**Exhibit
      10.7**





**SEVERANCE
      AGREEMENT AND GENERAL RELEASE**





This **SEVERANCE
      AGREEMENT AND GENERAL RELEASE** (“Agreement”) is made and entered into by SMART ONLINE, INC. (the “Company”) and
      Anil Kamath (“Employee”). Throughout the remainder of the Agreement, the Company
      and Employee may be collectively referred to as “the parties.”





The
      Company currently employs Employee as Chief Technical Officer. The parties
      desire to conclude the employment relationship, effective March 31, 2008, on
      mutually agreeable terms and to avoid all litigation relating to the employment
      relationship and its termination, and Employee desires severance benefits.
      Accordingly, the parties have agreed upon the terms described
      herein





Employee
      represents that he has carefully read the entire Agreement, understands its
      consequences, and voluntarily enters into it.





In
      consideration of the above and the mutual promises and good and valuable
      consideration set forth below, the sufficiency of which is acknowledged by
      the
      parties, Employee and the Company agree as follows:





**1.**  **SEPARATION** **.** Employee’s employment by the Company will terminate, effective March 31, 2008
      (“Termination Date”).





**2.**  **SEVERANCE
      BENEFITS** **.** The
      Company will pay Employee an amount equal to three months of his current salary
      (less any applicable taxes and withholdings). This amount shall be paid in
      three
      substantially equal installments, in accordance with the Company’s payroll
      practices and schedule applicable to Employee immediately prior to the
      termination of his employment, beginning with the first regularly scheduled
      payday after the revocation period set forth in Paragraph 7 below expires. In
      addition, the Company shall reimburse Employee for premium payments he makes
      under the Consolidated Budget Reconciliation Act (“COBRA”) to continue his and
      his family’s health insurance coverage for three (3) months. All reimbursements
      for COBRA payments shall be made as soon as practicable following Employee’s
      submission of proof of timely payments to the Company; provided, however, that
      all such claims for reimbursement shall be submitted by Employee and paid by
      the
      Company no later than six (6) months following Employee’s termination of
      employment. Any obligation for the Company to make payments for COBRA
      reimbursement under this paragraph 2 shall immediately cease when Employee
      is
      employed by an entity providing health insurance coverage.





The
      severance and other benefits afforded under this Agreement are in lieu of any
      other compensation or benefits to which Employee otherwise might be
      entitled.





**3.**  **RELEASE** **.** In
      consideration of the benefits conferred by this Agreement, **EMPLOYEE
      (ON BEHALF OF HIMSELF AND HIS ASSIGNS, HEIRS, AND OTHER REPRESENTATIVES)
      RELEASES THE COMPANY, ITS PREDECESSORS, SUCCESSORS, AND ASSIGNS AND ITS AND/OR
      THEIR PAST, PRESENT, AND FUTURE OWNERS, PARENTS, SUBSIDIARIES, AFFILIATES,
      PREDECESSORS, SUCCESSORS, ASSIGNS, OFFICERS, DIRECTORS, EMPLOYEES, EMPLOYEE
      BENEFIT PLANS (TOGETHER WITH ALL PLAN ADMINISTRATORS, TRUSTEES, FIDUCIARIES,
      AND
      INSURERS), AND AGENTS (“RELEASEES”) FROM** **ALL** **CLAIMS AND WAIVES** **ALL** **RIGHTS, KNOWN OR UNKNOWN, HE MAY HAVE OR CLAIM TO HAVE RELATING TO HIS
      EMPLOYMENT WITH THE COMPANY, ITS PREDECESSORS, SUBSIDIARIES, OR AFFILIATES
      OR
      HIS SEPARATION THEREFROM** arising
      before the execution of this Agreement, including, but
      not limited to ,
      claims:
      (i) for discrimination, harassment, or retaliation arising under federal,
      state, or local laws prohibiting age (including, but not limited to, claims
      under the Age Discrimination in Employment Act of 1967 (ADEA), as amended,
      and
      the Older Workers Benefit Protection Act of 1990 (OWBPA)), sex, national origin,
      race, religion, disability, veteran status, or other protected class
      discrimination, harassment, or retaliation for protected activity; (ii) for
      compensation and benefits (including, but not limited to, claims under the
      Employee Retirement Income Security Act of 1974 (ERISA), as amended, the Fair
      Labor Standards Act of 1938 (FLSA), as amended, and similar federal, state,
      and
      local laws); (iii) arising under federal, state, or local law of any nature
      whatsoever (including, but not limited to, constitutional, statutory, tort,
      express or implied contract, or other common law); and (iv) for attorneys’
fees. The release of claims set forth in this paragraph does not apply to claims
      for workers’ compensation benefits or unemployment benefits filed with the
      applicable state agencies.








**4.**  **COVENANT
      NOT TO SUE** **.** Employee
      will not sue Releasees on any matters relating to his employment arising before
      the execution of this Agreement, including, but not limited to, claims under
      the
      ADEA, or join as a party with others who may sue Releasees on any such claims;
      provided, however, this paragraph will not bar a challenge under the OWBPA
      to
      the enforceability of the waiver and release of ADEA claims set forth in this
      Agreement or claims for workers’ compensation or unemployment benefits
      referenced in paragraph 3 above, and this paragraph will not apply when
      prohibited by law. If Employee does not abide by this paragraph, then:
      (i) he will return all monies received under this Agreement and indemnify
      Releasees for all expenses they incur in defending the action; and
      (ii) Releasees will be relieved of their obligations hereunder.





**5.**  **AGENCY
      CHARGES/INVESTIGATIONS.** Nothing
      in this Agreement shall prohibit Employee from filing a charge or participating
      in an investigation or proceeding conducted by the U.S. Equal Employment
      Opportunity Commission or other governmental agency with jurisdiction concerning
      the terms, conditions, and privileges of his employment; provided, however,
      that
      by signing this Agreement, Employee waives his right to, and shall not seek
      or
      accept, any monetary or other relief of any nature whatsoever in connection
      with
      any such charges, investigations, or proceedings.





**6.**  **COMPANY
      INFORMATION AND PROPERTY** **.** Employee
      shall not at any time after his employment terminates disclose, use, or aid
      third parties in obtaining or using any confidential or proprietary Company
      information. Confidential or proprietary Company information is information
      relating to the Company, the Company’s parents, subsidiaries, or affiliates, or
      any aspect of their business that is not generally available to the public,
      their competitors, or other third parties or ascertainable through common sense
      or general business or technical knowledge. Nothing in this Agreement shall
      relieve Employee from any confidentiality, proprietary information, secrecy,
      non-compete, non-disclosure, non-solicitation, or invention rights and
      assignment obligations under any previously executed agreements.





All
      records, files, or other materials maintained by or under the control, custody,
      or possession of the Company or its agents in their capacity as such shall
      be
      and remain the Company’s property. Before the Termination Date, Employee shall:
      (i) return all Company property (including, but not limited to, credit cards;
      keys; company car; cell phones; computer hardware and software; records; files;
      documents; company manuals; and other documents in whatever form they exist,
      whether electronic, hard copy, or otherwise and all copies, notes, or summaries
      thereof) that he received in connection with his employment and (ii) bring
      all
      such records, files, and other materials up to date before returning them.
      In
      addition, Employee shall fully cooperate with the Company in winding up his
      work
      and transferring that work to those individuals designated by the
      Company


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**7.**  **RIGHT
      TO REVIEW AND REVOKE** **.** The
      Company hand delivered this Agreement to Employee on March 25, 2008 **** and
      desires that he have adequate time and opportunity to review and understand
      the
      consequences of entering into it. Accordingly, the Company advises him to
      consult with an attorney prior to executing it, that he has twenty-one days
      within which to consider it, and that he may not execute it prior to the
      Termination Date. In the event that he does not return an executed copy of
      the
      Agreement to the Company by no later than the 22 nd calendar
      day after receiving it, it and the obligations of the Company herein shall
      become null and void. Employee may revoke the Agreement during the seven day
      period immediately following his execution of it. The Agreement will not become
      effective or enforceable until the revocation period has expired. To revoke
      the
      Agreement, a written notice of revocation must be delivered to Derryl Dey,
      Smart
      Online, Inc., 2530 Meridian Parkway, 2 nd Floor,
      Durham, North Carolina 27713.





**8.**  **CONFIDENTIALITY
      AND NONDISPARAGEMENT** **.** The
      terms and provisions of this Agreement are confidential, and Employee represents
      and warrants that since receiving this Agreement he has not disclosed, and
      going
      forward will not disclose, the terms and conditions of this Agreement to third
      parties, except as required by law. Notwithstanding the above, he may reveal
      the
      terms and provisions of this Agreement to members of his immediate family or
      to
      an attorney whom he may consult for legal advice, provided that such persons
      agree to maintain the confidentiality of the Agreement. Employee represents
      and
      warrants that since receiving this Agreement, he: (i) has not made, and
      going forward will not make, disparaging, defaming, or derogatory remarks about
      the Company or its products, services, business practices, directors, officers,
      managers, or employees to anyone; and (ii) has not taken, and going forward
      will not take, any action that may impair the relations between the Company
      and
      its vendors, customers, employees, or agents or that may be detrimental to
      or
      interfere with the Company or its business.





**9.**  **STIPULATION** **.** Employee
      acknowledges, agrees, and hereby stipulates to the following facts:
      (i) during his employment with the Company, Employee was allowed to take
      all leave and afforded all other rights to which he was entitled under the
      Family and Medical Leave Act (FMLA); and (ii) the Company has not in any
      way interfered with, restrained, or denied Employee’s exercise of (or attempt to
      exercise) any FMLA rights and has not terminated or otherwise discriminated
      or
      retaliated against Employee for exercising (or attempting to exercise) any
      such
      rights.





**10.**  **CONSULTING** **.** Employee
      and the Company acknowledge and agree that, after the Termination Date, the
      Company might need assistance from Employee from time to time. Employee agrees
      that he will comply with reasonable requests for such assistance as follows:
      (a)
      for any requests relating to projects or technology existing at the Company
      as
      of March 31, 2008, including knowledge transfer (“Current Project Assistance”),
      Employee shall provide assistance up to 10 hours a month free of charge until
      October 1, 2008, at which the Company agrees that Employee will be paid for
      such
      assistance at a rate of $75/hour and (b) for any requests unrelated to Current
      Project Assistance, the Company agrees that Employee will be paid for such
      assistance at a rate of $75/hour, provided that if such assistance is estimated
      to be beyond 5 hours a month, the Company and Employee shall enter into a
      written Statement of Work setting forth the terms and conditions governing
      such
      project. All such assistance, unless otherwise agreed by the parties, shall
      be
      provided via email, facsimile and telephone conference ans shall not require
      Employee to travel to the Company’s physical location in North
      Carolina.


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**11.**  **OTHER** **.** Except
      as expressly provided in this Agreement, this Agreement supersedes all other
      understandings and agreements, oral or written, between the parties and
      constitutes the sole agreement between the parties with respect to its subject
      matter. Each party acknowledges that no representations, inducements, promises,
      or agreements, oral or written, have been made by any party or by anyone acting
      on behalf of any party, that are not embodied in this Agreement, and no
      agreement, statement, or promise not contained or described in this Agreement
      shall be valid or binding on the parties. No change or modification of this
      Agreement shall be valid or binding on the parties unless such change or
      modification is in writing and is signed by the parties. Employee’s or the
      Company’s waiver of any breach of a provision of this Agreement shall not waive
      any subsequent breach by the other party. If a court of competent jurisdiction
      holds that any provision or sub-part thereof contained in this Agreement is
      invalid, illegal, or unenforceable, that invalidity, illegality, or
      unenforceability shall not affect any other provision in this
      Agreement.





This
      Agreement is intended to avoid all litigation relating to Employee’s employment
      with the Company and his separation therefrom; therefore, it is not to be
      construed as the Company’s admission of any liability to him - liability that
      the Company denies.





This
      Agreement shall apply to, be binding upon, and inure to the benefit of the
      parties’ successors, assigns, heirs, and other representatives and be governed
      by North Carolina law and the applicable provisions of federal law, including
      but not limited to the ADEA.





**CAUTION!
      READ BEFORE SIGNING. THIS AGREEMENT CONTAINS A RELEASE OF ALL
      CLAIMS.**





**IN
      WITNESS WHEREOF,** the
      parties have entered into this Agreement **** on
      the
      day and year written below.





**EMPLOYEE
      REPRESENTS THAT HE HAS CAREFULLY READ THE ENTIRE** **AGREEMENT,** **UNDERSTANDS
      ITS CONSEQUENCES, AND VOLUNTARILY ENTERS INTO IT.**





/s/
                Anil Kamath
            
            04/01/2008Anil
                Kamath
            
            Date**SMART
              ONLINE, INC.**By:
            /s/
                David E. Colburn
            
            4/1/08David
                E. Colburn
            
            DateTitle:
                Chief Executive Officer


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