**Exhibit
      10.4**


**EMPLOYMENT
      AGREEMENT**





THIS
      EMPLOYMENT AGREEMENT (the “Agreement”) by and between Smart Online, Inc. a
      Delaware corporation (the “Company”), and Joseph Trepanier (the “Employee”),
      dated as of the 15 th day of
      August, 2007.





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 the terms of this Agreement shall commence on August
      15,
      2007, and shall terminate as provided under the terms of this Agreement. 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 Operating 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 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 $163,000 per annum, payable monthly,
      which salary shall be reevaluated annually and is subject to such increases
      as
      the Board of Directors or any committee thereof 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)  Restricted
      Stock Award. Upon the commencement of this Agreement, the Employee shall be
      granted a restricted stock award for 25,000 shares of common stock of the
      Company. This grant will be subject to the Company’s “2004 Equity Compensation
      Plan” and the Employee shall enter into a “Restricted Stock Agreement” in
      substantially the form attached hereto as Exhibit
      A .





(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 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 or verbal
      notice. “Cause” means unacceptable conduct, including but not limited
      to:




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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 a 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 sixty (60) 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):




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(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;
                and





(ii)
            for
                a period of sixty (60) days 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 sixty (60) day
                period.





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)
            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, continuing breach of this Agreement by the
                Company.





(b)  By
      the
      Company for Cause; By the Employee; Death or Disability; Following Change in
      Control. If the Employee’s employment is terminated by the Company for Cause
      during the Employment Period, if Employee terminates employment during the
      Employment Period, if the Employee’s employment is terminated following in
      connection with a Change in Control (as defined below), 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.





For
      purposes of this Agreement, a “Change in Control” shall be deemed to have
      occurred if:





(i)
            the
                direct or indirect beneficial ownership (within the meaning of Section
                13(d) of the Act and Regulation 13D thereunder) of fifty percent
                (50%) or
                more of the Company’s common stock is acquired or becomes held by any
                person or group of persons (within the meaning of Section 13(d)(3)
                of the
                Act), but excluding the Company and any employee benefit plan sponsored
                or
                maintained by the Company; or




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(ii)
            assets
                or earning power constituting more than fifty percent (50%) of the
                assets
                or earning power of the Company and its subsidiaries (taken as a
                whole) is
                sold, mortgaged, leased or otherwise transferred, in one or more
                transactions not in the ordinary course of the Company’s business, to any
                such person or group of persons.





Provided , however ,
      that a
      Change in Control shall not be deemed to have occurred upon an investment by
      one
      or more venture capital funds, Small Business Investment Companies (as defined
      in the Small Business Investment Act of 1958, as amended) or similar financial
      investors.





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 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.




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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 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.




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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.





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.




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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 Kingdom 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.




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(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.






9







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





SMART
      ONLINE, INC.




By:
      /s/
      Dennis Michael Nouri


Name:


Title:











EMPLOYEE








/s/
      Joseph F. Trepanier


Name:







10


**EXHIBIT
      A**





**Restricted
      Stock Agreement**












































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