**EMPLOYMENT
        AGREEMENT**
 
 THIS
        EMPLOYMENT AGREEMENT (the “Agreement”) by and between Smart Online, Inc. a
        Delaware corporation (the “Company”), and Thomas Furr (the “Employee”), dated as
        of the 1st day of April, 2004.
 
 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 June
        1,
        2004, and shall terminate on the first to occur of (i) the termination of
        this
        Agreement as provided herein, or (ii) December 31, 2005; provided, however,
        that
        if neither party has given written notice to the other, at least thirty (30)
        days prior to the expiration date then in effect, of the intention not to
        renew
        the Agreement beyond such expiration date, then the term of this Agreement
        shall
        automatically extend for an additional year at the conclusion of such expiration
        date. The term during which this Agreement is in effect is referred to herein
        as
        the “Employment Period.”
 
 2. POSITION
        AND DUTIES.
 
 (a) During
        the Employment Period, the Employee shall serve as a full-time employee of
        the
        Company as Vice President of Sales 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 $70,000 per annum, payable monthly,
        which salary shall be reevaluated annually and is subject to such increases
        as
        the Board of Directors approves. Employee’s base salary shall be increased to
        $90,000 effective July 1, 2004. 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) 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.
 
 (c) 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:
  A. participation
        in a fraud or act of dishonesty against the Company;
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 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.  onduct
        by
        the Employee which, in the determination of the Company’s Board of Directors,
        demonstrates unfitness to serve.
 
 (ii) “Without
        cause” means termination of Employee’s employment for some reason other than
        that listed in Paragraph 4(b)(i) above. A termination of the Employee’s
        employment Without Cause shall be effective when communicated to the Employee
        by
        verbal or written notice.
 
 (c) By
        the
        Employee. The Employee may signify his intention to terminate his employment
        at
        any time upon the giving of thirty (30) 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 her employment for Good Reason
        (as
        defined below):
 
 (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;  3
  
 (ii)
            for
                a period of three (3) months following the date on which the Employee’s
                employment with the Company terminates, the Company shall continue
                to pay
                the Employee her base salary in effect at the time of her 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 she had remained employed by the Company pursuant
                to this
                Agreement during the entire such three (3) month period;
                and 
 For
        purposes of this Agreement, the Employee shall be deemed to have terminated
        her
        employment for “Good Reason” if she 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 breach of this Agreement by the
                  Company.
 
 (b) By
        the
        Company for Cause; By the Employee; Death or Disability. If the Employee’s
        employment is terminated by the Company for Cause during the Employment Period,
        if Employee terminates employment during the Employment Period 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.
 
 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.
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 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.
 
 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.
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  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.
 
 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.
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 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.
 
 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.
  7
  
 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.
 
 (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.
  18. This
        Agreement terminates the Employment Agreement dated September 11, 2001, as
        amended to date. Except for that agreement, all other agreements between
        the
        Company and Employee remain in full force and effect.
 
 
 
  8
  
 
 
 
 IN
        WITNESS WHEREOF, the parties executed this Agreement as of the day and year
        first above written.
 
 SMART
                  ONLINE, INC.By:
                  /s/ Michael NouriTitle:
                  CEOWITNESS:
                  /s/ Ronna Loprete
              EMPLOYEE:
                  /s/ Thomas Furr
 
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