EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is made as of the 21st day of March, 2006, between
Smart Online, Inc. (the “Company”) and Nicholas A. Sinigaglia (the “Employee”).

W I T N E S S E T H:

WHEREAS, the Company is engaged in the business of providing web-hosted
applications and technology infrastructure syndication;

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 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
Employee by means of the restrictive covenants contained in this Agreement and
Employee agrees to such covenants in exchange for the Company’s commitment to
continue to employ Employee and for other additional consideration agreed to
between the parties;

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 March 21, 2006, and shall terminate on the first to occur of (i) the
termination of this Agreement as provided herein, or (ii) March 31, 2007;
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 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 Chief Financial Officer 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 her 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) Salary. The Employee’s base salary, payable monthly shall be (i) $90,000 per
annum for the period commencing on the date hereof through March 31, 2006, (ii)
$110,000 per annum for the period commencing on April 1, 2006 through May 31,
2006, (iii) $120,000 for the period commencing on June 1, 2006 through
August 31, 2006 and (iv) $135,000 per annum for the period commencing on
September 1, 2006 and continuing for the Employment Period. The base salary
shall be reevaluated from time to time 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) Stock. Effective as of March 24, 2006, the Company shall grant options to
purchase 50,000 shares of the Company’s Common Stock to Employee, contingent
upon Employee and Company executing an appropriate Stock Option Agreement in a
form acceptable to the Company.

(c) Fringe Benefits. Employee shall be entitled to all of the non-wage benefits
the Company provides from time to time to all other full-time employees.

(d) Withholding. All compensation paid pursuant to this Section 3 shall be
subject to withholding of taxes and other amounts as shall be required by law.

4. EXPENSES.

Company agrees to reimburse Employee for reasonable and necessary expenses
incurred by Employee in the furtherance of the Company’s business in accordance
with such procedures as the Company may from time to time establish.

5. TERMINATION OF EMPLOYMENT.

(a) By the Company. The Company may terminate the Employee’s employment at any
time with immediate effect for Cause or without Cause.

(i) “For 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.

(b) By the Employee. The Employee may signify her intention to terminate her
employment at any time upon the giving of thirty (30) days notice (“Notice
Period”) to the Company of her intent to do so. Upon 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.

(c) Date of Termination. The “Date of Termination” means 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.

6. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE.

Employee represents and warrants that:

(a) 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 Employee’s knowledge, Employee is under no physical or mental
disability render her incapable of performing the essential functions involved
in her anticipated duties or that would otherwise hinder the performance of
duties under this Agreement.

7. COVENANT NOT TO COMPETE.

Employee covenants that during the “Noncompetition Period,” as defined in
paragraph 12, and within the “Noncompetition Area,” as defined in paragraph 13,
she 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 14. Specifically, but without
limiting the foregoing, 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 service); (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.

8. 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
Employee’s employment with the Company will involve Employee’s access to and
work with such information. Employee acknowledges that her relationship with the
Company is a confidential relationship. 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 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 Employee’s duties in the employment by the
Company. Employee’s agreement not to disclose Confidential Data shall apply to
all Confidential Data, whether or not Employee participated in the development
thereof. Upon termination of employment for any reason, Employee will return to
the Company all 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 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.

9. NONSOLICITATION/INTERFERENCE.

(a) The Employee covenants that during the Noncompetition Period and in the
Noncompetition Area, 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.

(b) The Employee covenants that during the Noncompetition Period and in the
Noncompetition Area, she shall not directly or indirectly, on behalf of herself
or on behalf of any other person, firm, partnership, corporation, association or
entity, contract with, induce or attempt to influence, any individual or entity
who is an employee, contractor, agent or representative of the Company to
terminate or otherwise impair her employment or relationship with the Company.

10. INVENTIONS.

All inventions, designs, improvements and developments made by 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. Employee shall disclose promptly in writing to the
Company all such Developments. 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, Employee shall assign, and hereby assigns,
to the Company, all of 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, 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.
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
Employee refuses or is unable to assist the Company in obtaining or enforcing
its rights with respect to such Developments, Employee hereby irrevocably
designates and appoints the Company and its duly authorized agents as 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.
Employee expressly acknowledges that the special foregoing power of attorney is
coupled with an interest and is therefore irrevocable and shall survive
(i) Employee’s death or incompetency and (ii) any termination of this Agreement.

11. INDEPENDENT COVENANTS.

Each of the covenants on the part of Employee contained in paragraphs 6, 7, 8,
and 9 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 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.

12. REASONABLENESS; INJUNCTION.

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 Employee and the general public.
Employee further acknowledges that violation of the covenants would immeasurably
and irreparably damage the Company, and by reason thereof 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 Employee from
committing any violation or threatened violation of this Agreement. Employee
consents to the issuance of such injunction.

13. NONCOMPETITION PERIOD.

This Agreement shall remain enforceable during Employee’s employment with the
Company and for a period of one year after termination of 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).

14. NONCOMPETITION AREA.

(a) Employee acknowledges and agrees that the Company does business on an
international basis and that 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, United Kingdom and Germany, and that any breach of
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

(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.

15. 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.

16. 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, and Employee agrees that the
Company may, at its option, enforce its rights hereunder in such courts.

(b) 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 Employee.

(f) 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 Employee.

IN WITNESS WHEREOF, the parties executed this Agreement as of the day and year
first above written.

SMART ONLINE, INC.

By:/s/ Michael Nouri
Name: Michael Nouri
Title: President and Chief Executive Officer

EMPLOYEE:

/s/ Nicholas A. Sinigaglia

WITNESS:

/s/ Joan Keston