Exhibit
        10.6


      REGISTRATION
        RIGHTS AGREEMENT

       

      THIS
        REGISTRATION RIGHTS AGREEMENT is made as of the 14th
        day of
        November, 2007 by and among
        Smart
        Online, Inc., a Delaware corporation (the “Company”),
        and
        each of the investors listed on Schedule
        A
        hereto
        (each of which is referred to in this Agreement as an “Investor”
and
        collectively, the “Investors”).

       

      RECITALS

       

      WHEREAS,
        the
        Company and the Investors are parties to the Convertible Secured Subordinated
        Note Purchase Agreement of even date herewith (the “Note
        Purchase Agreement”)
        pursuant to which the Company is selling to the Investors and the Investors
        are
        purchasing certain Convertible Secured Subordinated Notes (collectively,
        the
“Notes”),
        which
        are convertible into shares of Common Stock (the “Conversion
        Shares”);
        and

       

      WHEREAS,
        in
        order to induce the Company to enter into the Note Purchase Agreement and
        to
        induce the Investors to invest funds in the Company pursuant to the Note
        Purchase Agreement, the Investors and the Company hereby agree that this
        Agreement shall govern the rights of the Investors to cause the Company to
        register the Conversion Shares;

       

      NOW,
        THEREFORE,
        the
        parties hereby agree as follows:

       

      1. Definitions. For
        purposes of this Agreement:

       

      1.1  “Affiliate”
means,
        with respect to any specified Person, any other Person who, directly or
        indirectly, controls, is controlled by, or is under common control with such
        Person.

       

      1.2  “Common
        Stock”
means
        shares of the Company’s common stock, par value $0.001 per share.

       

      1.3  “Damages”
means
        any loss, damage,
        or liability (joint or several) to which a party hereto may become subject
        under
        the Securities Act, the Exchange Act, or other federal or state law, insofar
        as
        such loss, damage,
        or liability (or any action in respect thereof) arises out of or is based
        upon
        (i) any untrue statement or alleged untrue statement of a material fact
        contained in any registration statement of the Company, including any
        preliminary prospectus or final prospectus contained therein or any amendments
        or supplements thereto; (ii) an omission or alleged omission to state
        therein a material fact required to be stated therein, or necessary to make
        the
        statements therein not misleading; or (iii) any violation or alleged violation
        by the indemnifying party
        (or
        any
        of its agents or Affiliates) of
        the
        Securities Act, the Exchange Act, any state securities law, or any rule or
        regulation promulgated under the Securities Act, the Exchange Act, or any
        state
        securities law.

       

      1.4  “Exchange
        Act”
means
        the Securities Exchange Act of 1934, as amended, and the rules and regulations
        promulgated thereunder.

       

      1.5  “Excluded
        Registration”
means
        (i)
        a
        registration relating to
        the
        sale of securities to employees of the Company or
        a
        subsidiary pursuant
        to a stock option, stock purchase, or similar plan;
        (ii) a
        registration relating
        to an
        SEC Rule 145 transaction; (iii)
        a
        registration on any form that does not include substantially the same
        information as would be required to be included in a registration statement
        covering the sale of the Registrable Securities; or (iv)
        a
        registration in which the only Common Stock being registered is Common Stock
        issuable upon conversion of debt securities that are also being
        registered.

       

      
        
          
          

        

        
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      1.6  “Form
        S-1”
means
        such form under the Securities Act as in effect on the date hereof or any
        successor registration form under the Securities Act subsequently adopted
        by the
        SEC.

       

      1.7  “Form
        S-2”
means
        such form under the Securities Act as in effect on the date hereof or any
        successor registration form under the Securities Act subsequently adopted
        by the
        SEC.

       

      1.8  “Form
        S-3”
means
        such form under the Securities Act as in effect on the date hereof or any
        registration form under the Securities Act subsequently adopted by the SEC
        that
        permits incorporation of substantial information by reference to other documents
        filed by the Company with the SEC.

       

      1.9  “GAAP”
means
        generally accepted accounting principles in the United States.

       

      1.10  “Holder”
means
        any holder of Registrable Securities who is a party to this
        Agreement.

       

      1.11  “Immediate
        Family Member”
means
        a
        child,
        stepchild,
        grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
        father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
        including adoptive relationships, of a natural person referred to
        herein.

       

      1.12  “Initiating
        Holders”
means,
        collectively, Holders who properly initiate a registration request under
        this
        Agreement.

       

      1.13  “Maturity
        Date”
shall
        have the meaning ascribed thereto in the Notes. 

       

      1.14  “Person”
means
        any individual, corporation, partnership, trust, limited liability company,
        association or other
        entity.

       

      1.15  “Registrable
        Securities”
means
        (i) the Conversion Shares; and
        (ii) any
        Common Stock issued as (or issuable upon the conversion or exercise of any
        warrant, right, or other security that is issued as) a dividend or other
        distribution with respect to, or in exchange for or in replacement of, the
        shares referenced in clause (i)
        above;
        excluding in all cases, however, any Registrable Securities sold by a Person,
        or
        any Conversion Shares issued upon conversion of a Note sold by a Person,
        in a
        transaction in which the applicable rights
        under this
        Agreement
        are not
        assigned pursuant
        to Section
        3.1.

       

      1.16  “Registrable
        Securities then outstanding”
means
        the number of shares determined by adding the number
        of
        shares of outstanding Common
        Stock that
        are
        Registrable Securities
        and
        the
        number
        of shares of Common
        Stock issuable (directly
        or indirectly) pursuant
        to then exercisable and/or
        convertible securities that are Registrable Securities.

       

      
        
          
          

        

        
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      1.17  “SEC”
means
        the Securities and Exchange Commission.

       

      1.18  “SEC
        Rule 144”
means
        Rule 144 promulgated by the SEC under the Securities Act.

       

      1.19  “SEC
        Rule 144(k)”
means
        Rule 144(k) promulgated by the SEC under the Securities Act.

       

      1.20  “SEC
        Rule 145”
means
        Rule 145 promulgated by the SEC under the Securities Act. 

       

      1.21  “Securities
        Act”
means
        the Securities Act of 1933, as amended, and the rules and regulations
        promulgated thereunder.

       

      1.22  “Selling
        Expenses”
means
        all underwriting discounts, selling commissions, and stock transfer taxes
        applicable to the sale of Registrable Securities, and fees and disbursements
        of
        counsel for any Holder, except for
        the
        fees and disbursements of the Selling Holder Counsel borne and paid by the
        Company as
        provided in Section 2.6.

       

      2. Registration
        Rights.
        The
        Company covenants and agrees as follows:

       

      2.1 Demand
        Registration.

       

      (a)  Form
        S-1 Demand.
        If
        at any
        time after the Maturity Date, the Company receives a request from Holders
        of
        a
        majority of the Registrable Securities then outstanding that the Company
        file
        a
Form
        S-1
registration
        statement with
        respect to at least forty percent (40%)
        of the
        Registrable Securities then outstanding (or a lesser percent if the anticipated
        aggregate offering price, net of Selling Expenses, would exceed $5 million),
        then the Company shall (i) within ten (10) days after the date such request
        is
        given, give notice thereof (the “Demand
        Notice”)
        to all
        Holders other than the Initiating Holders; and (ii) as soon as practicable,
        and
        in any event within one hundred eighty (180) days after the date such request
        is
        given by the Initiating Holders, file a
        Form
        S-1
        registration statement under the Securities Act covering all Registrable
        Securities that the Initiating
        Holders
        requested to
        be
        registered and any
        additional Registrable Securities requested to be included in such registration
        by any other Holders, as specified by notice given by each such Holder to
        the
        Company within twenty (20) days of the date the Demand Notice is given, and
        in
        each case, subject
        to the limitations of Section 2.1(c)
        and
Section
        2.3.

       

      (b)  Form
        S-3 Demand.
        If at
        any time when it is eligible to use a Form S-3 registration statement, the
        Company receives a request from Holders of at least thirty percent (30%)
        of the
        Registrable Securities then outstanding that the Company file a Form S-3
        registration statement with respect to outstanding Registrable Securities
        of
        such Holders having an anticipated aggregate offering price, net of Selling
        Expenses, of at least $2 million, then the Company shall (i) within ten (10)
        days after the date such request is given, give a Demand Notice to all Holders
        other than the Initiating Holders; and (ii) as soon as practicable, and in
        any
        event within ninety (90) days after the date such request is given by the
        Initiating Holders, file a Form S-3 registration statement under the Securities
        Act covering all Registrable Securities requested to be included in such
        registration by any other Holders, as specified by notice given by each such
        Holder to the Company within twenty (20) days of the date the Demand Notice
        is
        given, and in each case, subject to the limitations of Section
        2.1(c)
        and
Section 2.3. 

       

      
        
          
          

        

        
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      (c)  Notwithstanding
        the foregoing obligations, if the Company furnishes to Holders requesting
        a
        registration pursuant to this Section
        2.1
        a
        certificate signed by the Company’s chief executive officer stating that in the
        good faith judgment of the Company’s Board of Directors it would be materially
        detrimental to the Company and its stockholders for such registration statement
        to either become effective or remain effective for as long as such registration
        statement otherwise would be required to remain effective, because such action
        would be
        materially detrimental to the Company and its stockholders for such registration
        statement to be filed and it is therefore necessary to defer the filing of
        such
        registration statement,
        then the
        Company shall have the right to defer taking action with respect to such
        filing,
        and any time periods with respect to filing or effectiveness thereof shall
        be
        tolled correspondingly, for a period of not more than sixty (60)
        days
        after the request of the Initiating Holders is given; provided,
        however,
        that
        the Company may not invoke this right more than twice in any twelve (12)
        month
        period; and provided
        further
        that the
        Company shall not register any securities for its own account or that of
        any
        other stockholder during such sixty (60) day period other than an
        Excluded Registration.

       

      (d)  The
        Company shall not be obligated to effect, or to take any action to effect,
        any
        registration pursuant to Section
        2.1(a)
        (i)
        during the period that is sixty
        (60) days before the Company’s good faith estimate of the date of filing of, and
        ending on a date that is one
        hundred eighty (180)
        days
        after the effective date of, a Company-initiated registration, provided,
        that
        the Company is actively employing in good faith commercially reasonable efforts
        to cause such registration statement to become effective; (ii)
        after the Company has effected one registration
        pursuant
        to Section
        2.1(a);
        or
        (iii) if the Initiating Holders propose to dispose of shares of Registrable
        Securities that may be immediately registered on Form S-3 pursuant to a request
        made pursuant to Section
        2.1(b).
        The
        Company shall not be obligated to effect, or to take any action to effect,
        any
        registration pursuant to Section
        2.1(b)
        (i)
        during the period that is thirty (30) days before the Company’s good faith
        estimate of the date of filing of, and ending on a date that is one
        hundred eighty (180)
        days
        after the effective date of, a Company-initiated registration, provided,
        that
        the Company is actively employing in good faith commercially reasonable efforts
        to cause such registration statement to become effective; or (ii) if the
        Company
        has effected one registration pursuant to Section
        2.1(b)
        within
        the six (6) month period immediately preceding the date of such
        request. A
        registration shall not be counted as “effected” for purposes of this
Section
        2.1(d)
        until
        such time as the applicable registration statement has been declared effective
        by the SEC, unless the Initiating Holders withdraw their request for such
        registration, elect not to pay the registration expenses therefor, and
        forfeit their right to one demand registration statement pursuant
        to Section
        2.6,
        in which
        case such withdrawn registration statement shall be counted as “effected” for
        purposes of this Section 2.1(d).  

       

      2.2 Company
        Registration. If
        the
        Company proposes to register (including, for this purpose, a registration
        effected by the Company for stockholders other than the Holders) any of its
        Common
        Stock
        under
        the Securities Act in connection with the public offering of such securities
        solely for cash (other than in
        an
        Excluded Registration), the Company shall, at such time, promptly give each
        Holder notice of such registration. Upon the request of each Holder given
        within
        twenty (20) days after such notice is given by the Company, the Company shall,
        subject to the provisions of Section
        2.3,
        cause to
        be registered all of the Registrable Securities that each such Holder has
        requested to be included in such registration. The Company shall have the
        right
        to terminate or withdraw any registration initiated by it under this
Section
        2.2
        before
        the effective date of such registration, whether or not any Holder has elected
        to include Registrable Securities in such registration. The expenses
(other
        than Selling Expenses) of
        such
        withdrawn registration shall be borne by the Company in accordance with
Section
        2.6.

       

      
        
          
          

        

        
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      2.3 Underwriting
        Requirements. 

       

      (a) If,
        pursuant to Section 2.1,
        the
        Initiating Holders intend
        to
        distribute the Registrable Securities covered by their request by means of
        an
        underwriting, they shall so advise the Company as a part of their request
        made
        pursuant to Section
        2.1,
        and the
        Company shall include such information in the Demand Notice.
        The
        underwriter(s)
        will be
        selected by the Company and shall be reasonably acceptable to a majority
        in
        interest of the Initiating Holders. In such event, the right of any Holder
        to
        include such Holder’s Registrable Securities in such registration shall be
        conditioned upon such Holder’s participation in such underwriting and the
        inclusion of such Holder’s Registrable Securities in the underwriting to the
        extent provided herein. All Holders proposing to distribute their securities
        through such underwriting shall (together with the Company as provided in
        Section
        2.4(e))
        enter
        into an underwriting agreement in customary form with the underwriter(s)
        selected for such underwriting. Notwithstanding any other provision of this
        Section
        2.3,
        if the
        underwriter(s) advise(s) the Initiating Holders in writing that marketing
        factors require a limitation on the number of shares to be underwritten,
        then
        the Initiating Holders shall so advise all Holders of Registrable Securities
        that otherwise would be underwritten pursuant hereto, and the number of
        Registrable Securities that may be included in the underwriting shall be
        allocated among such
        Holders
        of Registrable Securities, including the Initiating Holders, in proportion
        (as
        nearly as practicable) to the number of Registrable Securities owned
        by
        each Holder
        or in
        such other proportion as shall mutually be agreed to by all such selling
        Holders;
        provided,
        however,
        that
        the number of Registrable Securities held by the Holders to be included in
        such
        underwriting shall not be reduced unless all other securities are first entirely
        excluded from the underwriting. To
        facilitate the allocation of shares in accordance with the above provisions,
        the
        Company or the underwriters may round the number of shares allocated to any
        Holder to the nearest 100 shares. 

       

      (b) In
        connection with any offering involving an underwriting of shares of the
        Company’s capital stock pursuant to Section
        2.2,
        the
        Company shall not be required to include any of the Holders’ Registrable
        Securities in such underwriting unless the Holders accept the terms of the
        underwriting as agreed upon between the Company and its underwriters, and
        then
        only in such quantity as the underwriters in their sole discretion determine
        will not jeopardize the success of the offering by the Company. If the total
        number of securities, including Registrable Securities, requested by
        stockholders to be included in such offering exceeds the number of securities
        to
        be sold (other than by the Company) that the underwriters in their reasonable
        discretion determine is compatible with the success of the offering, then
        the
        Company shall be required to include in the offering only that number of
        such
        securities, including Registrable Securities, which the underwriters and
        the
        Company in their sole discretion determine will not jeopardize the success
        of
        the offering. If
        the
        underwriters determine that less than all of the Registrable Securities
        requested to be registered can be included in such offering, then the
        Registrable Securities that are included in such offering shall be allocated
        among
        the selling Holders in
        proportion (as nearly as practicable to)
        the
        number of Registrable Securities owned
        by
each
        selling
Holder
        or in
        such other proportions as shall mutually be agreed to by all such selling
        Holders. To
        facilitate the allocation of shares in accordance with the above provisions,
        the
        Company or the underwriters may round the number of shares allocated to any
        Holder to the nearest 100 shares. Notwithstanding
        the foregoing, in no event shall (i)
        the
        number of Registrable Securities included in the offering be reduced unless
        all
        other securities (other than securities to be sold by the Company) are first
        entirely excluded from the offering, or
        (ii) the
        number of Registrable Securities included in the offering be reduced below
        thirty percent (30%) of the total number of securities included in such
        offering. For purposes of the provision in this Section
        2.3(b)
        concerning apportionment, for any selling Holder
        that
        is
        a
        partnership, limited liability company, or corporation, the partners, members,
        retired partners, retired members, stockholders, and Affiliates of such Holder,
        or the estates and Immediate Family Members of any such partners, retired
        partners, members, and retired members and any trusts for the benefit of
        any of
        the foregoing Persons, shall be deemed to be a single “selling Holder,” and any
        pro rata reduction with respect to such “selling Holder” shall be based upon the
        aggregate number of Registrable Securities owned by all Persons included
        in such
“selling Holder,” as defined in this sentence.

       

      
        
          
          

        

        
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      2.4  Obligations
        of the Company.
        Whenever
        required under this Section
        2
        to
        effect the registration of any Registrable Securities, the Company shall,
        as
        expeditiously as reasonably possible:

       

      (a) prepare
        and file with the SEC a registration statement with respect to such Registrable
        Securities and use its commercially reasonable efforts to
        cause
        such registration statement to become effective and, upon the request of
        the
        Holders of a majority of the Registrable Securities registered thereunder,
        keep
        such registration statement effective for a period of up to one hundred twenty
        (120) days or, if earlier, until the distribution contemplated in the
        registration statement has been completed; provided,
        however,
        that
        such one hundred twenty (120) day period shall be extended for a period of
        time
        equal to the period the Holder refrains, at the request of an underwriter
        of
        Common Stock (or other securities) of the Company, from selling any securities
        included in such registration;

       

      (b)  prepare
        and file with the SEC such amendments and supplements to such registration
        statement, and the prospectus used in connection with such registration
        statement, as may be necessary to comply with the Securities Act in order
        to
        enable the disposition of all securities covered by such registration
        statement;

       

      (c)  furnish
        to the selling Holders such numbers of copies of a prospectus, including
        a
        preliminary prospectus, as required by the Securities Act, and such other
        documents as the Holders may reasonably request in order to facilitate their
        disposition of their Registrable Securities;

       

      (d)  use
        its
        commercially reasonable efforts to register and qualify the securities covered
        by such registration statement under such other securities or blue-sky laws
        of
        such jurisdictions as shall be reasonably requested by the selling Holders;
        provided
        that
        the
        Company shall not be required to qualify to do business or to file a general
        consent to service of process in any such states or jurisdictions, unless
        the Company is already subject to service in such jurisdiction and except
        as may
        be required by the Securities Act;

       

      
        
          
          

        

        
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      (e)  in
        the
        event of any underwritten public offering, enter into and perform its
        obligations under an underwriting agreement, in usual and customary form,
        with
        the underwriter(s)
        of such
        offering;

       

      (f)  use
        its
        commercially reasonable efforts to cause all such Registrable Securities
        covered
        by such registration statement to be listed on a national securities exchange
        or
        trading system and each securities exchange and trading system (if any) on
        which
        similar securities issued by the Company are then listed;

       

      (g)  promptly
        make available for inspection by the selling Holders, any
        underwriter(s)
        participating in any disposition pursuant to such registration statement,
        and
        any attorney or accountant or other agent retained by any such underwriter
        or
        selected by the selling Holders, all financial and other records, pertinent
        corporate documents, and properties of the Company, and cause the Company’s
        officers, directors, employees, and independent accountants to supply all
        information reasonably requested by any such seller, underwriter, attorney,
        accountant, or agent,
        in each
        case, as necessary or advisable to verify the accuracy of the information
        in
        such registration statement and to conduct appropriate due diligence
        in
        connection therewith;

       

      (h)  notify
        each selling Holder, promptly after the Company receives notice thereof,
        of the
        time when such registration statement has been declared effective or a
        supplement to any prospectus forming a part of such registration statement
        has
        been filed; and

       

      (i)  after
        such registration statement becomes effective, notify each selling Holder
        of any
        request by the SEC that the Company amend or supplement such registration
        statement or prospectus. 

       

      2.5  Furnish
        Information.
        It
        shall be a condition precedent to the obligations of the Company to take
        any
        action pursuant to this Section
        2
        with
        respect to the Registrable Securities of any selling Holder that such Holder
        shall furnish to the Company such information regarding itself, the Registrable
        Securities held by it, and the intended method of disposition of such securities
        as is reasonably required to effect the registration of such Holder’s
        Registrable Securities.

       

      2.6 Expenses
        of Registration.
        All
        expenses (other than Selling Expenses) incurred in connection with
        registrations, filings, or qualifications pursuant to Section 2,
        including all registration, filing, and qualification fees; printers’ and
        accounting fees; fees and disbursements of counsel for the Company; and the
        reasonable fees and disbursements of one counsel for the selling
        Holders (“Selling
        Holder Counsel”),
        shall
        be borne and paid by the Company; provided,
        however,
        that
        the Company shall not be required to pay for any expenses of any registration
        proceeding begun pursuant to Section
        2.1 if
        the
        registration request is subsequently withdrawn at the request of the Holders
        of
        a majority of the Registrable Securities to be registered (in which case
        all
        selling Holders shall bear such expenses pro rata based upon the number of
        Registrable Securities that were to be included in the withdrawn registration),
        unless the Holders of a majority of the Registrable Securities agree to forfeit
        their right to one registration pursuant to Section
        2.1(a)
        or
Section
        2.1(b),
        as the
        case may be; provided
        further
        that if,
        at the time of such withdrawal, the Holders shall have learned of a material
        adverse change in the condition, business, or prospects of the Company from
        that
        known to the Holders at the time of their request and have withdrawn the
        request
        with reasonable promptness after learning of such information then the Holders
        shall not be required to pay any of such expenses and shall not forfeit their
        right to one registration pursuant to Section
        2.1(a)
        or
Section
        2.1(b).
        All
        Selling Expenses relating to Registrable Securities registered pursuant to
        this
Section
        2
        shall be
        borne and paid by the Holders pro rata on the basis of the number of Registrable
        Securities registered on their behalf. 

       

      
        
          
          

        

        
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      2.7 Delay
        of Registration.
        No
        Holder shall have any right to obtain or seek an injunction restraining or
        otherwise delaying any registration pursuant to this Agreement as the result
        of
        any controversy
        that might arise with respect to the interpretation or implementation of
        this
Section
        2.

       

      2.8 Indemnification.
        If any
        Registrable Securities are included in a registration statement under this
        Section
        2:

       

      (a) To
        the
        extent permitted by law, the Company will indemnify and hold harmless each
        selling Holder, and the partners, members, officers, directors, and stockholders
        of each such Holder; legal counsel and accountants for each such Holder;
        any
        underwriter (as defined in the Securities Act) for each such Holder; and
        each
        Person, if any, who controls such Holder or underwriter within the meaning
        of
        the Securities Act or the Exchange Act, against any Damages, and the Company
        will pay to each such Holder, underwriter, controlling Person, or other
        aforementioned Person any legal or other expenses reasonably incurred thereby
        in
        connection with investigating or
        defending any
        claim
        or
        proceeding from which Damages may result, as such expenses are incurred;
        provided,
        however,
        that
        the indemnity agreement contained in this Section
        2.8(a)
        shall
        not apply to amounts paid in settlement of any such claim
        or
        proceeding if such settlement is effected without the consent of the Company,
        which consent shall not be unreasonably withheld, nor shall the Company be
        liable for any Damages to the extent that they arise out of or are based
        upon
        actions or omissions made in reliance upon and in conformity with written
        information furnished by or on behalf of any such Holder, underwriter,
        controlling Person, or other aforementioned Person expressly for use in
        connection with such registration.

       

      (b) To
        the
        extent permitted by law, each selling Holder, severally and not jointly,
        will
        indemnify and hold harmless the Company, and each of its directors, each
        of its
        officers who has signed the registration statement, each Person (if any),
        who
        controls the Company within the meaning of the Securities Act, legal counsel
        and
        accountants for the Company, any underwriter (as defined in the Securities
        Act),
        any other Holder selling securities in such registration statement, and any
        controlling Person of any such underwriter or other Holder, against any Damages,
        in each case only to the extent that such Damages arise out of or are based
        upon
        actions or omissions made in reliance upon and in conformity with written
        information furnished by or on behalf of such selling Holder expressly for
        use
        in connection with such registration; and each such selling Holder will pay
        to
        the Company and each other aforementioned Person any legal or other expenses
        reasonably incurred thereby in connection with investigating or
        defending any
        claim
        or
        proceeding from which Damages may result, as such expenses are incurred;
        provided,
        however,
        that
        the indemnity agreement contained in this Section
        2.8(b)
        shall
        not apply to amounts paid in settlement of any such claim
        or
        proceeding if such settlement is effected without the consent of the Holder,
        which consent shall not be unreasonably withheld; and provided
        further
        that in
        no event shall the aggregate amounts payable by any Holder by way of indemnity
        or contribution under Sections
        2.8(b)
        and
2.8(d) exceed
        the proceeds from the offering received
        by such Holder (net
        of
        any Selling Expenses
        paid by
        such Holder),
        except
        in the case of fraud or willful misconduct by such Holder.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (c) Promptly
        after receipt by an indemnified party under this Section 2.8 of
        notice
        of the commencement of any action (including any governmental action) for
        which
        a party may be entitled to indemnification hereunder, such indemnified party
        will, if a claim in respect thereof is to be made against any indemnifying
        party
        under this Section
        2.8,
        give the
        indemnifying party notice of the commencement thereof. The indemnifying party
        shall have the right to participate in such action and, to the extent the
        indemnifying party so desires, participate jointly with any other indemnifying
        party to which notice has been given, and to assume the defense thereof with
        counsel mutually satisfactory to the parties; provided,
        however,
        that an
        indemnified party (together with all other indemnified parties that may be
        represented without conflict by one counsel) shall have the right to retain
        one
        separate counsel, with the fees and expenses to be paid by the indemnifying
        party, if representation of such indemnified party by the counsel retained
        by
        the indemnifying party would be inappropriate due to actual or potential
        differing interests between such indemnified party and any other party
        represented by such counsel in such action. The failure to give notice to
        the
        indemnifying party within a reasonable time of the commencement of any such
        action shall relieve such indemnifying party of any liability to the indemnified
        party under this Section
        2.8,
        to the
        extent that such failure materially prejudices the indemnifying party’s ability
        to defend such action. The failure to give notice to the indemnifying party
        will
        not relieve it of any liability that it may have to any indemnified party
        otherwise than under this Section
        2.8.

       

      (d) To
        provide for just and equitable contribution to joint liability under the
        Securities Act in any case in which either (i) any party otherwise entitled
        to
        indemnification hereunder makes a claim for indemnification pursuant to this
        Section
        2.8
        but it
        is judicially determined (by the entry of a final judgment or decree by a
        court
        of competent jurisdiction and the expiration of time to appeal or the denial
        of
        the last right of appeal) that such indemnification may not be enforced in
        such
        case, notwithstanding the fact that this Section
        2.8
        provides
        for indemnification in such case, or (ii) contribution under the Securities
        Act
        may be required on the part of any party hereto for which indemnification
        is
        provided under this Section 2.8,
        then,
        and in each such case, such parties will contribute to the aggregate losses,
        claims, damages, liabilities, or expenses to which they may be subject (after
        contribution from others) in such proportion as is appropriate to reflect
        the
        relative fault of each
        of
        the
        indemnifying party and the indemnified party in connection with the statements,
        omissions, or other actions that resulted in such loss, claim, damage,
        liability, or expense, as well as to reflect any other relevant equitable
        considerations. The relative fault of the indemnifying party and of the
        indemnified party shall be determined by reference to, among other things,
        whether the untrue or allegedly untrue statement of a material fact, or the
        omission or alleged omission of a material fact, relates to information supplied
        by the indemnifying party or by the indemnified party and the parties’ relative
        intent, knowledge, access to information, and opportunity to correct or prevent
        such statement or omission; provided,
        however,
        that,
        in any such case, (x) no Holder will be required to contribute any amount
        in
        excess of the public offering price of all such Registrable Securities offered
        and sold by such Holder pursuant to such registration statement, and (y)
        no
        Person guilty of fraudulent misrepresentation (within the meaning of Section
        11(f) of the Securities Act) will be entitled to contribution from any Person
        who was not guilty of such fraudulent misrepresentation; and provided
        further
        that in
        no event shall a Holder’s liability pursuant to this Section
        2.8(d),
        when
        combined with the amounts paid or payable by such Holder pursuant to
Section
        2.8(b),
        exceed
        the proceeds from the offering received
        by such Holder (net
        of
        any Selling Expenses paid
        by such
        Holder),
        except
        in the case of willful misconduct or fraud by such Holder.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      (e) Notwithstanding
        the foregoing, to the extent that the provisions on indemnification and
        contribution contained in the underwriting agreement entered into in connection
        with the underwritten public offering are in conflict with the foregoing
        provisions, the provisions in the underwriting agreement shall
        control.

       

      (f) Unless
        otherwise superseded by an underwriting agreement entered into in connection
        with the underwritten public offering, the obligations of the Company and
        Holders under this Section
        2.8
        shall
        survive the completion of any offering of Registrable Securities in a
        registration under this Section
        2,
        and
        otherwise shall survive the termination of this Agreement. 

       

      2.9 Reports
        Under Exchange Act.
        With a
        view to making available to the Holders the benefits of SEC Rule 144 and
        any
        other rule or regulation of the SEC that may at any time permit a Holder
        to sell
        securities of the
        Company to the public without registration or pursuant to a registration
        on Form
        S-3, the Company shall:

       

      (a) make
        and
        keep available
        adequate current public
        information,
        as
        those terms are understood and defined in SEC Rule 144, at all
        times;

       

      (b) use
        commercially reasonable efforts to file with the SEC in a timely manner all
        reports and other documents required of the Company under the Securities
        Act and
        the Exchange Act (at any time after the Company has become subject to such
        reporting requirements); and

       

      (c) furnish
        to any Holder, so long as the Holder owns any Registrable Securities, forthwith
        upon request (i) to
        the
        extent accurate, a
        written
        statement by the Company that it has complied with the reporting requirements
        of
        SEC Rule 144, the Securities Act, and the Exchange Act, or that it qualifies
        as
        a registrant whose securities may be resold pursuant to Form S-3 (at any
        time
        after the Company so qualifies); (ii) a copy of the most recent annual or
        quarterly report of the Company and such other reports and documents so filed
        by
        the Company; and (iii) such other information as may be reasonably requested
        in
        availing any Holder of any rule or regulation of the SEC that permits the
        selling of any such securities without registration (at any time after the
        Company has become subject to the reporting requirements under the Exchange
        Act)
        or pursuant to Form
        S-3
        (at any time after the Company so qualifies to use such form).

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      2.10  Limitations
        on Subsequent Registration Rights.
        From
        and
        after the date of this Agreement, the Company shall not, without the prior
        written consent of the Holders of a majority of the Registrable Securities
        then
        outstanding, enter into any agreement with any holder or prospective holder
        of
        any securities of the Company that (i) would allow such holder or
        prospective holder (i) to include such securities in any registration unless,
        under the terms of such agreement, such holder or prospective holder may
        include
        such securities in any such registration only to the extent that the inclusion
        of such securities will not reduce the number of the Registrable Securities
        of
        the Holders that are included or (ii) allow such holder or prospective holder
        to
        initiate a demand for registration of any securities held by such holder
        or
        prospective holder.

       

      2.11  Term.
        The
        agreements of the Company contained in this Agreement shall continue in full
        force and effect so long as any Holder holds any Notes or Registrable
        Securities, but shall terminate with respect to each Holder when such Holder
        no
        longer holds any Notes or Registrable Securities.

       

      3. Miscellaneous. 

       

      3.1 Successors
        and Assigns.
        The
        rights under this Agreement
        may be assigned
        (but
        only
        with all related obligations)
        by
        a
        Holder to a transferee of
        Notes or
        Registrable Securities;
        provided, however, that (x) the Company is, within a reasonable time after
        such
        transfer, furnished with written notice of the name and address of such
        transferee and the Registrable Securities
        or Notes
        with respect to which
        such
        rights
are
        being
        transferred; and (y) such transferee agrees in
        a
        written instrument delivered
        to
        the
        Company
        to be
        bound by and
        subject to the
        terms
and
        conditions of
        this
Agreement.
        The
        terms and conditions of this Agreement inure to the benefit of and are binding
        upon the respective successors and permitted assignees of the parties. Nothing
        in this Agreement, express or implied, is intended to confer upon any party
        other than the parties hereto or their respective successors and permitted
        assignees any rights, remedies, obligations or liabilities under or by reason
        of
        this Agreement, except as expressly provided herein.

       

      3.2 Governing
        Law. This
        Agreement shall be governed by, and construed in accordance with, the laws
        of
        the State of Delaware, regardless of the laws that might otherwise govern
        under
        applicable principles of conflicts of law.

       

      3.3 Counterparts;
        Facsimile.
        This
        Agreement may be executed in two or more counterparts, each of which shall
        be
        deemed an original, but all of which together shall constitute one and the
        same
        instrument. This Agreement may also be executed and delivered by facsimile
        signature and in two or more counterparts, each of which shall be deemed
        an
        original, but all of which together shall constitute one and the same
        instrument.

       

      3.4 Titles
        and Subtitles.
        The
        titles and subtitles used in this Agreement are for convenience only and
        are not
        to be considered in construing or interpreting this Agreement.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      3.5 Notices.
        All
        notices and other communications given or made pursuant to this Agreement
        shall
        be in writing and shall be deemed effectively given
        upon the
        earlier of actual receipt or: (i) personal delivery to the party to be notified;
        (ii) when sent, if sent by electronic mail or facsimile during the recipient’s
        normal business hours, and if not sent during normal business hours, then
        on the
        recipient’s next business day; (iii) five (5) days after having been sent by
        registered or certified mail, return receipt requested, postage prepaid;
        or (iv)
        one (1) business
        day
        after
        the
        business day of
        deposit
        with a nationally recognized overnight courier, freight prepaid, specifying
        next-day delivery, with written verification of receipt. All communications
        shall be sent to the respective parties at their addresses as set forth on
        Schedule
        A
        hereto,
        or to the
        principal office of the Company and to the attention of the Chief Executive
        Officer, in the case of the Company, or to such
        email address, facsimile number, or address as subsequently modified by written
        notice given in accordance with this Section
        3.5.
        If
        notice is given to the Company, a copy shall also be sent to Smith, Anderson,
        Blount, Dorsett, Mitchell & Jernigan, LLP, 2500 Wachovia Capitol Center,
        Raleigh, North Carolina 27602-2611, Attention: Margaret N. Rosenfeld, (919)
        821-6800 (facsimile).

       

      3.6 Amendments
        and Waivers.
        Any
        term
        of this Agreement may be amended and the observance of any term of this
        Agreement may be waived (either generally or in a particular instance, and
        either retroactively or prospectively) only with the written consent of the
        Company and the holders of a majority of the principal amount of the Notes
        then
        outstanding, or upon conversion of the Notes, a majority of the Registrable
        Securities then outstanding.
        Any
        amendment, termination, or waiver effected in accordance with this Section
        3.6
        shall be
        binding on all parties hereto, regardless of whether any such party has
        consented thereto. No waivers of or exceptions to any term, condition, or
        provision of this Agreement, in any one or more instances, shall be deemed
        to be
        or construed as a further or continuing waiver of any such term, condition,
        or
        provision.

       

      3.7 Severability.
        In
        case
        any one or more of the provisions contained in this Agreement is for any
        reason
        held to be invalid, illegal or unenforceable in any respect, such invalidity,
        illegality, or unenforceability shall not affect any other provision of this
        Agreement, and such invalid, illegal, or unenforceable provision shall be
        reformed and construed so that it will be valid, legal, and enforceable to
        the
        maximum extent permitted by law.

       

      3.8 Aggregation
        of Stock. All
        shares of Registrable Securities held or acquired by Affiliates shall be
        aggregated together for the purpose of determining the availability of any
        rights under this Agreement and such Affiliated persons may apportion such
        rights as among themselves in any manner they deem appropriate.

       

      3.9 Entire
        Agreement.
        This
        Agreement (including any Schedules and Exhibits hereto) constitutes the full
        and
        entire understanding and agreement among
        the
        parties with respect to the subject matter hereof, and any other written
        or oral
        agreement relating to the subject matter hereof existing between the parties
        is
        expressly canceled. 

       

      3.10 Delays
        or Omissions.
        No
        delay or omission to exercise any right, power, or remedy accruing to any
        party
        under this Agreement, upon any breach or default of any other party under
        this
        Agreement, shall impair any such right, power, or remedy of such nonbreaching
        or
        nondefaulting party, nor shall it be construed to be a waiver of or acquiescence
        to any such breach or default, or to any similar breach or default thereafter
        occurring, nor shall any waiver of any single breach or default be deemed
        a
        waiver of any other breach or default theretofore or thereafter occurring.
        All
        remedies, whether under this Agreement or by law or otherwise afforded to
        any
        party, shall be cumulative and not alternative.

       

      [Remainder
        of Page Intentionally Left Blank]

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       


      IN
        WITNESS WHEREOF, the parties have executed this Agreement as of the date
        first
        written above.

       

      SMART
        ONLINE, INC.

       

      By:
        /s/ David E.
        Colburn                                         

      Name:
        David E.
        Colburn                                          

      Title:
        President and
        CEO                                         

       

      INVESTORS:

       

      
        	 	 	 	
                CRYSTAL
                  MANAGEMENT LTD. 

              


      

      


      
        By:
          /s/ Doron
          Roethler                                            

        Name:
          Doron
          Roethler                                             

        Title:                                                                            
          

      

       

       

      ATLAS
        CAPITAL S.A.

       

      
        By:
          /s/ C.
          Waller              
/s/ M.
          Dwek                    

        Name:
          C.
          Waller               M.
          Dwek                           

        Title:  
          Management        General
          Management      

      

       

      


       

      WILLIAM
        FURR

                                                                                                                          /s/
        William P.
        Furr                                                         

       

       

       

       

      THE
        BLUELINE FUND

       

      
        By:
          /s/ P.
          Pouponnot                                                   


        Name:
          Pouponnot,
          Philippe                                        


        Title:                                                                               
          

      

      


      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      


      SCHEDULE
        A

       

      Investors

       

      
        	
                Crystal
                  Management Ltd. 

                Michal
                  Raviv, Adv.

                Gibor
                  Sport House (28th floor)

                7,
                  Menahem Begin (Betzalel) St.

                Ramat
                  Gan 52521

                Israel

                Fax.:
                  +972 (3) 575-5526 

                 

              
	
                William
                  Furr

                1840
                  East Sandpointe Lane

                Vero
                  Beach, FL 32963

                Fax:
                  

                 

              
	
                Atlas
                  Capital, S.A.

                Rue
                  du Rhône 118, CH - 1204

                Genève

                Switzerland

                Fax:
                  

                 

              
	
                The
                  Blueline Fund

                Walker
                  House

                Mary
                  Street

                P.O.
                  Box 908 GT

                George
                  Town, Grand Cayman

                Cayman
                  Islands

                Fax:
                  

              


      

    

     

     

     

    
      
        
        

      

      
        14