to the Company all Company documents, notes, programs, data and any other materials (including any copies thereof) in his/her possession. (b) For purposes of this Agreement, the term "Confidential Data" shall include any and all information related to the business of the Company, or to its products, sales or businesses which is not general public knowledge, specifically including (but without limiting the generality of the foregoing) all financial and accounting data; computer software; processes; formulae; inventions; methods; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; patents, patent applications, copyrights and copyright applications (in any such case, whether registered or to be registered in the United States of America or elsewhere) applied for, issued to or owned by the Company; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity, needs and location of all past, present and prospective customers. The parties stipulate that as between them the abovedescribed matters are important and confidential and gravely affect the successful conduct of the business of the Company and that any breach of the terms of this paragraph shall be a material breach of this Agreement. 11. NONSOLICITATION COVENANT. The Employee covenants that during the Noncompetition Period he shall not directly or indirectly, on behalf of himself or on behalf of any other person, firm, partnership, corporation, association or other entity, call upon any of the customers or clients of the Company for the purpose of soliciting or providing any product or service similar to that provided by the Company nor will he, in any way, directly or indirectly, for himself, or on behalf of any other person, firm, partnership, corporation, association, or other entity solicit, divert or take away, or attempt to solicit, divert, or take away any of the customers, clients, business, or patrons of the Company. The Employee further covenants that during the Noncompetition Period he shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency, induce or attempt to induce any person to leave the employ of the Company. 12. INVENTIONS. All inventions, designs, improvements and developments made by the Employee, either solely or in collaboration with others, during his employment with the Company, whether or not during working hours, and relating to any methods, apparatus or products which are manufactured, sold, leased, used or developed by the Company or which pertain to the Business (the "Developments"), shall become and remain the property of the Company. The Employee shall disclose promptly in writing to the Company all such Developments. The Employee acknowledges and agrees that all Developments shall be deemed "works made for hire" within the meaning of the United States Copyright Act, as amended. If, for any reason, such Developments are not deemed works made for hire, the Employee shall assign, and hereby assigns, to the Company, all of the Employee's right, title and interest (including, but not limited to, copyright and all rights of inventorship) in and to such Developments. At the request and expense of the Company, whether during or after employment hereunder, the Employee shall make, execute and deliver all application papers, assignments or instruments, and perform or cause to be performed such other lawful acts as the Company may deem necessary or desirable in making or prosecuting applications, domestic or foreign, for patents (including reissues, continuations and extensions thereof) and copyrights related to such 7

Developments or in vesting in the Company full legal title to such Developments. The Employee shall assist and cooperate with the Company or its representatives in any controversy or legal proceeding relating to such Developments, or to any patents, copyrights or trade secrets with respect thereto. If for any reason the Employee refuses or is unable to assist the Company in obtaining or enforcing its rights with respect to such Developments, the Employee hereby irrevocably designates and appoints the Company and its duly authorized agents as the Employee's agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts necessary to protect the Company's rights in the Developments. The Employee expressly acknowledges that the special foregoing power of attorney is coupled with an interest and is therefore irrevocable and shall survive (i) the Employee's death or incompetency and (ii) any termination of this Agreement. 13. INDEPENDENT COVENANTS. Each of the covenants on the part of the Employee contained in paragraphs 9, 10, 11 and 12 of this Agreement shall be construed as an agreement independent of each other such covenant. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any such covenant, except that failure by the Company to pay all amounts due under this Agreement within thirty (30) days after written notice from Employee shall constitute grounds for termination of Sections 9 and 11 of this Agreement. 14. REASONABLENESS; INJUNCTION. The Employee acknowledges that the covenants contained in this agreement are reasonably necessary and designed for the protection of the Company and its business, and that such covenants are reasonably limited with respect to the activities prohibited, the duration thereof, the geographic area thereof, the scope thereof and the effect thereof on the Employee and the general public. The Employee further acknowledges that violation of the covenants would immeasurably and irreparably damage the Company, and by reason thereof the Employee agrees that for violation or threatened violation of any of the provisions of this Agreement, the Company shall, in addition to any other rights and remedies available to it, at law or otherwise, be entitled to any injunction to be issued by any court of competent jurisdiction enjoining and restraining the Employee from committing any violation or threatened violation of this Agreement. The Employee consents to the issuance of such injunction. Furthermore, the Company shall, in addition to any other rights or remedies available to it, at law or otherwise, be entitled to reimbursement of court costs, attorneys' fees, and other expenses incurred as a result of a breach of this Agreement. The Employee agrees to reimburse the Company for such expenses promptly following a final determination that the Employee has breached this Agreement. In the event of a final determination that Employee has not breached this Agreement, the Company agrees to reimburse the Employee for his court costs and attorneys' fees promptly following such determination. 15. NONCOMPETITION PERIOD. This Agreement shall remain enforceable during the Employee's employment with the Company and for a period of one year after termination of the Employee's employment for any reason. 8

16. NONCOMPETITION AREA. (a) The Employee acknowledges and agrees that the Company does business on an international basis and that the Employee will assist Company in developing Company's business in both the United States and Europe, with customers throughout the United States and additionally existing in Europe, particularly servicing France, Spain and Germany, and that any breach of the Employee's covenants contained herein would materially damage the Company, regardless of the area of the world in which the activities constituting such breach were to occur. Accordingly, the terms and provisions of this Agreement shall apply in the following Noncompetition Area: (b) The State of North Carolina; (c) Any state other than North Carolina where Company conducts the "Business" and in or for which the Employee assists or performs services assisting Company; (d) Any political subdivision of foreign countries where Company does "Business" or will do "Business" during the period of employment; and (e) Any other state, country, or political subdivision where Company does "Business" and in or for which the Employee assists or performs services assisting Company. 17. BUSINESS. For the purposes of this Agreement, the "Business" shall include any business, service, or product engaged in, provided, or produced by the Company from the date of this Agreement to the date of the termination of the employment, including, but not limited to, (i) the business of development, production, marketing, design, manufacturing, leasing or selling software related to business plans, accounting or legal services for use by small businesses, whether for use by professionals or consumes; (ii) the business of development, marketing and operation of a business services Internet portal for use by small businesses, and other products or services related to any of the foregoing; (iii) providing web-hosted applications and technology infrastructure syndication and/or (iv) any other business conducted by the Company immediately prior to the date of termination of Employee's employment or in which the Company shall at the time of termination of Employee's employment with the Company be actively preparing for. For purposes of the foregoing definition of "Business," a "small business" is any business enterprise with fewer than 100 employees and a "business services Internet portal" is a web site providing users with multiple online business resources covering broad topics for small businesses such as, for example only, marketing, financial management, legal, and business strategies using databases, online documents, reference material, chat rooms, newsgroups, hyperlinking or other information tools. 18. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the substantive laws of the State of North Carolina, without giving effect to the conflicts of laws provisions thereof. The Employee hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina. 9

(b) The Company's failure to insist upon strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision. (c) This Agreement may not be modified except by an agreement in writing executed by the parties. The parties expressly waive their right to orally modify this provision. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. (e) This Agreement shall not be assignable without the written consent of the Company and the Employee. (f) This Agreement shall inure to the benefit of and be binding upon the Company and it successors and assigns. (g) This Agreement expresses the whole and entire Employment Agreement between the parties and supersedes and replaces any prior employment agreement, understanding or arrangement between Company and the Employee. 19. This Agreement terminates the Employment Agreement dated July 14, 1999, as amended to date. Except for that agreement, all other agreements between the Company and Employee remain in full force and effect. IN WITNESS WHEREOF, the parties executed this Agreement under seal as of the day and year first above written. SMART ONLINE, INC.
Attest: By: ___________________________ Corporate Secretary By: _____________________________________ Name: ___________________________________ Title: __________________________________

WITNESS: ______________________ EMPLOYEE: _________________________(SEAL) 10

EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Smart Online, Inc. a Delaware corporation (the "COMPANY"), and Henry Nouri (the "EMPLOYEE"), dated as of the 1st day of April, 2004. WITNESSETH THAT WHEREAS, the Company and the Employee wish to contract for the employment by the Company of the Employee, and the Employee wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; and WHEREAS, the Company is an enterprise whose success is attributable largely to the creation and maintenance of certain Confidential Data (as defined below) and during the period of employment the Employee will be situated to have access to and be knowledgeable with respect to the Confidential Data as well as the customers of the Company; and WHEREAS, Company has a legitimate protectible business interest in the creation and maintenance of its Confidential Data and the protection of the identity of, and related information concerning, its customers and the Company's customer lists; and WHEREAS, the Company wishes to protect its Confidential Data from disclosure by the Employee by means of the restrictive covenants contained in this Agreement and the Employee agrees to such covenants in exchange for the Company's grant of options hereunder, employment of the Employee under the terms of this Agreement, and for other additional good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged; NOW, THEREFORE, it is hereby agreed as follows: 1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and the Employee shall serve the Company, on the terms and conditions set forth in this Agreement. Such employment pursuant to the terms of this Agreement shall commence on June1, 2004, and shall terminate on the first to occur of (i) the termination of this Agreement as provided herein, or (ii) December 31, 2005; provided, however, that if neither party has given written notice to the other, at least one hundred eighty (180) days prior to the expiration date then in effect, of the intention not to renew the Agreement beyond such expiration date or the expiration date for any renewal period, then the term of this Agreement shall automatically extend for an additional two (2) years at the conclusion of the expiration date for the initial term or renewal period as applicable. The term during which this Agreement is in effect is referred to herein as the "EMPLOYMENT PERIOD." 2. POSITION AND DUTIES. (a) During the Employment Period, the Employee shall serve as a full-time employee of the Company as Executive Vice President of Product Development, with such

duties and responsibilities as are customarily assigned to such position, including, without limitation, managing the development and updating content for all applications, directing the evaluation of all applications, directing the beta-testing of products, directing the relational aspect of online applications to the rest of the Web site and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the President, Chief Executive Officer or the Board of Directors. (b) During the Employment Period, the Employee shall devote his loyalty, attention, and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee under this Agreement, use the Employee's best efforts to carry out such responsibilities faithfully and efficiently. 3. COMPENSATION. (a) Base Salary. The Employee's base salary initially shall be $150,000 per annum, payable monthly, which salary shall be evaluated annually and is subject to such increases as the Board of Directors of the Company approves (in either case, as applicable for such periods, "ANNUAL BASE SALARY"). (b) Other Benefits. In addition, during the Employment Period the Employee shall be entitled to participate, in accordance with the relevant provisions thereof, in all applicable incentive, savings, and retirement plans, practices, policies, and programs of the Company (including but not limited to disability, health, life and dental insurance) for which senior management employees are eligible generally. (c) All compensation hereunder shall be subject to all applicable federal and state withholding, payroll and other taxes. 4. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. The Company shall be entitled to terminate the Employee's employment because of the Employee's Disability during the Employment Period. "DISABILITY" means that the Employee has been unable, for a period of thirty (30) consecutive calendar days, to perform the Employee's duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the date of receipt of such notice by the Employee (the "DISABILITY EFFECTIVE DATE"). (b) By the Company. (i) The Company may terminate the Employee's employment during the Employment Period for Cause or Without Cause. A termination of the Employee's employment with Cause shall be effective when communicated to the Employee by written notice. "CAUSE" means: 2

A. participation in a fraud or theft against the Company; B. any chemical dependence which materially adversely affects the performance of his duties and responsibilities to the Company; C. breach of Employee's fiduciary obligations to the Company in a material respect; D. Employee repeatedly willfully fails to perform his duties after written notice with reasonable opportunity to cure; E. material breach of the Company's policies or any material provision of this Agreement; F. gross misconduct resulting in substantial loss to the Company or damage to the reputation of the Company; or G. knowing material violation of securities laws, rules or regulations. (ii) "WITHOUT CAUSE" means termination of Employee's employment for some reason other than that listed in Paragraph 4(b)(i) above. A termination of the Employee's employment Without Cause shall be effective when communicated to the Employee by written notice. (c) By the Employee. The Employee may signify his intention to terminate his employment at any time upon the giving of one hundred eighty (180) days' notice ("NOTICE PERIOD") to the Company of his intent to do so. Upon the expiration of the Notice Period the termination will be effective and the Date of Termination will be effective as referred to below. The Company reserves the right to accelerate the effective "Date of Termination" in its discretion after the inception of the Notice Period. (d) Date of Termination. The "DATE OF TERMINATION" means the date of the Employee's death, the Disability Effective Date, the date on which the termination of the Employee's employment by the Company for Cause or Without Cause is effective, or the date on which the termination of the Employee's employment by the Employee is effective, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Termination by the Company without Cause or by the Employee for Good Reason. If the Company terminates the employment of the Employee without Cause (as defined in Section 4(b) above) or if the Employee terminates his employment for Good Reason (as defined below) at any time during which the Employee does not directly, or indirectly through one or more intermediaries, control the Company: 3

(i) the Company shall pay the Employee the portion of his base salary in effect at the time of termination as he may be entitled to receive for services rendered prior to the date of such termination; (ii) the Company shall pay the Employee for any accrued but unused vacation; (iii) for a period of twelve (12) months following the date on which the Employee's employment with the Company terminates, the Company shall continue to pay the Employee his base salary in effect at the time of his termination of employment and shall continue to provide the Employee with all benefits specified in this Agreement, with no adverse tax consequences to the Employee, as if he had remained employed by the Company pursuant to this Agreement during the entire such twelve (12) month period; and (iv) the Company shall take all action necessary to provide that the all stock options held by the Employee shall become fully vested and exercisable, to the extent not already fully vested and exercisable, as of the date of such termination of employment. For purposes of this Agreement, the Employee shall be deemed to have terminated his employment for "GOOD REASON" if he voluntarily terminates his employment with the Company under any of the following circumstances: (i) any demotion or diminution in the Employee's position, title, reporting position or duties; (ii) any reduction in the Employee's base salary; (iii) failure to reelect Employee as a member of the Company's board of directors; (iv) relocation of the Employee's office to a location more than thirty (30) miles outside of Research Triangle Park, North Carolina; or (v) any material breach of this Agreement by the Company. (b) Termination on Account of Death or Disability. If the Company terminates the employment of the Employee on account of Disability (as defined in Section 4(a) above) of the Employee, or in the event of the Employee's death, the Company shall pay or provide to the Employee or his beneficiary such compensation and benefits as are set forth in subsections (a)(i), (a)(iii) and (a)(iv) above. (c) Termination with Cause. If the Company terminates the employment of the Employee with Cause (as defined in Section 4(b) above), the Company shall pay the 4

Employee or his beneficiary such compensation as is set forth in subsections (a)(i) and (a)(ii) above. 6. CHANGE IN CONTROL. (a) If a Change in Control (as defined in subsection (b) below) occurs and, following the Change in Control either (i) Employee remains employed with the surviving entity for such period of time as shall be specified by the board of directors (or other governing body) of such surviving entity at the time of such Change in Control, (ii) Employee's employment is terminated by the Company without Cause, or (iii) Employee terminates his employment for Good Reason as described in Section 5(a), the Company shall make a lump sum payment to the Employee on the expiration date of the period of time referred to in clause (i) or the effective date of the termination referred to in clause (ii) or (iii), as applicable, of an amount equal to the lesser of (x) 2.99 times that highest amount of the annual cash compensation (including cash bonuses and other cash-based benefits, including for these purposes amounts earned or payable whether or not deferred) received from the Company during any of the five calendar years preceding such date and (y) the largest amount payable to the Employee that would not trigger an excise tax payable by the Employee pursuant to Section 280G of the Internal revenue Code of 1986, as amended. Such payment shall be in addition to the payments and benefits provided in Section 5 (a)(i), 5(a)(ii) and 5(a)(iv) but in lieu of any other salary or benefits under this Agreement. (b) For purposes of this Agreement, a "CHANGE IN CONTROL" shall be deemed to have occurred on the earliest of the following dates: (i) the date on which any entity or person shall have become the beneficial owner of, or shall have obtained voting control over, thirty percent (30%) or more of the outstanding Common Stock of the Company (excluding for this purpose any person or entity beneficially owning more than 50% of the Common Stock of the Company as of the date hereof); or (ii) the date the shareholders of the Company approve a definitive agreement to (A) merge or consolidate the Company with or into another corporation other than with respect to a merger or consolidation which would result in the voting securities of the Company beneficially owned by Employee immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation; (B) sell or otherwise dispose of all or substantially all of the assets of the Company; or (C) dissolve or liquidate the Company. 7. EXPENSES. The Company agrees to reimburse the Employee for reasonable and necessary expenses incurred by the Employee in the furtherance of the Company's business in accordance with such procedures as the Company may from time to time establish. 5

8. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants that: (a) the Employee is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of duties hereunder or other rights of the Company hereunder; and (b) to the best of the Employee's knowledge, the Employee is under no physical or mental disability rendering him incapable of performing the essential functions involved in his anticipated duties or that would otherwise hinder the performance of duties under this Agreement. 9. COVENANT NOT TO COMPETE. The Employee covenants that during the "NONCOMPETITION PERIOD," as defined in paragraph 15, and within the "NONCOMPETITION AREA," as defined in paragraph 16, he shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency (other than the Company) engage in the "BUSINESS," as defined in paragraph 17. Specifically, but without limiting the foregoing, the Employee agrees that during such period and within such area, he shall not do any of the following: (a) be the owner of the outstanding capital stock of any corporation which conducts a business of a like or similar nature to the "Business" (other than stock of a corporation traded on a national securities exchange or automated quotation system); (b) be an officer or director of any corporation which conducts a business of a like or similar nature to the "Business"; (c) be a member of any partnership which conducts a business of a like or similar nature to the "Business"; or (d) be a consultant to, an owner of or an employee of any other business which conducts a business of a like or similar nature to the Business. 10. NONDISCLOSURE COVENANT. (a) The parties acknowledge that the Company is an enterprise whose success is attributable largely to the ownership, use and development of certain valuable confidential and proprietary information (the "CONFIDENTIAL DATA"), and that the Employee's employment with the Company will involve the Employee's access to and work with such information. The Employee acknowledges that his relationship with the Company is a confidential relationship. The Employee covenants and agrees that (i) he shall keep and maintain the Confidential Data in strictest confidence, and (ii) he shall not, either directly or indirectly, use any Confidential Data for his own benefit, or divulge, disclose, or communicate any Confidential Data in any manner whatsoever to any person or entity other than the employees or agents of the Company having a need to know such Confidential Data, and only to the extent necessary to perform their responsibilities on behalf of the Company, and other than in the performance of the Employee's duties in the employment by the Company. The Employee's agreement not to disclose Confidential Data shall apply to all Confidential Data, whether or not the Employee participated in the development thereof. Upon termination of employment for any reason, the Employee will return to the Company all Company documents, notes, programs, data and any other materials (including any copies thereof) in his/her possession. 6

(b) For purposes of this Agreement, the term "CONFIDENTIAL DATA" shall include any and all information related to the business of the Company, or to its products, sales or businesses which is not general public knowledge, specifically including (but without limiting the generality of the foregoing) all financial and accounting data; computer software; processes; formulae; inventions; methods; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; patents, patent applications, copyrights and copyright applications (in any such case, whether registered or to be registered in the United States of America or elsewhere) applied for, issued to or owned by the Company; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity, needs and location of all past, present and prospective customers. The parties stipulate that as between them the above-described matters are important and confidential and gravely affect the successful conduct of the business of the Company and that any breach of the terms of this paragraph shall be a material breach of this Agreement. 11. NONSOLICITATION COVENANT. The Employee covenants that during the Noncompetition Period he shall not directly or indirectly, on behalf of himself or on behalf of any other person, firm, partnership, corporation, association or other entity, call upon any of the customers or clients of the Company for the purpose of soliciting or providing any product or service similar to that provided by the Company nor will he, in any way, directly or indirectly, for himself, or on behalf of any other person, firm, partnership, corporation, association, or other entity solicit, divert or take away, or attempt to solicit, divert, or take away any of the customers, clients, business, or patrons of the Company. The Employee further covenants that during the Noncompetition Period he shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency, induce or attempt to induce any person to leave the employ of the Company. 12. INVENTIONS. All inventions, designs, improvements and developments made by the Employee, either solely or in collaboration with others, during his employment with the Company, whether or not during working hours, and relating to any methods, apparatus or products which are manufactured, sold, leased, used or developed by the Company or which pertain to the Business (the "DEVELOPMENTS"), shall become and remain the property of the Company. The Employee shall disclose promptly in writing to the Company all such Developments. The Employee acknowledges and agrees that all Developments shall be deemed "WORKS MADE FOR HIRE" within the meaning of the United States Copyright Act, as amended. If, for any reason, such Developments are not deemed works made for hire, the Employee shall assign, and hereby assigns, to the Company, all of the Employee's right, title and interest (including, but not limited to, copyright and all rights of inventorship) in and to such Developments. At the request and expense of the Company, whether during or after employment hereunder, the Employee shall make, execute and deliver all application papers, assignments or instruments, and perform or cause to be performed such other lawful acts as the Company may deem necessary or desirable in making or prosecuting applications, domestic or foreign, for patents (including reissues, continuations and extensions thereof) and copyrights related to such Developments or in vesting in the Company full legal title to such Developments. The Employee shall assist and cooperate with the Company or its representatives in any controversy or legal proceeding relating to such Developments, or to any patents, copyrights or trade secrets 7

with respect thereto. If for any reason the Employee refuses or is unable to assist the Company in obtaining or enforcing its rights with respect to such Developments, the Employee hereby irrevocably designates and appoints the Company and its duly authorized agents as the Employee's agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts necessary to protect the Company's rights in the Developments. The Employee expressly acknowledges that the special foregoing power of attorney is coupled with an interest and is therefore irrevocable and shall survive (i) the Employee's death or incompetency and (ii) any termination of this Agreement. 13. INDEPENDENT COVENANTS. Each of the covenants on the part of the Employee contained in paragraphs 9, 10, 11 and 12 of this Agreement shall be construed as an agreement independent of each other such covenant. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any such covenant, except that failure by the Company to pay all amounts due under this Agreement within thirty (30) days after written notice from Employee shall constitute grounds for termination of Sections 9 and 12 of this Agreement. 14. REASONABLENESS; INJUNCTION. The Employee acknowledges that the covenants contained in this agreement are reasonably necessary and designed for the protection of the Company and its business, and that such covenants are reasonably limited with respect to the activities prohibited, the duration thereof, the geographic area thereof, the scope thereof and the effect thereof on the Employee and the general public. The Employee further acknowledges that violation of the covenants would immeasurably and irreparably damage the Company, and by reason thereof the Employee agrees that for violation or threatened violation of any of the provisions of this Agreement, the Company shall, in addition to any other rights and remedies available to it, at law or otherwise, be entitled to any injunction to be issued by any court of competent jurisdiction enjoining and restraining the Employee from committing any violation or threatened violation of this Agreement. The Employee consents to the issuance of such injunction. Furthermore, the Company shall, in addition to any other rights or remedies available to it, at law or otherwise, be entitled to reimbursement of court costs, attorneys' fees, and other expenses incurred as a result of a breach of this Agreement. The Employee agrees to reimburse the Company for such expenses promptly following a final determination that the Employee has breached this Agreement. In the event of a final determination that Employee has not breached this Agreement, the Company agrees to reimburse the Employee for his court costs and attorneys' fees promptly following such determination. 15. NONCOMPETITION PERIOD. This Agreement shall remain enforceable during the Employee's employment with the Company and for a period of one year after termination of the Employee's employment for any reason. 16. NONCOMPETITION AREA. (a) The Employee acknowledges and agrees that the Company does business on an international basis and that the Employee will assist Company in developing Company's business in both the United States and Europe, with customers throughout the United States and 8

additionally existing in Europe, particularly servicing France, Spain and Germany, and that any breach of the Employee's covenants contained herein would materially damage the Company, regardless of the area of the world in which the activities constituting such breach were to occur. Accordingly, the terms and provisions of this Agreement shall apply in the following Noncompetition Area: (b) The State of North Carolina; (c) Any state other than North Carolina where Company conducts the "Business" and in or for which the Employee assists or performs services assisting Company; (d) Any political subdivision of foreign countries where Company does "Business" or will do "Business" during the period of employment; and (e) Any other state, country, or political subdivision where Company does "Business" and in or for which the Employee assists or performs services assisting Company. 17. BUSINESS. For the purposes of this Agreement, the "Business" shall include any business, service, or product engaged in, provided, or produced by the Company from the date of this Agreement to the date of the termination of the employment, including, but not limited to, (i) the business of development, production, marketing, design, manufacturing, leasing or selling software related to business plans, accounting or legal services for use by small businesses, whether for use by professionals or consumes; (ii) the business of development, marketing and operation of a business services Internet portal for use by small businesses, and other products or services related to any of the foregoing; (iii) providing web-hosted applications and technology infrastructure syndication and/or (iv) any other business conducted by the Company immediately prior to the date of termination of Employee's employment or in which the Company shall at the time of termination of Employee's employment with the Company be actively preparing for. For purposes of the foregoing definition of "Business," a "SMALL BUSINESS" is any business enterprise with fewer than 100 employees and a "BUSINESS SERVICES INTERNET PORTAL" is a web site providing users with multiple online business resources covering broad topics for small businesses such as, for example only, marketing, financial management, legal, and business strategies using databases, online documents, reference material, chat rooms, newsgroups, hyperlinking or other information tools. 18. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the substantive laws of the State of North Carolina, without giving effect to the conflicts of laws provisions thereof. The Employee hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina. (b) The Company's failure to insist upon strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision. 9

(c) This Agreement may not be modified except by an agreement in writing executed by the parties. The parties expressly waive their right to orally modify this provision. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. (e) This Agreement shall not be assignable without the written consent of the Company and the Employee. (f) This Agreement shall inure to the benefit of and be binding upon the Company and it successors and assigns. (g) This Agreement expresses the whole and entire Employment Agreement between the parties and supersedes and replaces any prior employment agreement, understanding or arrangement between Company and the Employee. 19. This Agreement terminates the Employment Agreement dated July 14, 1999, as amended to date. Except for that agreement, all other agreements between the Company and Employee remain in full force and effect. IN WITNESS WHEREOF, the parties executed this Agreement under seal as of the day and year first above written. SMART ONLINE, INC.
Attest: By: ___________________________ Corporate Secretary By: _____________________________________ Name: ___________________________________ Title: __________________________________

WITNESS: ______________________ EMPLOYEE: _________________________(SEAL) 10

EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Smart Online, Inc. a Delaware corporation (the "Company"), and Ronna Loprete (the "Employee"), dated as of the 1st day of April, 2004. WITNESSETH THAT WHEREAS, the Company and the Employee wish to contract for the employment by the Company of the Employee, and the Employee wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; and WHEREAS, the Company is an enterprise whose success is attributable largely to the creation and maintenance of certain Confidential Data (as defined below) and during the period of employment the Employee will be situated to have access to and be knowledgeable with respect to the Confidential Data as well as the customers of the Company; and WHEREAS, Company has a legitimate protectible business interest in the creation and maintenance of its Confidential Data and the protection of the identity of, and related information concerning, its customers and the Company's customer lists; and WHEREAS, the Company wishes to protect its Confidential Data from disclosure by the Employee by means of the restrictive covenants contained in this Agreement and the Employee agrees to such covenants in exchange for the Company's grant of options hereunder, employment of the Employee under the terms of this Agreement, and for other additional good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged; NOW, THEREFORE, it is hereby agreed as follows: 1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and the Employee shall serve the Company, on the terms and conditions set forth in this Agreement. Such employment pursuant to the terms of this Agreement shall commence on June 1, 2004, and shall terminate on the first to occur of (i) the termination of this Agreement as provided herein, or (ii) December 31, 2005; provided, however, that if neither party has given written notice to the other, at least thirty (30) days prior to the expiration date then in effect, of the intention not to renew the Agreement beyond such expiration date, then the term of this Agreement shall automatically extend for an additional one (1) year at the conclusion of such expiration date. The term during which this Agreement is in effect is referred to herein as the "Employment Period." 2. POSITION AND DUTIES. (a) During the Employment Period, the Employee shall serve as a full-time employee of the Company as Vice President of Administration and Secretary, with such duties and responsibilities as are customarily assigned to such position, including, without limitation, all human resources planning and administration, general contract administration and such other

duties and responsibilities not inconsistent therewith as may from time to time be assigned to her by the President, Chief Executive Officer or the Board of Directors. (b) During the Employment Period, the Employee shall devote her loyalty, attention, and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee under this Agreement, use the Employee's best efforts to carry out such responsibilities faithfully and efficiently. (c) The Employee shall supervise and manage the Company's worldwide operations and activities. 3. COMPENSATION. (a) Base Salary. The Employee's base salary shall be $120,000 per annum, payable monthly, which salary shall be reevaluated annually and is subject to such increases as the Board of Directors approves. The term "Annual Base Salary" shall refer to the base salary prevailing during the applicable period until such time of any increase in base salary whereupon it shall thereafter refer to such increased amount. (b) Other Benefits. In addition, during the Employment Period the Employee shall be entitled to participate, in accordance with the relevant provisions thereof, in all applicable incentive, savings, and retirement plans, practices, policies, and programs of the Company (including but not limited to disability, health, life and dental insurance) for which senior management employees are eligible generally. (c) All compensation hereunder shall be subject to all applicable federal and state withholding, payroll and other taxes. 4. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. The Company shall be entitled to terminate the Employee's employment because of the Employee's Disability during the Employment Period. "Disability" means that the Employee has been unable, for a period of thirty (30) consecutive calendar days, to perform the Employee's duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the date of receipt of such notice by the Employee (the "Disability Effective Date"). (b) By the Company. (i) The Company may terminate the Employee's employment at any time during the Employment Period for Cause or Without Cause. A termination of the Employee's employment with Cause shall be effective when communicated 2

to the Employee by verbal or written notice. "Cause" means unacceptable conduct, including: A. participation in a fraud or act of dishonesty against the Company; B. any chemical dependence which affects the performance of her duties and responsibilities to the Company; C. breach of Employee's fiduciary obligations to the Company; D. Employee willfully fails to perform her duties; E. breach of the Company's policies or any material provision of this Agreement; F. misconduct resulting in loss to the Company or damage to the reputation of the Company; or G. conduct by the Employee which, in the determination of the Company's Board of Directors, demonstrates unfitness to serve. (ii) "Without Cause" means termination of Employee's employment for some reason other than that listed in Paragraph 4(b)(i) above. A termination of the Employee's employment Without Cause shall be effective when communicated to the Employee by verbal or written notice. (c) By the Employee. The Employee may signify her intention to terminate her employment at any time upon the giving of sixty (60) days' notice ("Notice Period") to the Company of her intent to do so. Upon the expiration of the Notice Period the termination will be effective and the Date of Termination will be effective as referred to below. The Company reserves the right to accelerate the effective "Date of Termination" in its discretion after the inception of the Notice Period. (d) Date of Termination. The "Date of Termination" means the date of the Employee's death, the Disability Effective Date, the date on which the termination of the Employee's employment by the Company for Cause or Without Cause is effective, or the date on which the termination of the Employee's employment by the Employee is effective, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Termination by the Company Without Cause or by the Employee for Good Reason. If the Company terminates the employment of the Employee without Cause (as 3

defined in Section 4(b) above) or if the Employee terminates her employment for Good Reason (as defined below): (i) the Company shall pay the Employee the portion of her base salary in effect at the time of termination as she may be entitled to receive for services rendered prior to the date of such termination; (ii) the Company shall pay the Employee for any accrued but unused vacation; (iii) for a period of three (3) months following the date on which the Employee's employment with the Company terminates, the Company shall continue to pay the Employee her base salary in effect at the time of her termination of employment and shall continue to provide the Employee with all benefits specified in this Agreement, with no adverse tax consequences to the Employee, as if she had remained employed by the Company pursuant to this Agreement during the entire such three (3) month period; and (iv) the Company shall take all action necessary to provide that the all stock options held by the Employee shall become fully vested and exercisable, to the extent not already fully vested and exercisable, as of the date of such termination of employment. For purposes of this Agreement, the Employee shall be deemed to have terminated her employment for "Good Reason" if she voluntarily terminates her employment with the Company under any of the following circumstances: (i) any demotion or diminution in the Employee's position, title, reporting position or duties; (ii) any reduction in the Employee's base salary; (iii) failure to reelect Employee as a member of the Company's board of directors; (iv) relocation of the Employee's office to a location more than thirty (30) miles outside of Research Triangle Park, North Carolina; or (v) any material breach of this Agreement by the Company. (b) Termination on Account of Death or Disability. If the Company terminates the employment of the Employee on account of Disability (as defined in Section 4(a) above) of the Employee, or in the event of the Employee's death, the Company shall pay or provide to the Employee or her beneficiary such compensation and benefits as are set forth in subsections (a)(i), (a)(iii) and (a)(iv) above. 4

(c) Termination with Cause. If the Company terminates the employment of the Employee with Cause (as defined in Section 4(b) above), the Company shall pay the Employee or her beneficiary such compensation as is set forth in subsections (a)(i) and (a)(ii) above. 6. EXPENSES. The Company agrees to reimburse the Employee for reasonable and necessary expenses incurred by the Employee in the furtherance of the Company's business in accordance with such procedures as the Company may from time to time establish. 7. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants that: (a) the Employee is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of duties hereunder or other rights of the Company hereunder; and (b) to the best of the Employee's knowledge, the Employee is under no physical or mental disability rendering her incapable of performing the essential functions involved in her anticipated duties or that would otherwise hinder the performance of duties under this Agreement. 8. COVENANT NOT TO COMPETE. The Employee covenants that during the "Noncompetition Period," as defined in paragraph 14, and within the "Noncompetition Area," as defined in paragraph 15, she shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency (other than the Company) engage in the "Business," as defined in paragraph 16. Specifically, but without limiting the foregoing, the Employee agrees that during such period and within such area, she shall not do any of the following: (a) be the owner of the outstanding capital stock of any corporation which conducts a business of a like or similar nature to the "Business" (other than stock of a corporation traded on a national securities exchange or automated quotation system); (b) be an officer or director of any corporation which conducts a business of a like or similar nature to the "Business"; (c) be a member of any partnership which conducts a business of a like or similar nature to the "Business"; or (d) be a consultant to, an owner of or an employee of any other business which conducts a business of a like or similar nature to the Business. 9. NONDISCLOSURE COVENANT. (a) The parties acknowledge that the Company is an enterprise whose success is attributable largely to the ownership, use and development of certain valuable confidential and proprietary information (the "Confidential Data"), and that the Employee's employment with the Company will involve the Employee's access to and work with such information. The Employee acknowledges that her relationship with the Company is a confidential relationship. The Employee covenants and agrees that (i) she shall keep and maintain the Confidential Data in strictest confidence, and (ii) she shall not, either directly or indirectly, use any Confidential Data for her own benefit, or divulge, disclose, or communicate any Confidential Data in any manner whatsoever to any person or entity other than the employees or agents of the Company having a 5

need to know such Confidential Data, and only to the extent necessary to perform their responsibilities on behalf of the Company, and other than in the performance of the Employee's duties in the employment by the Company. The Employee's agreement not to disclose Confidential Data shall apply to all Confidential Data, whether or not the Employee participated in the development thereof. Upon termination of employment for any reason, the Employee will return to the Company all Company documents, notes, programs, data and any other materials (including any copies thereof) in her possession. (b) For purposes of this Agreement, the term "Confidential Data" shall include any and all information related to the business of the Company, or to its products, sales or businesses which is not general public knowledge, specifically including (but without limiting the generality of the foregoing) all financial and accounting data; computer software; processes; formulae; inventions; methods; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; patents, patent applications, copyrights and copyright applications (in any such case, whether registered or to be registered in the United States of America or elsewhere) applied for, issued to or owned by the Company; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity, needs and location of all past, present and prospective customers. The parties stipulate that as between them the abovedescribed matters are important and confidential and gravely affect the successful conduct of the business of the Company and that any breach of the terms of this paragraph shall be a material breach of this Agreement. 10. NONSOLICITATION COVENANT. The Employee covenants that during the Noncompetition Period she shall not directly or indirectly, on behalf of herself or on behalf of any other person, firm, partnership, corporation, association or other entity, call upon any of the customers or clients of the Company for the purpose of soliciting or providing any product or service similar to that provided by the Company nor will he, in any way, directly or indirectly, for himself, or on behalf of any other person, firm, partnership, corporation, association, or other entity solicit, divert or take away, or attempt to solicit, divert, or take away any of the customers, clients, business, or patrons of the Company. The Employee further covenants that during the Noncompetition Period she shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency, induce or attempt to induce any person to leave the employ of the Company. 11. INVENTIONS. All inventions, designs, improvements and developments made by the Employee, either solely or in collaboration with others, during her employment with the Company, whether or not during working hours, and relating to any methods, apparatus or products which are manufactured, sold, leased, used or developed by the Company or which pertain to the Business (the "Developments"), shall become and remain the property of the Company. The Employee shall disclose promptly in writing to the Company all such Developments. The Employee acknowledges and agrees that all Developments shall be deemed "works made for hire" within the meaning of the United States Copyright Act, as amended. If, for any reason, such Developments are not deemed works made for hire, the Employee shall assign, and hereby assigns, to the Company, all of the Employee's right, title and interest (including, but not limited to, copyright and all rights of inventorship) in and to such 6

Developments. At the request and expense of the Company, whether during or after employment hereunder, the Employee shall make, execute and deliver all application papers, assignments or instruments, and perform or cause to be performed such other lawful acts as the Company may deem necessary or desirable in making or prosecuting applications, domestic or foreign, for patents (including reissues, continuations and extensions thereof) and copyrights related to such Developments or in vesting in the Company full legal title to such Developments. The Employee shall assist and cooperate with the Company or its representatives in any controversy or legal proceeding relating to such Developments, or to any patents, copyrights or trade secrets with respect thereto. If for any reason the Employee refuses or is unable to assist the Company in obtaining or enforcing its rights with respect to such Developments, the Employee hereby irrevocably designates and appoints the Company and its duly authorized agents as the Employee's agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts necessary to protect the Company's rights in the Developments. The Employee expressly acknowledges that the special foregoing power of attorney is coupled with an interest and is therefore irrevocable and shall survive (i) the Employee's death or incompetency and (ii) any termination of this Agreement. 12. INDEPENDENT COVENANTS. Each of the covenants on the part of the Employee contained in paragraphs 8, 9, 10, and 11 of this Agreement shall be construed as an agreement independent of each other such covenant. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any such covenant. 13. REASONABLENESS; INJUNCTION. The Employee acknowledges that the covenants contained in this agreement are reasonably necessary and designed for the protection of the Company and its business, and that such covenants are reasonably limited with respect to the activities prohibited, the duration thereof, the geographic area thereof, the scope thereof and the effect thereof on the Employee and the general public. The Employee further acknowledges that violation of the covenants would immeasurably and irreparably damage the Company, and by reason thereof the Employee agrees that for violation or threatened violation of any of the provisions of this Agreement, the Company shall, in addition to any other rights and remedies available to it, at law or otherwise, be entitled to any injunction to be issued by any court of competent jurisdiction enjoining and restraining the Employee from committing any violation or threatened violation of this Agreement. The Employee consents to the issuance of such injunction. Furthermore, the Company shall, in addition to any other rights or remedies available to it, at law or otherwise, be entitled to reimbursement of court costs, attorneys' fees, and other expenses incurred as a result of a breach of this Agreement. The Employee agrees to reimburse the Company for such expenses promptly following a final determination that the Employee has breached this Agreement. In the event of a final determination that Employee has not breached this Agreement, the Company agrees to reimburse the Employee for her court costs and attorneys' fees promptly following such determination. 14. NONCOMPETITION PERIOD. This Agreement shall remain enforceable during the Employee's employment with the Company and for a period of one year after termination of 7

the Employee's employment for any reason (such period not to include any period(s) of violation or period(s) of time required for litigation to enforce the covenants set forth herein). 15. NONCOMPETITION AREA. (a) The Employee acknowledges and agrees that the Company does business on an international basis and that the Employee will assist Company in developing Company's business in both the United States and Europe, with customers throughout the United States and additionally existing in Europe, particularly servicing France, Spain and Germany, and that any breach of the Employee's covenants contained herein would materially damage the Company, regardless of the area of the world in which the activities constituting such breach were to occur. Accordingly, the terms and provisions of this Agreement shall apply in the following Noncompetition Area: (b) The State of North Carolina; (c) Any state other than North Carolina where Company conducts the "Business" and in or for which the Employee assists or performs services assisting Company; (d) Any political subdivision of foreign countries where Company does "Business" or will do "Business" during the period of employment; and (e) Any other state, country, or political subdivision where Company does "Business" and in or for which the Employee assists or performs services assisting Company. 16. BUSINESS. For the purposes of this Agreement, the "Business" shall include any business, service, or product engaged in, provided, or produced by the Company from the date of this Agreement to the date of the termination of the employment, including, but not limited to: (i) the business of development, production, marketing, design, manufacturing, leasing or selling software related to business plans, legal services, whether for use by professionals or consumers; (ii) providing web-hosted applications and technology infrastructure syndication and/or (iii) any other business conducted by the Company immediately prior to the date of termination of Employee's employment or in which the Company shall at the time of termination of Employee's employment with the Company be actively preparing to enter. 17. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the substantive laws of the State of North Carolina, without giving effect to the conflicts of laws provisions thereof. The Employee hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina. (b) The Company's failure to insist upon strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision. 8

(c) This Agreement may not be modified except by an agreement in writing executed by the parties. The parties expressly waive their right to orally modify this provision. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. (e) This Agreement shall not be assignable without the written consent of the Company and the Employee. (f) This Agreement shall inure to the benefit of and be binding upon the Company and it successors and assigns. (g) This Agreement expresses the whole and entire Employment Agreement between the parties and supersedes and replaces any prior employment agreement, understanding or arrangement between Company and the Employee. 18. This Agreement terminates the Employment Agreement dated June 29, 1999, as amended to date. Except for that agreement, all other agreements between the Company and Employee remain in full force and effect. IN WITNESS WHEREOF, the parties executed this Agreement under seal as of the day and year first above written. SMART ONLINE, INC. By:__________________________________ Title:_______________________________ WITNESS: ______________________ EMPLOYEE: ___________________________ 9

EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") by and between Smart Online, Inc. a Delaware corporation (the "Company"), and Jose Collazo (the "Employee"), dated as of the 1st day of May, 2004. WITNESSETH THAT WHEREAS, the Company and the Employee wish to contract for the employment by the Company of the Employee, and the Employee wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; WHEREAS, the Company is an enterprise whose success is attributable largely to the creation and maintenance of certain Confidential Data (as defined below) and during the period of employment the Employee will be situated to have access to and be knowledgeable with respect to the Confidential Data as well as the customers of the Company; and WHEREAS, Company has a legitimate protectible business interest in the creation and maintenance of its Confidential Data and the protection of the identity of, and related information concerning, its customers and the Company's customer lists; and WHEREAS, the Company wishes to protect its Confidential Data from disclosure by the Employee by means of the restrictive covenants contained in this Agreement and the Employee agrees to such covenants in exchange for the Company's commitment to continue to employ the Employee and for other additional consideration agreed to between the parties; NOW, THEREFORE, it is hereby agreed as follows: 1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and the Employee shall serve the Company, on the terms and conditions set forth in this Agreement. Such employment pursuant to this Agreement shall commence on the date hereof and, unless earlier terminated as hereinafter provided, shall continue for an initial period through December 31, 2005. The Company may extend the period of employment of the Employee pursuant to this Agreement for additional periods of up to one (1) year for each extension by written notice to the Employee given not less than ninety (90) days prior to the expiration of the initial period or any renewal period. The period of employment of Employee hereunder shall be hereinafter referred to as the Employment Period. 2. POSITION AND DUTIES. (a) During the Employment Period, the Employee shall serve as a full-time employee of the Company as Vice President, Internet Development, with such duties and responsibilities as are customarily assigned to such position and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the President, Chief Executive Officer or Board of Directors.

(b) During the Employment Period, the Employee shall devote his loyalty, attention, and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee under this Agreement, use the Employee's best efforts to carry out such responsibilities faithfully and efficiently. (c) The Employee's services shall be performed primarily at the Company's headquarters in Durham, North Carolina. 3. COMPENSATION. (a) Base Salary. The Employee's base salary shall be $100,000 per annum, payable monthly, which salary shall be reevaluated annually and is subject to such increases as the Board of Directors approves. Effective June 1, 2004 Employee's base salary shall be $120,000 per annum. The term "Annual Base Salary" shall refer to the base salary prevailing during the applicable period until such time of any increase in base salary whereupon it shall thereafter refer to such increased amount. (b) Stock Options. The Company and the Employee shall execute a Stock Option Agreement dated as of May 1, 2004 whereby the Company grants options to purchase an aggregate of 75,000 shares of the Company's Class Common Stock pursuant to the Company's 2004 Equity Compensation Plan. (c) Other Benefits. In addition, during the Employment Period the Employee shall be entitled to participate, in accordance with the relevant provisions thereof, in all applicable incentive, savings, and retirement plans, practices, policies, and programs of the Company for which senior management employees are eligible generally. (d) All compensation hereunder shall be subject to all applicable federal and state withholding, payroll and other taxes. 4. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. The Company shall be entitled to terminate the Employee's employment because of the Employee's Disability during the Employment Period. "Disability" means that the Employee has been unable, for a period of thirty (30) consecutive calendar days, to perform the Employee's duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the date of receipt of such notice by the Employee (the "Disability Effective Date"). (b) By the Company. (i) The Company may terminate the Employee's employment at any time during the Employment Period for Cause or without Cause. A termination of 2

the Employee's employment with Cause shall be effective when communicated to the Employee by verbal or written notice. "Cause" means unacceptable conduct, including: A. participation in a fraud or act of dishonesty against the Company; B. any chemical dependence which affects the performance of his duties and responsibilities to the Company; C. breach of Employee's fiduciary obligations to the Company; D. Employee willfully fails to perform his duties; E. breach of the Company's policies or any material provision of this Agreement; F. misconduct resulting in loss to the Company or damage to the reputation of the Company; or G. conduct by the Employee which, in the determination of the Company's Board of Directors, demonstrates unfitness to serve. (ii) "Without cause" means termination of Employee's employment for some reason other than that listed in Paragraph 4(b)(i) above. A termination of the Employee's employment Without Cause shall be effective when communicated to the Employee by verbal or written notice. (c) By the Employee. The Employee may signify his intention to terminate his employment at any time upon the giving of ninety (90) days' notice ("Notice Period") to the Company of his intent to do so. Upon the expiration of the Notice Period the termination will be effective and the Date of Termination will be effective as referred to below. The Company reserves the right to accelerate the effective "Date of Termination" in its discretion after the inception of the Notice Period. (d) Date of Termination. The "Date of Termination" means the date of the Employee's death, the Disability Effective Date, the date on which the termination of the Employee's employment by the Company for Cause or without Cause is effective, or the date on which the termination of the Employee's employment by the Employee is effective, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Termination by the Company Without Cause or by the Employee for Good Reason. If the Company terminates the employment of the Employee without Cause (as 3

defined in Section 4(b) above) or if the Employee terminates her employment for Good Reason (as defined below): (i) the Company shall pay the Employee the portion of his base salary in termination as he may be entitled to receive for services rendered prior to the date of such termination; (ii) for a period of three (3) months following the date on which the Employee's employment with the Company terminates, the Company shall continue to pay the Employee her base salary in effect at the time of her termination of employment and shall continue to provide the Employee with all benefits specified in this Agreement, with no adverse tax consequences to the Employee, as if she had remained employed by the Company pursuant to this Agreement during the entire such three (3) month period; and For purposes of this Agreement, the Employee shall be deemed to have terminated her employment for "Good Reason" if she voluntarily terminates his employment with the Company under any of the following circumstances: (i) any demotion or diminution in the Employee's position, title, reporting position or duties; (ii) relocation of the Employee's office to a location more than thirty (30) miles outside of Research Triangle Park, North Carolina; or (iii) any material breach of this Agreement by the Company. (b) By the Company for Cause; By the Employee; Death or Disability. If the Employee's employment is terminated by the Company for Cause during the Employment Period, if Employee terminates employment during the Employment Period or if the Employee's employment is terminated by reason of the Employee's death or disability during the Employment Period, the Company shall pay the Employee the Annual Base Salary (then in effect) through the Date of Termination and the Company shall have no further obligations under this Agreement. 6. EXPENSES. The Company agrees to reimburse the Employee for reasonable and necessary expenses incurred by the Employee in the furtherance of the Company's business in accordance with such procedures as the Company may from time to time establish. 7. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants that: (a) the Employee is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of duties hereunder or other rights of the Company hereunder; and 4

(b) to the best of the Employee's knowledge, the Employee is under no physical or mental disability which will render him incapable of performing the essential functions involved in his anticipated duties or that would otherwise hinder the performance of duties under this Agreement. 8. COVENANT NOT TO COMPETE. The Employee covenants that during the "Noncompetition Period," as defined in paragraph 14, and within the "Noncompetition Area," as defined in paragraph 15, he shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency engage in the "Business," as defined in paragraph 16. Specifically, but without limiting the foregoing, the Employee agrees that during such period and within such area, he shall not do any of the following: (a) be the owner of the outstanding capital stock of any corporation which conducts a business of a like or similar nature to the "Business" (other than stock of a corporation traded on a national securities exchange or automated quotation system); (b) be an officer or director of any corporation which conducts a business of a like or similar nature to the "Business"; (c) be a member of any partnership which conducts a business of a like or similar nature to the "Business"; or (d) be a consultant to, an owner of or an employee of any other business which conducts a business of a like or similar nature to the Business. 9. NONDISCLOSURE COVENANT. (a) The parties acknowledge that the Company is an enterprise whose success is attributable largely to the ownership, use and development of certain valuable confidential and proprietary information (the "Confidential Data"), and that the Employee's employment with the Company will involve the Employee's access to and work with such information. The Employee acknowledges that his relationship with the Company is a confidential relationship. The Employee covenants and agrees that (i) he shall keep and maintain the Confidential Data in strictest confidence, and (ii) he shall not, either directly or indirectly, use any Confidential Data for his own benefit, or divulge, disclose, or communicate any Confidential Data in any manner whatsoever to any person or entity other than the employees or agents of the Company having a need to know such Confidential Data, and only to the extent necessary to perform their responsibilities on behalf of the Company, and other than in the performance of the Employee's duties in the employment by the Company. The Employee's agreement not to disclose Confidential Data shall apply to all Confidential Data, whether or not the Employee participated in the development thereof. Upon termination of employment for any reason, the Employee will return to the Company all documents, notes, programs, data and any other materials (including any copies thereof) in his/her possession. (b) For purposes of this Agreement, the term "Confidential Data" shall include any and all information related to the business of the Company, or to its products, sales or businesses which is not general public knowledge, specifically including (but without limiting the generality of the foregoing) all financial and accounting data; computer software; processes; formulae; inventions; methods; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; patents, patent applications, copyrights and copyright applications (in any such case, whether registered or to be registered in the United 5

States of America or elsewhere) applied for, issued to or owned by the Company; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity, needs and location of all past, present and prospective customers. The parties stipulate that as between them the above-described matters are important and confidential and gravely affect the successful conduct of the business of the Company and that any breach of the terms of this paragraph shall be a material breach of this Agreement. 10. NONSOLICITATION COVENANT. The Employee covenants that during the Noncompetition Period he shall not directly or indirectly, on behalf of himself or on behalf of any other person, firm, partnership, corporation, association or other entity, call upon any of the customers or clients of the Company for the purpose of soliciting or providing any product or service similar to that provided by the Company nor will he, in any way, directly or indirectly, for himself, or on behalf of any other person, firm, partnership, corporation, association, or other entity, solicit, divert or take away, or attempt to solicit, divert, or take away any of the customers, clients, business, or patrons of the Company. The Employee further covenants that during the Noncompetition Period he shall not induce or attempt to induce any person to leave the employ of the Company. 11. INVENTIONS. All inventions, designs, improvements and developments made by the Employee, either solely or in collaboration with others, during his employment with the Company, whether or not during working hours, and relating to any methods, apparatus or products which are manufactured, sold, leased, used or developed by the Company or which pertain to the Business (the "Developments"), shall become and remain the property of the Company. The Employee shall disclose promptly in writing to the Company all such Developments. The Employee acknowledges and agrees that all Developments shall be deemed "works made for hire" within the meaning of the United States Copyright Act, as amended. If, for any reason, such Developments are not deemed works made for hire, the Employee shall assign, and hereby assigns, to the Company, all of the Employee's right, title and interest (including, but not limited to, copyright and all rights of inventorship) in and to such Developments. At the request and expense of the Company, whether during or after employment hereunder, the Employee shall make, execute and deliver all application papers, assignments or instruments, and perform or cause to be performed such other lawful acts as the Company may deem necessary or desirable in making or prosecuting applications, domestic or foreign, for patents (including reissues, continuations and extensions thereof) and copyrights related to such Developments or in vesting in the Company full legal title to such Developments. The Employee shall assist and cooperate with the Company or its representatives in any controversy or legal proceeding relating to such Developments, or to any patents, copyrights or trade secrets with respect thereto. If for any reason the Employee refuses or is unable to assist the Company in obtaining or enforcing its rights with respect to such Developments, the Employee hereby irrevocably designates and appoints the Company and its duly authorized agents as the Employee's agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts necessary to protect the Company's rights in the Developments. The Employee expressly acknowledges that the special foregoing power of attorney is coupled with an interest and is therefore irrevocable and shall survive (i) the Employee's death or incompetency and (ii) any termination of this Agreement. 6

12. INDEPENDENT COVENANTS. Each of the covenants on the part of the Employee contained in paragraphs 8, 9, 10, and 11 of this Agreement shall be construed as an agreement independent of each other such covenant. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any such covenant. 13. REASONABLENESS; INJUNCTION. The Employee acknowledges that the covenants contained in this agreement are reasonably necessary and designed for the protection of the Company and its business, and that such covenants are reasonably limited with respect to the activities prohibited, the duration thereof, the geographic area thereof, the scope thereof and the effect thereof on the Employee and the general public. The Employee further acknowledges that violation of the covenants would immeasurably and irreparably damage the Company, and by reason thereof the Employee agrees that for violation or threatened violation of any of the provisions of this Agreement, the Company shall, in addition to any other rights and remedies available to it, at law or otherwise, by entitled to any injunction to be issued by any court of competent jurisdiction enjoining and restraining the Employee from committing any violation or threatened violation of this Agreement. The Employee consents to the issuance of such injunction. 14. NONCOMPETITION PERIOD. This Agreement shall remain enforceable during the Employee's employment with the Company and for a period of two years after termination of the Employee's employment for any reason (such period not to include any period(s) of violation or period(s) of time required for litigation to enforce the covenants set forth herein). 15. NONCOMPETITION AREA. (a) The Employee acknowledges and agrees that the Company does business on an international basis and that the Employee will assist Company in developing Company's business in both the United States and Europe, with customers throughout the United States and additionally existing in Europe, particularly servicing France, Spain, the United Kingdon and Germany, and that any breach of the Employee's covenants contained herein would materially damage the Company, regardless of the area of the world in which the activities constituting such breach were to occur. Accordingly, the terms and provisions of this Agreement shall apply in the following Noncompetition Area: (i) The State of North Carolina; (ii) Any state other than North Carolina where Company conducts the "Business" and in or for which the Employee assists or performs services assisting Company; (iii) Any political subdivision of foreign countries where Company does "Business" or will do "Business" during the period of employment; and 7

(iv) Any other state, country, or political subdivision where Company does "Business" and in or for which the Employee assists or performs services assisting Company. 16. BUSINESS. For the purposes of this Agreement, the "Business" shall include any business, service, or product engaged in, provided, or produced by the Company from the date of this Agreement to the date of the termination of the employment, including, but not limited to: (i) the business of development, production, marketing, design, manufacturing, leasing or selling software related to business plans, legal services, whether for use by professionals or consumers; (ii) providing web-hosted applications and technology infrastructure syndication and/or (iii) any other business conducted by the Company immediately prior to the date of termination of Employee's employment or in which the Company shall at the time of termination of Employee's employment with the Company be actively preparing to enter. 17. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the substantive laws of the State of North Carolina, without giving effect to the conflicts of laws provisions thereof. The Employee hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina. (b) The Company's failure to insist upon strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision. (c) This Agreement may not be modified except by an agreement in writing executed by the parties. The parties expressly waive their right to orally modify this provision. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. (e) This Agreement shall not be assignable without the written consent of the Company and the Employee. (f) This Agreement shall inure to the benefit of and be binding upon the Company and it successors and assigns. (g) This Agreement expresses the whole and entire Employment Agreement between the parties and supersedes and replaces any prior employment Agreement, understanding or arrangement between Company and the Employee. 18. This Agreement terminates the Employment Agreement dated August 1, 2000, as amended to date. Except for that agreement, all other agreements between the Company and Employee remain in full force and effect. 8

IN WITNESS WHEREOF, the parties executed this Agreement as of the day and year first above written. SMART ONLINE, INC. By:____________________________________ Title:_________________________________ WITNESS: ______________________ EMPLOYEE: _____________________________ 9

EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") by and between Smart Online, Inc. a Delaware corporation (the "Company"), and Anil Kamath (the "Employee"), dated as of the 1st day of May, 2004. WITNESSETH THAT WHEREAS, the Company and the Employee wish to contract for the employment by the Company of the Employee, and the Employee wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; WHEREAS, the Company is an enterprise whose success is attributable largely to the creation and maintenance of certain Confidential Data (as defined below) and during the period of employment the Employee will be situated to have access to and be knowledgeable with respect to the Confidential Data as well as the customers of the Company; and WHEREAS, Company has a legitimate protectible business interest in the creation and maintenance of its Confidential Data and the protection of the identity of, and related information concerning, its customers and the Company's customer lists; and WHEREAS, the Company wishes to protect its Confidential Data from disclosure by the Employee by means of the restrictive covenants contained in this Agreement and the Employee agrees to such covenants in exchange for the Company's commitment to continue to employ the Employee and for other additional consideration agreed to between the parties; NOW, THEREFORE, it is hereby agreed as follows: 1. EMPLOYMENT PERIOD. The Company shall employ the Employee, and the Employee shall serve the Company, on the terms and conditions set forth in this Agreement. Such employment pursuant to this Agreement shall commence on the date hereof and, unless earlier terminated as hereinafter provided, shall continue for an initial period through December 31, 2005. The Company may extend the period of employment of the Employee pursuant to this Agreement for additional periods of up to one (1) year for each extension by written notice to the Employee given not less than ninety (90) days prior to the expiration of the initial period or any renewal period. The period of employment of Employee hereunder shall be hereinafter referred to as the Employment Period. 2. POSITION AND DUTIES. (a) During the Employment Period, the Employee shall serve as a full-time employee of the Company as Vice President, Technology, with such duties and responsibilities as are customarily assigned to such position and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the President, Chief Executive Officer or Board of Directors.

(b) During the Employment Period, the Employee shall devote his loyalty, attention, and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee under this Agreement, use the Employee's best efforts to carry out such responsibilities faithfully and efficiently. (c) The Employee's services shall be performed primarily at the Company's headquarters in Durham, North Carolina. 3. COMPENSATION. (a) Base Salary. The Employee's base salary shall be $100,000 per annum, payable monthly, which salary shall be reevaluated annually and is subject to such increases as the Board of Directors approves. Effective June 1, 2004 Employee's base salary shall be $125,000 per annum. The term "Annual Base Salary" shall refer to the base salary prevailing during the applicable period until such time of any increase in base salary whereupon it shall thereafter refer to such increased amount. (b) Stock Options. The Company and the Employee shall execute a Stock Option Agreement dated as of May 1, 2004 whereby the Company grants options to purchase an aggregate of 75,000 shares of the Company's Class Common Stock pursuant to the Company's 2004 Equity Compensation Plan. (c) Other Benefits. In addition, during the Employment Period the Employee shall be entitled to participate, in accordance with the relevant provisions thereof, in all applicable incentive, savings, and retirement plans, practices, policies, and programs of the Company for which senior management employees are eligible generally. (d) All compensation hereunder shall be subject to all applicable federal and state withholding, payroll and other taxes. 4. TERMINATION OF EMPLOYMENT. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. The Company shall be entitled to terminate the Employee's employment because of the Employee's Disability during the Employment Period. "Disability" means that the Employee has been unable, for a period of thirty (30) consecutive calendar days, to perform the Employee's duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Employee's employment by the Company for Disability shall be communicated to the Employee by written notice, and shall be effective on the date of receipt of such notice by the Employee (the "Disability Effective Date"). (b) By the Company. (i) The Company may terminate the Employee's employment at any time during the Employment Period for Cause or without Cause. A termination of 2

the Employee's employment with Cause shall be effective when communicated to the Employee by written or verbal notice. "Cause" means unacceptable conduct, including: A. participation in a fraud or act of dishonesty against the Company; B. any chemical dependence which affects the performance of his duties and responsibilities to the Company; C. breach of Employee's fiduciary obligations to the Company; D. Employee willfully fails to perform his duties; E. breach of the Company's policies or any material provision of this Agreement; F. misconduct resulting in loss to the Company or damage to the reputation of the Company; or G. conduct by the Employee which, in the determination of the Company's Board of Directors, demonstrates unfitness to serve. (ii) "Without cause" means termination of Employee's employment for some reason other than that listed in Paragraph 4(b)(i) above. A termination of the Employee's employment Without Cause shall be effective when communicated to the Employee by written or verbal notice. (c) By the Employee. The Employee may signify his intention to terminate his employment at any time upon the giving of ninety (90) days' notice ("Notice Period") to the Company of his intent to do so. Upon the expiration of the Notice Period the termination will be effective and the Date of Termination will be effective as referred to below. The Company reserves the right to accelerate the effective "Date of Termination" in its discretion after the inception of the Notice Period. (d) Date of Termination. The "Date of Termination" means the date of the Employee's death, the Disability Effective Date, the date on which the termination of the Employee's employment by the Company for Cause or without Cause is effective, or the date on which the termination of the Employee's employment by the Employee is effective, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) Termination by the Company Without Cause or by the Employee for Good Reason. If the Company terminates the employment of the Employee without Cause (as 3

defined in Section 4(b) above) or if the Employee terminates her employment for Good Reason (as defined below): (i) the Company shall pay the Employee the portion of his base salary in termination as he may be entitled to receive for services rendered prior to the date of such termination; (ii) for a period of three (3) months following the date on which the Employee's employment with the Company terminates, the Company shall continue to pay the Employee her base salary in effect at the time of her termination of employment and shall continue to provide the Employee with all benefits specified in this Agreement, with no adverse tax consequences to the Employee, as if she had remained employed by the Company pursuant to this Agreement during the entire such three (3) month period; and For purposes of this Agreement, the Employee shall be deemed to have terminated her employment for "Good Reason" if she voluntarily terminates his employment with the Company under any of the following circumstances: (i) any demotion or diminution in the Employee's position, title, reporting position or duties; (ii) relocation of the Employee's office to a location more than thirty (30) miles outside of Research Triangle Park, North Carolina; or (iii) any material breach of this Agreement by the Company. (b) By the Company for Cause; By the Employee; Death or Disability. If the Employee's employment is terminated by the Company for Cause during the Employment Period, if Employee terminates employment during the Employment Period or if the Employee's employment is terminated by reason of the Employee's death or disability during the Employment Period, the Company shall pay the Employee the Annual Base Salary (then in effect) through the Date of Termination and the Company shall have no further obligations under this Agreement. 6. EXPENSES. The Company agrees to reimburse the Employee for reasonable and necessary expenses incurred by the Employee in the furtherance of the Company's business in accordance with such procedures as the Company may from time to time establish. 7. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants that: (a) the Employee is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of duties hereunder or other rights of the Company hereunder; and 4

(b) to the best of the Employee's knowledge, the Employee is under no physical or mental disability which will render him incapable of performing the essential functions involved in his anticipated duties or that would otherwise hinder the performance of duties under this Agreement. 8. COVENANT NOT TO COMPETE. The Employee covenants that during the "Noncompetition Period," as defined in paragraph 14, and within the "Noncompetition Area," as defined in paragraph 15, he shall not, directly or indirectly, as principal, agent, consultant, trustee or through the agency of any corporation, partnership, association, or agency engage in the "Business," as defined in paragraph 16. Specifically, but without limiting the foregoing, the Employee agrees that during such period and within such area, he shall not do any of the following: (a) be the owner of the outstanding capital stock of any corporation which conducts a business of a like or similar nature to the "Business" (other than stock of a corporation traded on a national securities exchange or automated quotation system); (b) be an officer or director of any corporation which conducts a business of a like or similar nature to the "Business"; (c) be a member of any partnership which conducts a business of a like or similar nature to the "Business"; or (d) be a consultant to, an owner of or an employee of any other business which conducts a business of a like or similar nature to the Business. 9. NONDISCLOSURE COVENANT. (a) The parties acknowledge that the Company is an enterprise whose success is attributable largely to the ownership, use and development of certain valuable confidential and proprietary information (the "Confidential Data"), and that the Employee's employment with the Company will involve the Employee's access to and work with such information. The Employee acknowledges that his relationship with the Company is a confidential relationship. The Employee covenants and agrees that (i) he shall keep and maintain the Confidential Data in strictest confidence, and (ii) he shall not, either directly or indirectly, use any Confidential Data for his own benefit, or divulge, disclose, or communicate any Confidential Data in any manner whatsoever to any person or entity other than the employees or agents of the Company having a need to know such Confidential Data, and only to the extent necessary to perform their responsibilities on behalf of the Company, and other than in the performance of the Employee's duties in the employment by the Company. The Employee's agreement not to disclose Confidential Data shall apply to all Confidential Data, whether or not the Employee participated in the development thereof. Upon termination of employment for any reason, the Employee will return to the Company all documents, notes, programs, data and any other materials (including any copies thereof) in his/her possession. (b) For purposes of this Agreement, the term "Confidential Data" shall include any and all information related to the business of the Company, or to its products, sales or businesses which is not general public knowledge, specifically including (but without limiting the generality of the foregoing) all financial and accounting data; computer software; processes; formulae; inventions; methods; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; patents, patent applications, copyrights and copyright applications (in any such case, whether registered or to be registered in the United 5

States of America or elsewhere) applied for, issued to or owned by the Company; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity, needs and location of all past, present and prospective customers. The parties stipulate that as between them the above-described matters are important and confidential and gravely affect the successful conduct of the business of the Company and that any breach of the terms of this paragraph shall be a material breach of this Agreement. 10. NONSOLICITATION COVENANT. The Employee covenants that during the Noncompetition Period he shall not directly or indirectly, on behalf of himself or on behalf of any other person, firm, partnership, corporation, association or other entity, call upon any of the customers or clients of the Company for the purpose of soliciting or providing any product or service similar to that provided by the Company nor will he, in any way, directly or indirectly, for himself, or on behalf of any other person, firm, partnership, corporation, association, or other entity, solicit, divert or take away, or attempt to solicit, divert, or take away any of the customers, clients, business, or patrons of the Company. The Employee further covenants that during the Noncompetition Period he shall not induce or attempt to induce any person to leave the employ of the Company. 11. INVENTIONS. All inventions, designs, improvements and developments made by the Employee, either solely or in collaboration with others, during his employment with the Company, whether or not during working hours, and relating to any methods, apparatus or products which are manufactured, sold, leased, used or developed by the Company or which pertain to the Business (the "Developments"), shall become and remain the property of the Company. The Employee shall disclose promptly in writing to the Company all such Developments. The Employee acknowledges and agrees that all Developments shall be deemed "works made for hire" within the meaning of the United States Copyright Act, as amended. If, for any reason, such Developments are not deemed works made for hire, the Employee shall assign, and hereby assigns, to the Company, all of the Employee's right, title and interest (including, but not limited to, copyright and all rights of inventorship) in and to such Developments. At the request and expense of the Company, whether during or after employment hereunder, the Employee shall make, execute and deliver all application papers, assignments or instruments, and perform or cause to be performed such other lawful acts as the Company may deem necessary or desirable in making or prosecuting applications, domestic or foreign, for patents (including reissues, continuations and extensions thereof) and copyrights related to such Developments or in vesting in the Company full legal title to such Developments. The Employee shall assist and cooperate with the Company or its representatives in any controversy or legal proceeding relating to such Developments, or to any patents, copyrights or trade secrets with respect thereto. If for any reason the Employee refuses or is unable to assist the Company in obtaining or enforcing its rights with respect to such Developments, the Employee hereby irrevocably designates and appoints the Company and its duly authorized agents as the Employee's agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts necessary to protect the Company's rights in the Developments. The Employee expressly acknowledges that the special foregoing power of attorney is coupled with an interest and is therefore irrevocable and shall survive (i) the Employee's death or incompetency and (ii) any termination of this Agreement. 6

12. INDEPENDENT COVENANTS. Each of the covenants on the part of the Employee contained in paragraphs 8, 9, 10, and 11 of this Agreement shall be construed as an agreement independent of each other such covenant. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any such covenant. 13. REASONABLENESS; INJUNCTION. The Employee acknowledges that the covenants contained in this agreement are reasonably necessary and designed for the protection of the Company and its business, and that such covenants are reasonably limited with respect to the activities prohibited, the duration thereof, the geographic area thereof, the scope thereof and the effect thereof on the Employee and the general public. The Employee further acknowledges that violation of the covenants would immeasurably and irreparably damage the Company, and by reason thereof the Employee agrees that for violation or threatened violation of any of the provisions of this Agreement, the Company shall, in addition to any other rights and remedies available to it, at law or otherwise, by entitled to any injunction to be issued by any court of competent jurisdiction enjoining and restraining the Employee from committing any violation or threatened violation of this Agreement. The Employee consents to the issuance of such injunction. 14. NONCOMPETITION PERIOD. This Agreement shall remain enforceable during the Employee's employment with the Company and for a period of two years after termination of the Employee's employment for any reason (such period not to include any period(s) of violation or period(s) of time required for litigation to enforce the covenants set forth herein). 15. NONCOMPETITION AREA. (a) The Employee acknowledges and agrees that the Company does business on an international basis and that the Employee will assist Company in developing Company's business in both the United States and Europe, with customers throughout the United States and additionally existing in Europe, particularly servicing France, Spain, the United Kingdon and Germany, and that any breach of the Employee's covenants contained herein would materially damage the Company, regardless of the area of the world in which the activities constituting such breach were to occur. Accordingly, the terms and provisions of this Agreement shall apply in the following Noncompetition Area: (i) The State of North Carolina; (ii) Any state other than North Carolina where Company conducts the "Business" and in or for which the Employee assists or performs services assisting Company; (iii) Any political subdivision of foreign countries where Company does "Business" or will do "Business" during the period of employment; and 7

(iv) Any other state, country, or political subdivision where Company does "Business" and in or for which the Employee assists or performs services assisting Company. 16. BUSINESS. For the purposes of this Agreement, the "Business" shall include any business, service, or product engaged in, provided, or produced by the Company from the date of this Agreement to the date of the termination of the employment, including, but not limited to: (i) the business of development, production, marketing, design, manufacturing, leasing or selling software related to business plans, legal services, whether for use by professionals or consumers; (ii) providing web-hosted applications and technology infrastructure syndication and/or (iii) any other business conducted by the Company immediately prior to the date of termination of Employee's employment or in which the Company shall at the time of termination of Employee's employment with the Company be actively preparing to enter. 17. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the substantive laws of the State of North Carolina, without giving effect to the conflicts of laws provisions thereof. The Employee hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina. (b) The Company's failure to insist upon strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision. (c) This Agreement may not be modified except by an agreement in writing executed by the parties. The parties expressly waive their right to orally modify this provision. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. (e) This Agreement shall not be assignable without the written consent of the Company and the Employee. (f) This Agreement shall inure to the benefit of and be binding upon the Company and it successors and assigns. (g) This Agreement expresses the whole and entire Employment Agreement between the parties and supersedes and replaces any prior employment Agreement, understanding or arrangement between Company and the Employee. 18. This Agreement terminates the Employment Agreement dated October 16, 2000, as amended to date. Except for that agreement, all other agreements between the Company and Employee remain in full force and effect. 8

IN WITNESS WHEREOF, the parties executed this Agreement as of the day and year first above written. SMART ONLINE, INC. By:____________________________________ Title:_________________________________ WITNESS: ______________________ EMPLOYEE: _____________________________ 9

SECURITY AGREEMENT THIS SECURITY AGREEMENT, dated as of October 13, 2003 (this "SECURITY AGREEMENT"), is entered into by Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713 (the "DEBTOR") in favor of the persons listed on SCHEDULE A hereto, ("SECURED PARTIES"), and such other persons as may become Secured Parties of secured obligations as described herein. WITNESSETH WHEREAS, Secured Parties have agreed to allow Debtor to defer certain payments owed to the Secured Parties pursuant to certain outstanding loans and employment agreements and in exchange Debtor has agreed to issue to the Secured Parties certain promissory notes dated October 13, 2003 (the "PROMISSORY NOTES") by Debtor in favor of Secured Parties, which agreements are evidenced by certain Deferred Compensation Agreements and certain Loan and Settlement Agreements, each of which are listed on SCHEDULE A hereto; and WHEREAS, in order to induce Secured Parties to make the loans under the Promissory Notes, Debtor has agreed to enter into this Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Debtor and Secured Parties hereby agree as follows: 1. DEFINITIONS. The following terms when used in this Security Agreement shall have the meanings set forth below: 1.1 "SECURED COLLATERAL" shall mean all tangible and intangible property of Debtor of any kind, whether now owned or existing or hereafter acquired, including, without limitation: (a) all equipment in all of its forms of Debtor, wherever located, and all parts thereof and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefore (all of the foregoing being "EQUIPMENT"); (b) all inventory in all of its forms of Debtor, wherever located, including all accessions thereto, products thereof and documents therefore (all of the foregoing being "INVENTORY"); (c) all accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles of Debtor, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of Debtor now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles; (d) all books, records, writings, databases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing; (e) all software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by Debtor, all firmware associated therewith; all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such software and firmware described in the preceding clauses; and all rights with respect to all of the foregoing, including, without limitation, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing; (f) all intellectual property of Debtor, including, without limitation,

all inventions, whether patentable or not, trade secrets, patents, trademarks, service marks, applications for patents, trademarks and service marks, copyrights (registered and unregistered), software, including both object and source code, all names and domain names, telephone numbers and email addresses; (g) all of Debtor's other property and rights of every kind and description and interests therein; and (h) all products, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing, including, without limitation, all payments under insurance, or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. 1.2 "SECURED OBLIGATIONS" shall mean all obligations of Debtor now or hereafter existing under the Loan Documents, whether for principal, interest, costs, fees, expenses or otherwise, and all other obligations of Debtor to the Secured Parties under any other agreement, whether existing now or arising in the future. 1.3 "LOAN DOCUMENTS" shall mean this Security Agreement and the Promissory Notes and other agreements listed on SCHEDULE A hereto. 1.4 "SECURED PARTIES" shall mean both the Secured Parties set forth above and any person that becomes a Secured Parties of any Note in accordance with the provisions of the Loan Documents. 1.5 "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the State of North Carolina or other applicable jurisdiction. 1.6 Other terms used in this Agreement that are defined in the Uniform Commercial Code shall have the meanings set forth in such code. 2. GRANT OF SECURITY INTEREST. 2.1 GRANT. Debtor hereby assigns and pledges to the Secured Parties, and hereby grants to the Secured Parties a first priority security interest in, all of the Secured Collateral. 2.2 SECURITY FOR OBLIGATIONS. This Security Agreement secures the payment of all Secured Obligations. 2.3 CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. This Security Agreement shall create a continuing security interest in the Secured Collateral and shall (a) remain in full force and effect until payment in full of all Secured Obligations; (b) be binding upon Debtor, its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Secured Parties hereunder, to the benefit of the Secured Parties and its successors, transferees and assigns. Without limiting the generality of this clause, Secured Parties may sell, assign, or otherwise transfer (in whole or in part) the Promissory Notes to any other person, and such other person shall thereupon become vested with all the rights and benefits in respect thereof granted to the Secured Parties under this Security Agreement. 2.4 DEBTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding Debtor shall remain liable under the contracts and agreements included in the Secured Collateral to the extent set forth therein, and shall perform all of its duties and obligations under such contracts and agreements to the same extent as if this Security Agreement had not been executed. The exercise by Secured Parties of any rights hereunder shall not release Debtor from any of its duties or obligations under any such contracts or agreements included in the Secured Collateral. The Secured Parties shall not have any 2

obligation or liability under any such contracts or agreements included in the Secured Collateral by reason of this Security Agreement, nor shall the Secured Parties be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder by reason of this Security Agreement. 2.5 SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties and the security interests granted to the Secured Parties hereunder, and all obligations of Debtor hereunder, shall be absolute and unconditional, irrespective of: (a) the failure of Secured Parties to assert any claim or demand or to enforce any right or remedy against Debtor or to exercise any right or remedy against any other guarantor of, or Secured Collateral security for, any Secured Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation; (c) any reduction, limitation, impairment or termination of any Secured Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and Debtor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affect, any Secured Obligations; (d) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any Loan Document; (e) any addition, exchange, release, surrender or nonperfection of any Secured Collateral, or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or (f) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, Debtor, any surety or any guarantor. 2.6 FURTHER ASSURANCES. Debtor agrees that, from time to time and at its own expense, Debtor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Secured Parties may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder with respect to any Secured Collateral, including any patent, trademark, service mark, copyright, or other intellectual property. With respect to the foregoing and the grant of the security interest hereunder, Debtor hereby authorizes the Secured Parties to file one or more financing or continuation statements, and amendments thereto and other documents Secured Parties determines is useful, relative to all or any part of the Secured Collateral without the signature of Debtor where permitted by law. A carbon, photographic or other reproduction of this Security Agreement or any financing statement covering the Secured Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. 2.7 TERMINATION. Upon the payment in full of all Secured Obligations, the security interest granted herein shall terminate and all rights to the Secured Collateral shall revert to Debtor. Upon any such termination, the Secured Parties will, at Debtor's sole expense, execute and deliver to Debtor such documents as Debtor shall reasonably request to evidence such termination. 3. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants unto the Secured Parties as follows: 3.1 LOCATION OF OFFICE AND SECURED COLLATERAL. The place of business and chief executive office of Debtor and the office where Debtor keeps its records concerning the Secured Collateral is 3

located at the address above. All of the Secured Collateral is and will continue to be located at such place. 3.2 OWNERSHIP; NO LIENS. Debtor owns the Secured Collateral free and clear of any lien, security interest, charge or encumbrance except a security interest granted to secure certain obligations to William Furr and except for the security interest created by this Security Agreement and except as permitted by the Loan Documents. Debtor has exclusive possession and control of its Equipment and Inventory. 3.3 VALIDITY. This Security Agreement creates a valid security interest in the Secured Collateral, securing the payment of the Secured Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or shall be taken within three (3) business days. 3.4 CONTINUING INTEREST. Debtor will keep the Secured Collateral free from any adverse lien, security interest or encumbrance and do such other acts or things as Secured Parties may from time to time request to establish and maintain a valid and perfected security interest on the Secured Collateral (free of any adverse lien, security interest or encumbrance) to secure the payment and performance of the Secured Obligations and to permit Secured Parties to exercise all rights and privileges granted to it in this Agreement. 4. EVENTS OF DEFAULT AND REMEDIES. 4.1 EVENTS OF DEFAULT. Any one of the following events shall constitute a default hereunder: (a) failure of Debtor to pay as and when due any of the Secured Obligations; (b) failure of Debtor to perform its obligations under this Security Agreement; (c) if any representation or warranty of Debtor made in this Security Agreement shall prove to be untrue in any material respect; or (d) any other default as set forth in either of the Promissory Notes. 4.2 CERTAIN REMEDIES. If the event of a default the Secured Parties shall have the following rights: (a) RIGHTS UNDER THE UCC. The Secured Parties may exercise in respect of the Secured Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a Secured Parties on default under the UCC (whether or not the UCC applies to the affected Secured Collateral). (b) SALE OF SECURED COLLATERAL. Secured Parties may (i) require Debtor to, and Debtor hereby agrees that it will, at its expense and upon request of the Secured Parties forthwith, assemble all or part of the Secured Collateral as directed by the Secured Parties and make it available to the Secured Parties at a place to be designated by the Secured Parties which is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Secured Collateral or any part thereof in one or more parcels at public or private sale, at any Secured Parties's office or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Secured Parties may deem commercially reasonable. Debtor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Secured Parties shall not be obligated to make any sale of the Secured Collateral regardless of notice of sale having been given. The 4

Secured Parties may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) PROCEEDS OF SALE AND DEFICIENCIES. The proceeds received by the Secured Parties in respect of any sale of, collection from, or other realization upon all or any part of the Secured Collateral may, in the discretion of the Secured Parties and after deduction of all costs and expenses of the sale (including reasonably attorneys fees), be held by the Secured Parties as Secured Collateral for, and/or then or at any time thereafter applied in whole or in part against all or any part of the Secured Obligations in such order as the Secured Parties shall elect. Any surplus of such cash or cash proceeds held by the Secured Parties and remaining after payment in full of all the Secured Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus. Debtor shall remain liable to Secured Parties for any deficiency. 5. MISCELLANEOUS PROVISIONS 5.1 AMENDMENTS, ETC. No amendment to or waiver of any provision of this Security Agreement, nor consent to any departure by Debtor herefrom, shall in any event be effective unless the same shall be in writing and signed on behalf of the Secured Parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 5.2 NOTICES. All notices and other communications hereunder shall be in writing and sent by registered or certified mail, by nationally recognized courier service, by facsimile transmission, or by personal delivery, addressed to Debtor or the Secured Parties at their respective addresses set forth above or at such other address as shall be designated by Debtor or by any Secured Parties in a written notice to Debtor and all Secured Parties at their respective addresses set above or as have been changed from time to time. 5.3 NO WAIVER; REMEDIES. No failure on the part of any Secured Parties to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. The Secured Parties shall exercise any of the rights of the Secured Parties hereunder (including any amendment of this Agreement or waiver of any rights) only as decided by Michael Nouri or a person designated in writing by Michael Nouri. In the event Michael Nouri shall die or be incapacitated without having designated a person to decide whether and how to exercise the rights of the Secured Parties hereunder, a majority of the Secured Parties, without regard to the amount owed to each, shall determine how to exercise the rights of all the Secured Parties hereunder, but any amounts collected shall be shared pro rata based on the amount owed by Debtor to each Secured Party. This Agreement may be amended only upon written consent of (i) Debtor; (ii) Michael Nouri; and (iii) a majority of the Secured Parties without regard to the amount owed to each. 5.4 SEVERABILITY. Wherever possible each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. 5

5.5 GOVERNING LAW. This Security Agreement shall be governed by and construed in accordance with internal laws of the State of North Carolina. 5.6 ENTIRE AGREEMENT. This Security Agreement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral with respect thereto. IN WITNESS WHEREOF, the parties have caused this Security Agreement to be duly executed and delivered by their duly authorized officer as of the date first above noted. DEBTOR SMART ONLINE, INC. (Corporate Seal) By: ___________________________ Title: ________________________ ATTEST: Secretary SECURED PARTIES Dennis Michael Nouri Henry Nouri Ronna Loprete Thomas Furr Eric Nouri 6

SCHEDULE A TO SECURITY AGREEMENT DATED OCTOBER ___, 2003
---------------------------- --------------------------------------------------SECURED PARTY ADDRESS ---------------------------- --------------------------------------------------500-201 Market Street Dennis Michael Nouri Chapel Hill, North Carolina 27516 ---------------------------- --------------------------------------------------106 Vapata Lane Henry Nouri Chapel Hill, North Carolina 27514 ---------------------------- --------------------------------------------------208 Village Crossing Drive Ronna Loprete Chapel Hill, North Carolina 27517 ---------------------------- --------------------------------------------------205 Calderon Drive Thomas Furr Chapel Hill, North Carolina 27516 ---------------------------- --------------------------------------------------604-204 Copperline Drive Eric Nouri Chapel Hill, North Carolina 27516 ---------------------------- ---------------------------------------------------

SECURED OBLIGATIONS $358,229.13 Promissory Note dated October 13, 2003 to Dennis Michael Nouri. $83,733.20 Promissory Note dated October 13, 2003 to Dennis Michael Nouri. $346,733.20 Promissory Note dated October 13, 2003 to Henry Nouri. $91,875.00 Promissory Note dated October 13, 2003 to Ronna Loprete. $113,039.78 Promissory Note dated October 13, 2003 to Thomas Furr. $54, 925.00 Promissory Note dated October 13, 2003 to Eric Nouri. Loan and Settlement Agreement dated October 13, 2003 with Dennis Michael Nouri. Deferred Compensation Agreement dated October 13, 2003 with Dennis Michael Nouri. Deferred Compensation Agreement dated October 13, 2003 with Henry Nouri. Deferred Compensation Agreement dated October 13, 2003 with Ronna Loprete. Deferred Compensation Agreement dated October 13, 2003 with Thomas Furr. Deferred Compensation Agreement dated October 13, 2003 with Eric Nouri. Employment Agreement dated July 14, 1999 with Dennis Michael Nouri. Employment Agreement dated July 14, 1999 with Henry Nouri. Employment Agreement dated June 29, 1999 with Ronna Loprete. Employment Agreement dated September 15, 2001with Thomas Furr. Employment Agreement dated April 1, 2002 with Eric Nouri.

SATISFACTION: The debt evidenced by this Note has been satisfied in full this ____ day of _____________, 20__. By: _______________________________ SUCCESSOR PROMISSORY NOTE TO PROMISSORY NOTE DATED OCTOBER 13, 2003 Durham, North Carolina $418,749.93 April 30, 2004 FOR VALUE RECEIVED the undersigned, Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713, (the "BORROWER"), promises to pay to Dennis Michael Nouri, ("LENDER") or order, on or before May 31, 2005, the principal sum of four hundred eighteen thousand seven hundred forty-nine dollars and ninety-three cents ($418,749.93), with interest from the date of this Note, at an annual rate of fifteen percent (15%) per annum compounded annually, on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at the above address for Lender or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. This Note may be prepaid in full or in part at any time without penalty or premium. If paid in installments, each such installment shall be applied first to payment of interest then accrued and due on the unpaid principal balance, with the remainder applied to the unpaid principal. In the event: (i) of default when due in payment of any installment of principal or interest hereof and such default is not cured within ten (10) days from the due date; (ii) of default under the terms of any instrument securing this Note , and such default is not cured within fifteen (15) days after written notice to Borrower; (iii) any instrument securing this Note shall cease to be in full force and effect; (iv) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; (v) Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; or (vi) any involuntary bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law is commenced in respect of the Borrower and not dismissed within thirty (30) days, then upon the occurrence of any of the foregoing events, the holder may, without notice, declare the unpaid principal and interest on this Note, and all other obligations of the Borrower to the holder under this Note and the instruments securing this Note, at once due and payable, whereupon such principal, interest and other obligations shall become at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of this Note and any part thereof, and accrued interest, if any, shall bear interest at the rate of eighteen percent (18%) per annum after default until paid. All parties to this Note, including makers, principal, and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other

sums due under this Note and the instruments securing this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the makers, principal and any sureties, guarantors and endorsers of this Note hereby agree to pay to the holder reasonable attorneys' fees not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on said Note, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon default. The rights and remedies of the holder as provided in this Note and the instruments securing this Notes shall be cumulative and may be pursued singly, successively, or together against the property described in the instruments securing this Note or any other funds, property or security held by the holder for payment or security, in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. The terms of this Note are the same as the Note from October 13, 2003 except where noted. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is secured by the "Collateral" as set forth in the "Security Agreement" between Lender and Borrower of even date herewith, which shall be is a first lien upon the property therein described. IN TESTIMONY WHEREOF, the corporate maker has caused this instrument to be executed by order of its Board of Directors first duly given, the day and year first above written. Smart Online, Inc. (Corporate Seal) By:___________________________ Title: _______________________ ATTEST:
Lender: ________________________________ Secretary ______________________________ Dennis Michael Nouri

SATISFACTION: The debt evidenced by this Note has been satisfied in full this ____ day of _____________, 20__. By: _______________________________ SUCCESSOR PROMISSORY NOTE TO PROMISSORY NOTE DATED OCTOBER 13, 2003 Durham, North Carolina $64,602.90 April 30, 2004 FOR VALUE RECEIVED the undersigned, Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713, (the "BORROWER"), promises to pay to Dennis Michael Nouri, ("LENDER") or order, on or before May 31, 2005, the principal sum of sixty-four thousand six hundred two dollars and ninety cents ($64,602.90), with interest from the date of this Note, at an annual rate of fifteen percent (15%) per annum compounded annually, on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at the above address for Lender or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. This Note may be prepaid in full or in part at any time without penalty or premium. If paid in installments, each such installment shall be applied first to payment of interest then accrued and due on the unpaid principal balance, with the remainder applied to the unpaid principal. In the event: (i) of default when due in payment of any installment of principal or interest hereof and such default is not cured within ten (10) days from the due date; (ii) of default under the terms of any instrument securing this Note , and such default is not cured within fifteen (15) days after written notice to Borrower; (iii) any instrument securing this Note shall cease to be in full force and effect; (iv) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; (v) Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; or (vi) any involuntary bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law is commenced in respect of the Borrower and not dismissed within thirty (30) days, then upon the occurrence of any of the foregoing events, the holder may, without notice, declare the unpaid principal and interest on this Note, and all other obligations of the Borrower to the holder under this Note and the instruments securing this Note, at once due and payable, whereupon such principal, interest and other obligations shall become at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of this Note and any part thereof, and accrued interest, if any, shall bear interest at the rate of eighteen percent (18%) per annum after default until paid. All parties to this Note, including makers, principal, and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other

sums due under this Note and the instruments securing this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the makers, principal and any sureties, guarantors and endorsers of this Note hereby agree to pay to the holder reasonable attorneys' fees not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on said Note, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon default. The rights and remedies of the holder as provided in this Note and the instruments securing this Notes shall be cumulative and may be pursued singly, successively, or together against the property described in the instruments securing this Note or any other funds, property or security held by the holder for payment or security, in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. The terms of this Note are the same as the Note from October 13, 2003 except where noted. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is secured by the "Collateral" as set forth in the "Security Agreement" between Lender and Borrower of even date herewith, which shall be is a first lien upon the property therein described. IN TESTIMONY WHEREOF, the corporate maker has caused this instrument to be executed by order of its Board of Directors first duly given, the day and year first above written. Smart Online, Inc. (Corporate Seal) By:___________________________ Title: _______________________ ATTEST:
Lender: ________________________________ Secretary ______________________________ Dennis Michael Nouri

SATISFACTION: The debt evidenced by this Note has been satisfied in full this ____ day of _____________, 20__. By: _______________________________ SUCCESSOR PROMISSORY NOTE TO PROMISSORY NOTE DATED OCTOBER 13, 2003 Durham, North Carolina $398,383.27 April 30, 2004 FOR VALUE RECEIVED the undersigned, Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713, (the "BORROWER"), promises to pay to Henry Nouri, ("LENDER") or order, on or before May 31, 2005, the principal sum of three hundred ninety-eight thousand three hundred eighty-three dollars and twenty-seven cents ($398,383.27), with interest from the date of this Note, at an annual rate of fifteen percent (15%) per annum compounded annually, on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at the above address for Lender or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. This Note may be prepaid in full or in part at any time without penalty or premium. If paid in installments, each such installment shall be applied first to payment of interest then accrued and due on the unpaid principal balance, with the remainder applied to the unpaid principal. In the event: (i) of default when due in payment of any installment of principal or interest hereof and such default is not cured within ten (10) days from the due date; (ii) of default under the terms of any instrument securing this Note , and such default is not cured within fifteen (15) days after written notice to Borrower; (iii) any instrument securing this Note shall cease to be in full force and effect; (iv) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; (v) Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; or (vi) any involuntary bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law is commenced in respect of the Borrower and not dismissed within thirty (30) days, then upon the occurrence of any of the foregoing events, the holder may, without notice, declare the unpaid principal and interest on this Note, and all other obligations of the Borrower to the holder under this Note and the instruments securing this Note, at once due and payable, whereupon such principal, interest and other obligations shall become at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of this Note and any part thereof, and accrued interest, if any, shall bear interest at the rate of eighteen percent (18%) per annum after default until paid. All parties to this Note, including makers, principal, and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other

sums due under this Note and the instruments securing this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the makers, principal and any sureties, guarantors and endorsers of this Note hereby agree to pay to the holder reasonable attorneys' fees not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on said Note, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon default. The rights and remedies of the holder as provided in this Note and the instruments securing this Notes shall be cumulative and may be pursued singly, successively, or together against the property described in the instruments securing this Note or any other funds, property or security held by the holder for payment or security, in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. The terms of this Note are the same as the Note from October 13, 2003 except where noted. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is secured by the "Collateral" as set forth in the "Security Agreement" between Lender and Borrower of even date herewith, which shall be is a first lien upon the property therein described. IN TESTIMONY WHEREOF, the corporate maker has caused this instrument to be executed by order of its Board of Directors first duly given, the day and year first above written. Smart Online, Inc. (Corporate Seal) By:___________________________ Title: _______________________
ATTEST: ________________________________ Secretary Lender: ______________________________ Henry Nouri

SATISFACTION: The debt evidenced by this Note has been satisfied in full this ____ day of _____________, 20__. By: _______________________________ SUCCESSOR PROMISSORY NOTE TO PROMISSORY NOTE DATED OCTOBER 13, 2003 Durham, North Carolina $116,507.60 April 30, 2004 FOR VALUE RECEIVED the undersigned, Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713, (the "BORROWER"), promises to pay to Tom Furr, ("LENDER") or order, on or before May 31, 2005, the principal sum of one hundred sixteen thousand five hundred seven dollars and sixty cents ($116,507.60), with interest from the date of this Note, at an annual rate of fifteen percent (15%) per annum compounded annually, on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at the above address for Lender or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. This Note may be prepaid in full or in part at any time without penalty or premium. If paid in installments, each such installment shall be applied first to payment of interest then accrued and due on the unpaid principal balance, with the remainder applied to the unpaid principal. In the event: (i) of default when due in payment of any installment of principal or interest hereof and such default is not cured within ten (10) days from the due date; (ii) of default under the terms of any instrument securing this Note , and such default is not cured within fifteen (15) days after written notice to Borrower; (iii) any instrument securing this Note shall cease to be in full force and effect; (iv) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; (v) Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; or (vi) any involuntary bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law is commenced in respect of the Borrower and not dismissed within thirty (30) days, then upon the occurrence of any of the foregoing events, the holder may, without notice, declare the unpaid principal and interest on this Note, and all other obligations of the Borrower to the holder under this Note and the instruments securing this Note, at once due and payable, whereupon such principal, interest and other obligations shall become at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of this Note and any part thereof, and accrued interest, if any, shall bear interest at the rate of eighteen percent (18%) per annum after default until paid. All parties to this Note, including makers, principal, and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other

sums due under this Note and the instruments securing this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the makers, principal and any sureties, guarantors and endorsers of this Note hereby agree to pay to the holder reasonable attorneys' fees not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on said Note, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon default. The rights and remedies of the holder as provided in this Note and the instruments securing this Notes shall be cumulative and may be pursued singly, successively, or together against the property described in the instruments securing this Note or any other funds, property or security held by the holder for payment or security, in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. The terms of this Note are the same as the Note from October 13, 2003 except where noted. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is secured by the "Collateral" as set forth in the "Security Agreement" between Lender and Borrower of even date herewith, which shall be is a first lien upon the property therein described. IN TESTIMONY WHEREOF, the corporate maker has caused this instrument to be executed by order of its Board of Directors first duly given, the day and year first above written. Smart Online, Inc. (Corporate Seal) By:_____________________________ President
ATTEST: ________________________________ Secretary Lender: ________________________________ Thomas Furr

SATISFACTION: The debt evidenced by this Note has been satisfied in full this ____ day of _____________, 20__. By: _______________________________ SUCCESSOR PROMISSORY NOTE TO PROMISSORY NOTE DATED OCTOBER 13, 2003 Durham, North Carolina $92,500.00 April 30, 2004 FOR VALUE RECEIVED the undersigned, Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713, (the "BORROWER"), promises to pay to Ronna Loprete, ("LENDER") or order, on or before May 31, 2005, the principal sum of ninety-two thousand dollars and no cents ($92,500.00), with interest from the date of this Note, at an annual rate of fifteen percent (15%) per annum compounded annually, on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at the above address for Lender or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. This Note may be prepaid in full or in part at any time without penalty or premium. If paid in installments, each such installment shall be applied first to payment of interest then accrued and due on the unpaid principal balance, with the remainder applied to the unpaid principal. In the event: (i) of default when due in payment of any installment of principal or interest hereof and such default is not cured within ten (10) days from the due date; (ii) of default under the terms of any instrument securing this Note , and such default is not cured within fifteen (15) days after written notice to Borrower; (iii) any instrument securing this Note shall cease to be in full force and effect; (iv) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; (v) Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; or (vi) any involuntary bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law is commenced in respect of the Borrower and not dismissed within thirty (30) days, then upon the occurrence of any of the foregoing events, the holder may, without notice, declare the unpaid principal and interest on this Note, and all other obligations of the Borrower to the holder under this Note and the instruments securing this Note, at once due and payable, whereupon such principal, interest and other obligations shall become at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of this Note and any part thereof, and accrued interest, if any, shall bear interest at the rate of eighteen percent (18%) per annum after default until paid. All parties to this Note, including makers, principal, and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other

sums due under this Note and the instruments securing this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the makers, principal and any sureties, guarantors and endorsers of this Note hereby agree to pay to the holder reasonable attorneys' fees not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on said Note, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon default. The rights and remedies of the holder as provided in this Note and the instruments securing this Notes shall be cumulative and may be pursued singly, successively, or together against the property described in the instruments securing this Note or any other funds, property or security held by the holder for payment or security, in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. The terms of this Note are the same as the Note from October 13, 2003 except where noted. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is secured by the "Collateral" as set forth in the "Security Agreement" between Lender and Borrower of even date herewith, which shall be is a first lien upon the property therein described. IN TESTIMONY WHEREOF, the corporate maker has caused this instrument to be executed by order of its Board of Directors first duly given, the day and year first above written. Smart Online, Inc. (Corporate Seal) By:____________________________ President
ATTEST: ________________________________ Secretary Lender: _______________________________ Ronna Loprete

SATISFACTION: The debt evidenced by this Note has been satisfied in full this ____ day of _____________, 20__. By: _______________________________ SUCCESSOR PROMISSORY NOTE TO PROMISSORY NOTE DATED OCTOBER 13, 2003 Durham, North Carolina $47,740.18 April 30, 2004 FOR VALUE RECEIVED the undersigned, Smart Online, Inc., a Delaware corporation headquartered at 2530 Meridian Parkway, Durham, North Carolina 27713, (the "BORROWER"), promises to pay to Eric Nouri, ("LENDER") or order, on or before May 31, 2005, the principal sum of forty-seven thousand seven hundred forty dollars and eighteen cents ($47,740.18), with interest from the date of this Note, at an annual rate of fifteen percent (15%) per annum compounded annually, on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at the above address for Lender or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. This Note may be prepaid in full or in part at any time without penalty or premium. If paid in installments, each such installment shall be applied first to payment of interest then accrued and due on the unpaid principal balance, with the remainder applied to the unpaid principal. In the event: (i) of default when due in payment of any installment of principal or interest hereof and such default is not cured within ten (10) days from the due date; (ii) of default under the terms of any instrument securing this Note , and such default is not cured within fifteen (15) days after written notice to Borrower; (iii) any instrument securing this Note shall cease to be in full force and effect; (iv) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; (v) Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; or (vi) any involuntary bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law is commenced in respect of the Borrower and not dismissed within thirty (30) days, then upon the occurrence of any of the foregoing events, the holder may, without notice, declare the unpaid principal and interest on this Note, and all other obligations of the Borrower to the holder under this Note and the instruments securing this Note, at once due and payable, whereupon such principal, interest and other obligations shall become at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of this Note and any part thereof, and accrued interest, if any, shall bear interest at the rate of eighteen percent (18%) per annum after default until paid. All parties to this Note, including makers, principal, and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other

sums due under this Note and the instruments securing this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the makers, principal and any sureties, guarantors and endorsers of this Note hereby agree to pay to the holder reasonable attorneys' fees not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on said Note, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon default. The rights and remedies of the holder as provided in this Note and the instruments securing this Notes shall be cumulative and may be pursued singly, successively, or together against the property described in the instruments securing this Note or any other funds, property or security held by the holder for payment or security, in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. The terms of this Note are the same as the Note from October 13, 2003 except where noted. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is secured by the "Collateral" as set forth in the "Security Agreement" between Lender and Borrower of even date herewith, which shall be is a first lien upon the property therein described. IN TESTIMONY WHEREOF, the corporate maker has caused this instrument to be executed by order of its Board of Directors first duly given, the day and year first above written. Smart Online, Inc. (Corporate Seal) By:__________________________ President
ATTEST: ________________________________ Secretary Lender: _____________________________ Eric Nouri

STANDSTILL AND INTEREST MODIFICATION AGREEMENT AGREEMENT dated as of December 19, 2003, between Smart Online, Inc., a Delaware corporation (the "Company") and DENNIS MICHAEL NOURI ("Creditor"). This Standstill Agreement is given to induce holders of Series A Preferred Stock of the Company to approve a reorganization of the capital structure of the Company which will eliminate the Series A Preferred Stock of the Company, it being agreed by Creditor that such reorganization would benefit Creditor who holds shares of Common Stock, and /or options to purchase Common Stock, of the company, by making the Company's Common Stock more valuable. NOW, THEREFORE, the parties hereby agree as follows: Effective immediately upon all shares of Series A Preferred Stock of the Corporation ceasing to be issued or outstanding (the "Effective Date") and ending on DECEMBER 31, 2005, Creditor shall refrain from taking any efforts to collect on any amounts owed by the Company to Creditor, including, without limitation, foreclosing on any security interest that secures the obligations of the Company to Creditor. Notwithstanding the foregoing, nothing herein shall prevent Creditor from seeking to collect any salary or other compensation benefits that accrue after the Effective Date. INTEREST ON THE NOTE WILL BE CHANGED FROM 15% TO 8% EFFECTIVE JUNE 1, 2004. This Agreement is governed by the laws of the State of North Carolina. This Agreement may be executed in one or more counterparts.
SMART ONLINE, INC. CREDITOR:

By: /S/ DENNIS MICHAEL NOURI -----------------------Title: CEO -----------------------

Signature: /S/ DENNIS MICHAEL NOURI -----------------------Print name: DENNIS MICHAEL NOURI --------------------

STANDSTILL AND INTEREST MODIFICATION AGREEMENT AGREEMENT dated as of December 19, 2003, between Smart Online, Inc., a Delaware corporation (the "Company") and HENRY NOURI ("Creditor"). This Standstill Agreement is given to induce holders of Series A Preferred Stock of the Company to approve a reorganization of the capital structure of the Company which will eliminate the Series A Preferred Stock of the Company, it being agreed by Creditor that such reorganization would benefit Creditor who holds shares of Common Stock, and /or options to purchase Common Stock, of the company, by making the Company's Common Stock more valuable. NOW, THEREFORE, the parties hereby agree as follows: Effective immediately upon all shares of Series A Preferred Stock of the Corporation ceasing to be issued or outstanding (the "Effective Date") and ending on DECEMBER 31, 2005, Creditor shall refrain from taking any efforts to collect on any amounts owed by the Company to Creditor, including, without limitation, foreclosing on any security interest that secures the obligations of the Company to Creditor. Notwithstanding the foregoing, nothing herein shall prevent Creditor from seeking to collect any salary or other compensation benefits that accrue after the Effective Date. INTEREST ON THE NOTE WILL BE CHANGED FROM 15% TO 8% EFFECTIVE JUNE 1, 2004. This Agreement is governed by the laws of the State of North Carolina. This Agreement may be executed in one or more counterparts.
SMART ONLINE, INC. CREDITOR:

By: /S/ DENNIS MICHAEL NOURI Title: CEO -----------------------

Signature: /S/ HENRY NOURI Print name: HENRY NOURI -----------

STANDSTILL AND INTEREST MODIFICATION AGREEMENT AGREEMENT dated as of December 19, 2003, between Smart Online, Inc., a Delaware corporation (the "Company") and THOMAS FURR ("Creditor"). This Standstill Agreement is given to induce holders of Series A Preferred Stock of the Company to approve a reorganization of the capital structure of the Company which will eliminate the Series A Preferred Stock of the Company, it being agreed by Creditor that such reorganization would benefit Creditor who holds shares of Common Stock, and /or options to purchase Common Stock, of the company, by making the Company's Common Stock more valuable. NOW, THEREFORE, the parties hereby agree as follows: Effective immediately upon all shares of Series A Preferred Stock of the Corporation ceasing to be issued or outstanding (the "Effective Date") and ending on DECEMBER 31, 2005, Creditor shall refrain from taking any efforts to collect on any amounts owed by the Company to Creditor, including, without limitation, foreclosing on any security interest that secures the obligations of the Company to Creditor. Notwithstanding the foregoing, nothing herein shall prevent Creditor from seeking to collect any salary or other compensation benefits that accrue after the Effective Date. INTEREST ON THE NOTE WILL BE CHANGED FROM 15% TO 8% EFFECTIVE JUNE 1, 2004. This Agreement is governed by the laws of the State of North Carolina. This Agreement may be executed in one or more counterparts.
SMART ONLINE, INC. CREDITOR:

By: /S/ DENNIS MICHAEL NOURI Title: CEO -----------------------

Signature: /S/ THOMAS FURR Print name: THOMAS FURR -----------

STANDSTILL AND INTEREST MODIFICATION AGREEMENT AGREEMENT dated as of December 19, 2003, between Smart Online, Inc., a Delaware corporation (the "Company") and RONNA LOPRETE ("Creditor"). This Standstill Agreement is given to induce holders of Series A Preferred Stock of the Company to approve a reorganization of the capital structure of the Company which will eliminate the Series A Preferred Stock of the Company, it being agreed by Creditor that such reorganization would benefit Creditor who holds shares of Common Stock, and /or options to purchase Common Stock, of the company, by making the Company's Common Stock more valuable. NOW, THEREFORE, the parties hereby agree as follows: Effective immediately upon all shares of Series A Preferred Stock of the Corporation ceasing to be issued or outstanding (the "Effective Date") and ending on DECEMBER 31, 2005, Creditor shall refrain from taking any efforts to collect on any amounts owed by the Company to Creditor, including, without limitation, foreclosing on any security interest that secures the obligations of the Company to Creditor. Notwithstanding the foregoing, nothing herein shall prevent Creditor from seeking to collect any salary or other compensation benefits that accrue after the Effective Date. INTEREST ON THE NOTE WILL BE CHANGED FROM 15% TO 8% EFFECTIVE JUNE 1, 2004. This Agreement is governed by the laws of the State of North Carolina. This Agreement may be executed in one or more counterparts.
SMART ONLINE, INC. CREDITOR:

By: /S/ DENNIS MICHAEL NOURI Title: CEO -----------------------

Signature: /S/ RONNA LOPRETE Print name: RONNA LOPRETE -------------

STANDSTILL AND INTEREST MODIFICATION AGREEMENT AGREEMENT dated as of December 19, 2003, between Smart Online, Inc., a Delaware corporation (the "Company") and ERIC R. NOURI ("Creditor"). This Standstill Agreement is given to induce holders of Series A Preferred Stock of the Company to approve a reorganization of the capital structure of the Company which will eliminate the Series A Preferred Stock of the Company, it being agreed by Creditor that such reorganization would benefit Creditor who holds shares of Common Stock, and /or options to purchase Common Stock, of the company, by making the Company's Common Stock more valuable. NOW, THEREFORE, the parties hereby agree as follows: Effective immediately upon all shares of Series A Preferred Stock of the Corporation ceasing to be issued or outstanding (the "Effective Date") and ending on DECEMBER 31, 2005, Creditor shall refrain from taking any efforts to collect on any amounts owed by the Company to Creditor, including, without limitation, foreclosing on any security interest that secures the obligations of the Company to Creditor. Notwithstanding the foregoing, nothing herein shall prevent Creditor from seeking to collect any salary or other compensation benefits that accrue after the Effective Date. INTEREST ON THE NOTE WILL BE CHANGED FROM 15% TO 8% EFFECTIVE JUNE 1, 2004. This Agreement is governed by the laws of the State of North Carolina. This Agreement may be executed in one or more counterparts.
SMART ONLINE, INC. CREDITOR:

By: /S/ DENNIS MICHAEL NOURI -----------------------Title: CEO -----------------------

Signature: /S/ ERIC R. NOURI ----------------Print name: ERIC R. NOURI -------------

EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Smart Online, Inc. Durham, North Carolina We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form SB-2 of our report dated July 21, 2004, except for footnote 13, which is September 10, 2004, relating to the financial statements of Smart Online, Inc., which contains an explanatory paragraph regarding the Company's ability to continue as a going concern. We also consent to the reference to us under the caption "Experts" in the Prospectus.
/s/ BDO Seidman, LLP ----------------------BDO Seidman, LLP High Point, North Carolina September 29, 2004