February
        23, 2005
 
 Smart
        Online, Inc
 2530
        Meridian Parkway
 Durham,
        North Carolina 27713
 Attention:
        Michael Nouri
 
 Re:  Investment
        Banking Services
 
 Dear
        Michael:
 
 This
        letter agreement (this "Agreement") will confirm our understanding relating
        to
        the engagement of Berkley Financial Services (BFS) Ltd. ("we", or "us") as
        a
        financial advisor to Smart Online. Inc. (the "Company" or "you"). Capitalized
        terms used in this Agreement have the meanings set forth at Section 11. In
        consideration of the following mutual covenants, and intending to be legally
        bound. Berkley Financial Services (BFS) Ltd. and the Company agree as follows:




1.
        Appointment. (a) The Company appoints Berkley Financial Services (BFS) Ltd.
        its
        non-exclusive agent to represent the Company in connection with the negotiation
        and closing of one or more Transactions with investors outside the United
        States.
 
 (b)
        In
        the performance of our services under this Agreement, both Berkley Financial
        Services (BFS) Ltd. and our employees and representatives will be independent
        contractors. This Agreement does not give Berkley Financial Services (BFS)
        Ltd.
        or any of our employees or representatives any authority to bind the Company
        to
        any contractual arrangement. You will retain the sole discretion regarding
        any
        decision to proceed with any Transaction.
 
 2.
        Services. (a) We will perform those financial advisory services that we deem
        necessary or appropriate for the closing of the Transaction, including (if
        analyzing historical and proforma financial information pertaining to your
        business and operations; (ii) assisting in performing due diligence relating
        to
        the Transaction (although you are responsible for completing any due diligence
        to your satisfaction); (iii) reviewing and commenting on financial projections
        prepared by you; (iv) preparation or review of presentation and placement
        documents; (v) review of documents required for the structuring. negotiation,
        and documentation of the Transaction; (vi) using our best efforts to identify
        and contact potential investors for the Transaction; (vii) using our best
        efforts to identify and contact potential acquirers of, investors in. or
        strategic partners or acquisition candidates for, the Company; (viii) advising
        and assisting you in the negotiation and structuring of a Transaction; and
        (ix)
        assisting in closing a Transaction, except that we will not perform any services
        that would require us or our employees to be licensed or registered as a
        broker-dealer or investment advisor.
 
 (b)
        None
        of our services will be deemed to constitute legal representation, auditing,
        or
        tax services, and you agree that the Company will consult appropriately licensed
        attorneys or certified public accountants, respectively, on all material
        legal,
        auditing, and tax matters involving the Company.
 
 (c)
        Our
        services will be performed by our employees or by other persons engaged and
        paid
        by us. We reserve the right to determine and change the personnel assigned
        to
        this engagement at any time, with the Company's consent; such consent not
        to be
        unreasonably withheld.
 
 (d)
        Our
        services will generally be performed at our offices, although we expect to
        meet
        with your officers, directors, employees, auditors, and legal counsel at
        their
        respective offices and to provide other services at your offices or other
        locations from time to time.
 
 3.
        Company Obligations. (a) For us to assist you with any Transaction and to
        render
        financial advisory services, you will promptly provide us with information
        that
        we request, allow us access to the Company's officers, directors, employees,
        auditors, legal counsel, and other consultants and advisors, and take any
        other
        commercially reasonable actions that we request.
 
 (b)
        In
        preparing or reviewing any documentation to be delivered to any third party
        in
        connection with any Transaction, the Company is responsible for ensuring
        that
        any disclosures are true, correct, and complete in all material respects,
        and we
        assume no responsibility for the completeness or accuracy of any information
        prepared or reviewed by you.
 
 4.
        Advisory Fees. (a) You will pay us a contingent fee in connection with each
        Transaction in an amount in cash from Three Percent (3%) to Ten Percent (10%)
        of
        the Aggregate Proceeds from the Transaction with any person or entity from
        the
        Approved Investor List. The amount payable for each Transaction will be agreed
        by you and us at the time of the Transaction. In calculating the fee under
        this
        Section, any Aggregate Proceeds in a form other than cash will be valued
        at
        their fair marker value.
 
 (b)
        The
        Transaction Fee will apply to any Transaction occurring prior to termination
        of
        this Agreement.
 
 5.
        Confidentiality. We will maintain the confidentiality of your Confidential
        Information during the term of this Agreement and for a period of one year
        thereafter. We may disclose Confidential Information to our employees and
        representatives as necessary to provide thee services, provided that they
        have
        agreed to protect your Confidential Information in accordance with this
        Agreement.
 
 
  February
        23, 2005
 Page
        2
  6.
        Liability, Indemnification, and Contribution. (a) No Indemnitee will be liable
        to you for any Liability for any acts or omissions that are taken or omitted
        in
        connection with the performance of this Agreement, except as provided below.
 
 (b)
        You
        must indemnify each Indemnitee from and against all Liabilities arising out
        of
        or relating to our services. You will also indemnify each Indemnitee for
        all
        costs and expenses (including fees of counsel selected by the Indemnitee)
        incurred in defending any claim for which the Indemnitee is entitled to
        indemnification. You must advance all costs to the Indemnitee on demand so
        long
        as the Indemnitee has agreed to reimburse you if a court finally determines
        that
        the Indemnitee was not entitled to indemnification.
 
 (c)
        If it
        is determined for any reason that our rights to indemnification under Section
        6(b) are not available for any reason, then we and the Company will have
        rights
        of contribution with respect to any such Liability such that (i) we will
        be
        liable for a proportion determined by dividing our compensation under this
        Agreement by the Aggregate Proceeds upon which such compensation is calculated,
        and (ii) the Company and its Affiliates will be liable for the remainder.
 
 (d)
        The
        provisions of Sections 6(a), 6(b), and 6(c) will not apply if, but only to
        the
        extent that, the Indemnitee did not act in good faith and (i) the Indemnitee
        received a financial benefit to which he was not entitled or (ii) with intent
        to
        cause harm to the Company or your business. If Section 6(a), 6(b) and 6(c)
        do
        not apply by reason of this Section 6(d), then we will indemnify the Company.
 
 7.
        Term.
        (a) Either party may terminate this Agreement upon thirty (30) days prior
        written notice to the other upon if the other party defaults with respect
        to any
        obligation under this Agreement; provided that this Agreement will not terminate
        if the default is cured within that 30-day period.
 
 (b)
        You
        may terminate this Agreement without cause at any time upon ten (10) days
        prior
        written notice to us.
 
 (c)
        We
        may terminate this Agreement without cause at any time upon ten (10) days
        prior
        written notice to you.
 
 (d)
        The
        termination of this Agreement will not affect your obligation to pay us any
        amount due under this Agreement or our respective rights and obligations
        under
        Section 5 and Section 6.
 
 8.
        Certain Definitions. When capitalized in this Agreement, the following terms
        shall have the meanings set forth in this Section. The singular includes
        the
        plural and the masculine includes the feminine and the neuter, and vice versa,
        as the context requires. Unless expressly provided in this Agreement, all
        references to any contract or agreement shall mean the contract or agreement
        as
        amended from time to time, and all references to any statute shall mean the
        statute as amended from time to time, together with any regulations or judicial
        and administrative decisions implementing or interpreting that statute.
 
 "Affiliate"
        means, with respect to any person or entity, any other person or entity that
        controls, is controlled by, or is under common control with that person or
        entity, all as determined under the Securities Laws.
 
 "Aggregate
        Proceeds" means the aggregate amount of cash paid to the Company in connection
        with the Transaction for sales of securities of the Company.
 
 "Confidential
        information" means information concerning the Company and your business that
        is
        (i) disclosed in a writing marked "confidential" or (ii) disclosed orally
        and
        identified as "confidential" in writing prior to or within ten (10) days
        following disclosure. Confidential Information does not include information
        (i)
        that is or becomes publicly available or generally known to persons in your
        industry without breach of our obligations under this section, (ii) in our
        possession as of the date of this Agreement, unless notified that such
        information is "confidential", (iii) received by us after the term of this
        Agreement, unless notified that such information is "confidential",(iv) received
        from persons having no obligation of confidentiality to you, or (v) that
        we
        independently develop without reference to any Confidential Information.
 
 "Transaction"
        means any transaction or series of related transactions between the Company
        and
        parties on the Approved Investor List involving the issuance and sale by
        the
        Company of any class or series of its equity securities or any securities
        convertible into or exchangeable for its equity securities.
 
 "Approved
        Investor List" means a written list of potential investors that have been
        pre-approved by the Company to be contacted directly by us on the Company's
        behalf.
 
 "Indemnitee"
        means each of Berkley Financial Services (BFS) Ltd. any officer. director,
        employee, agent, counsel, or representative of either of the foregoing, and
        any
        person performing services to or on behalf of the Company under this Agreement.
 
 "Liability"
        means any liability, loss, claim, action, cause of action, settlement, or
        other
        cost or expense.
 
 "Securities
        Laws" means the Securities Act of 1933, the Securities Exchange Act of 1933,
        and
        any Federal or state statute governing the issuance and sale of securities.
 
 "Underwriter"
        means any broker or dealer licensed to effect transactions in securities
        under
        Securities Laws.
 
 9
        Entire
        Agreement; Amendment. This Agreement represents the entire agreement and
        understanding between us concerning our services and supersede ail prior
        and
        contemporaneous agreements, understandings. representations and warranties.
        This
        Agreement may not be amended, changed or modified except by a written
        installment executed by or on behalf of both you and us.
 
 10.
        Assignment. Neither patty may assign this Agreement to any other party without
        the other patty's prior written consent, except that you may assign this
        Agreement to any party that acquires substantially all of the assets and
        the
        goodwill of the Company.
 
  
  
 February
        23, 2005 Page 3
 
 11.
        Binding Effect; No Third Party Beneficiaries. This Agreement is binding upon
        and
        inure to the benefit of the parties and our respective successors, transferees:
        and assigns. No person other than the parties to this Agreement has any legal
        or
        equitable right, remedy or claim under this Agreement.
 
 12.
        Waivers and Consents. No waiver of any breach of any of the terms of this
        Agreement, nor any consent required or permitted to be given hereunder, will
        be
        effective unless in writing and executed by or on behalf of the party or
        parties
        against whom the waiver or consent is to be enforced. No waiver of any breach
        nor consent to any transaction will be deemed a waiver of or consent to any
        other or subsequent breach or transaction.
 
 13.
        Notices. Any notice required or permitted under this Agreement must be in
        writing and will be deemed given if (i) personally delivered. (ii) sent by
        facsimile transmission to the party for whom such notice is intended at the
        fan
        number set forth below, or (iii) sent by registered or certified US. Mail,
        or by
        nationally recognized delivery service, postage prepaid, to the party for
        whom
        such notice is intended at the address set forth below. Either party may
        change
        the address or fax number by giving notice of to the other party in the manner
        provided in this Section.
 
 14.
        Governing Law. This Agreement will be governed by and construed in accordance
        with the laws of the State of North Carolina applicable to agreements made
        by
        residents of that state and wholly performed in that state.
 
 15.
        Arbitration. Any dispute or claim under this Agreement or otherwise relating
        to
        our services must be resolved by arbitration in Orange County, North Carolina
        under the rules of the American Arbitration Association then in effect. A
        judgment on any arbitration may be entered in any court in North Carolina
        or any
        other state or country having appropriate jurisdiction.
 
 16.
        Construction and Interpretation. (a) Each party has had the opportunity to
        consult with legal counsel regarding the provisions of this Agreement. Every
        covenant, term and provision of this Agreement will be construed according
        to
        its fair meaning and not strictly for or against any party or parties.
 
 (b)
        When
        used in this Agreement, the term "including" means "including, but not limited
        to".
 
 (c)
        Captions of the several sections of this Agreement are for reference purposes
        only, are not intended to describe, interpret, define or limit the scope,
        extent
        or intent of this Agreement or any provision hereof, and will not control
        or
        alter the meaning of this Agreement as set forth in the text.
  17.
        Counterparts. This Agreement may be executed in any number of counterparts
        and
        all executed counterparts will constitute one agreement binding on all parties
        to this Agreement, notwithstanding that all parties have not signed the same
        counterpart.
 
 Please
        confirm your agreement by signing below and returning a fully executed
        counterpart of this Agreement to us. We look forward to working closely with
        you
        and to an enthusiastic response from the market.
 
 
 BERKLEY
                  FINANCIAL SERVICES (BSF) LIMITED
                
                BY:
                  /s/ Illegible
                Title: 
                  by means of POA
                Date:
                  3/3/05
                Registered
                  Office: Post Office Box 1026
                The Valley
                Anguilla
                British West Indies
 
 
 Agreed
        and Accepted
 SMART
        ONLINE, INC.
 
 By 
        /s/ Michael Nouri
 Title: 
        President and CEO
 Date: 
        3/14/05