**RESTRICTED
      STOCK AGREEMENT**





THIS
      RESTRICTED STOCK AGREEMENT, made and entered into as of the _____ day of
      __________, 20____, by and between Smart Online, Inc., a Delaware corporation
      (the “ **Company** ”),
      and
      __________________, an individual (“ **Grantee** ”).





WHEREAS,
      in consideration of the services of Grantee, the Company is desirous of giving
      Grantee shares of common stock of the Company under the Company’s 2004 Equity
      Compensation Plan (the “ **Plan** ”)
      (all
      capitalized terms not otherwise defined herein shall have the meaning set forth
      in the Plan), subject to the restrictions set forth below.





NOW,
      THEREFORE, in consideration of the foregoing, of the mutual promises set forth
      below and of other good and valuable consideration, the receipt and sufficiency
      of which are hereby acknowledged, the parties hereto agree as
      follows:





1. Restricted
      Stock Award .
      The
      Company shall issue ____________ (_______) shares of the common stock of the
      Company (the “ **Securities** ”)
      to
      Grantee, as part of Grantee’s compensation. The Securities are subject to the
      restrictions set forth in Section 4 below.





2. Director
      Representations .
      Grantee
      hereby acknowledges and represents the following:





(a) Compensation. Grantee
      acknowledges that the Securities is part of his or her compensation from the
      Company.





(b) Investment . Grantee will
      treat the Securities as if acquired for investment for Grantee’s own
      account and not with a view to, or for resale in connection with, any
      distribution thereof, and Grantee has no
      present intention of selling or distributing the Securities. Grantee does not
      have any contract, undertaking, agreement or arrangement with any person to
      sell, transfer or grant participation to such person or to any third person
      with
      respect to any of the Securities other than as set forth in this
      Agreement.





(c) Taxes . Grantee has not
      relied upon the Company with respect to any tax consequences related to the
      acquisition or disposition of the Securities. Grantee acknowledges that Grantee may
      incur a substantial tax liability. Grantee assumes
      full responsibility for all such consequences and the filing of all tax returns
      and elections the Grantee may be required or find desirable to file in
      connection therewith. In the event any valuation of the Securities purchased
      pursuant to its exercise must be made under federal or state tax laws and such
      valuation affects any return or election of the Company, Grantee agrees
      that the Company may determine such value and that Grantee will
      observe any determination so made by the Company in all returns and elections
      filed by Grantee .
      In the
      event the Company is required by applicable law to collect any withholding,
      payroll or similar taxes by reason of the grant of the Securities, Grantee agrees
      that the Company may withhold such taxes from any monetary amounts otherwise
      payable by the Company to Grantee and
      that, if such amounts are insufficient to cover the taxes required to be
      collected by the Company, Grantee will pay
      to the Company such additional amounts as are required.








(d) No
      Registration Obligation .
      The
      Company will be under no obligation to register the Securities or to comply
      with
      any exemption available for sale of the Securities by Grantee without
      registration, and the Company is under no obligation to act in any manner so
      as
      to make Rule 144 promulgated under the Securities Act of 1933 available with
      respect to any sale of the Securities by Grantee .





(e) Underwriter
      Restrictions .
      In the
      event any underwriter of securities of the Company requests Grantee to sign
      any agreement restricting resale of the Securities in connection with any public
      offering by the Company, Grantee agrees
      to sign such agreement, provided the officers of the Company have signed an
      agreement no less restrictive. The Company may instruct its transfer agent
      not
      to transfer the Securities if requested by an underwriter as described
      above.





(f) Compliance
      with Securities Laws . Grantee hereby
      agrees to comply with any plan, policy or other document of the Company approved
      by the Board of Directors of the Company to ensure compliance with securities
      laws, rules and regulations both prior to the Termination of Service of Grantee and for
      one (1) year thereafter. The Company may impose stop transfer restrictions
      with
      respect to the Securities to enforce this provision.





(g) Legends .
      Each
      certificate representing Securities shall also bear any legend required by
      any
      applicable state securities law or by any other agreement to which the holder
      thereof is a party or by which the holder thereof is bound, including the
      provisions of any existing “lock-up” or similar agreements between Grantee and the
      Company, and including the following legend as required in Section 4,
      below:





THE
      SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ASSIGNED, CONVEYED
      OR
      PLEDGED ONLY UPON COMPLIANCE WITH THE TERMS AND CONDITIONS OF A RESTRICTED
      STOCK
      AGREEMENT, AS THE SAME MAY BE AMENDED OR REPLACED FROM TIME TO TIME, A COPY
      OF
      WHICH IS ON FILE WITH, AND AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
      SECRETARY OF THE CORPORATION.




3. Condition
      to Issuance .
      The
      representations, warranties, understandings, acknowledgments and agreements
      in
      this Agreement are true and accurate as of the date hereof, shall be true and
      accurate as of the date of the issuance of the Securities by the Company and
      shall survive thereafter.





4. Restrictions .
      The
      Securities described above shall be subject to the following
      restrictions:





(a) Restriction
      Period; Lapse of Restriction .
      For a
      period of one (1) year following the date of this Agreement, the Grantee agrees
      not to transfer, assign or sell the Securities, without the express written
      consent of the Company, which may be granted or withheld in the sole discretion
      of the Company. This restriction shall expire and cease to be of any effect
      with
      respect to the Securities as follows:


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(i) One-third
      of the Securities as of the date of this Agreement;





(ii) One-third
      of the Securities as of the first anniversary of the date of this Agreement;
      and





(iii) One-third
      of the Securities as of the second anniversary of the date of this
      Agreement.





Provided,
      however, that this restriction shall lapse with respect to an increment as
      specified only if Grantee is employed with the Company on the specified date
      for
      such increment. Shares representing the Securities shall bear a legend to such
      effect.





The
      schedule set forth above is cumulative, so that the Securities as to which
      the
      restriction has lapsed on and after a date indicated by the schedule may be
      transferred, assigned, or sold at any subsequent date.





(b) Acceleration
      of Lapse of Restriction .
      Upon a
      Change of Control or Corporate Reorganization, as defined below, the restriction
      set forth in Section 5(a) shall accelerate so as to lapse as to all of the
      Securities to which the restriction applies on the date of such
      event.





(i) A
      “ **Change
      in Control** ”
shall
      be deemed to have occurred if, after the class of stock then subject to this
      Agreement becomes publicly traded, (1) 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 class of securities then
      subject to this Agreement 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
      (2) 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. For the purposes of
      this Agreement, the class of stock then subject to this Agreement shall be
      deemed to be “publicly traded” if such stock is listed or admitted to unlisted
      trading privileges on a national securities exchange or as to which sales or
      bid
      and offer quotations are reported in the automated system operated by the
      National Association of Securities Dealers, Inc.





(ii) A
      “ **Corporate
      Reorganization** ”
means
      the happening of any one (1) of the following events: (1) the dissolution or
      liquidation of the Company; (2) a capital reorganization, merger or
      consolidation involving the Company, unless (A) the transaction involves only
      the Company and one or more of the Company’s parent corporation and wholly-owned
      (excluding interests held by employees, officers and directors) subsidiaries;
      or
      (B) the shareholders who had the power to elect a majority of the board of
      directors of the Company immediately prior to the transaction have the power
      to
      elect a majority of the board of directors of the surviving
      entity


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immediately
      following the transaction; (3) the sale of all or substantially all of the
      assets of the Company to another corporation, person or business entity; or
      (4)
      an acquisition of Company stock, unless the shareholders who had the power
      to
      elect a majority of the board of directors of the Company immediately prior
      to
      the acquisition have the power to elect a majority of the board of directors
      of
      the Company immediately following the transaction; provided, however, that
      a
      Corporate Reorganization 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.





5. Effect
      of Termination of Service .
      The
      restriction on the Securities shall lapse as specified in Section 4 above until
      the Termination of Service of Grantee for reasons other than death, Disability
      or Retirement. Pursuant to Section 7.6 of the Plan, where the Termination of
      Service is for death, Disability or Retirement, than the Committee shall
      determine, in its sole discretion, whether to waive any remaining
      restriction.





All
      shares of the Securities still subject to the restriction set forth in Section
      5
      shall be forfeited by Grantee and reacquired by the Company on such date. Upon
      such date, Grantee shall have no further rights to any Securities to which
      the
      restriction has not lapsed.




6. Rights
      as Stockholder .
      Grantee
      shall have all rights as a stockholder with respect to the Securities; provided , however ,
      any
      dividends or distributions on the Securities shall be automatically deferred
      and
      reinvested as restricted Securities subject to the same restrictions set forth
      in this Agreement.





7. Incorporation
      of the Plan .
      The
      terms and conditions included in the Plan, the receipt of a copy of which
      Grantee hereby acknowledges by execution of this Agreement, are incorporated
      by
      reference herein, and to the extent that any conflict may exist between any
      term
      or provision of this Agreement and any term or provision of the Plan, such
      term
      or provision of the Plan shall control.





8. Governing
      Law .
      This
      Agreement shall be enforced, governed and construed in all respects in
      accordance with the laws of the State of Delaware, as such laws are applied
      by
      Delaware courts to agreements entered into and to be performed in Delaware,
      and
      shall be binding upon Grantee, Grantee’s heirs, estate, legal representatives,
      successors and assigns and shall inure to the benefit of the Company and its
      successors and assigns.





9. Miscellaneous .
      This
      Agreement and the Plan constitute the entire agreement among the parties hereto
      with respect to the subject matter hereof and supersedes any and all prior
      or
      contemporaneous representations, warranties, agreements and understandings
      in
      connection therewith, other than any existing “lock-up” or similar agreements
      between the parties which by their terms would apply to the Securities. This
      Agreement may be amended only by a writing executed by all parties hereto.
      This
      Agreement may be executed in one or more counterparts.











[Remainder
      of the page intentionally left blank.]


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IN
      WITNESS WHEREOF, Grantee has executed this Restricted Stock Agreement effective
      as of the date first written above.





GRANTEE:
            SMART
                ONLINE, INC.:By:________________________
            By:_________________________Name:
                ______________________Title:
                _______________________


Print
      Name:__________________


Address:_____________________


_____________________


_____________________










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