**SUBSCRIPTION
      AGREEMENT**





Smart
      Online, Inc.


2530
      Meridian Parkway


2 nd Floor


Durham,
      North Carolina 27713


Attention:
      Michael Nouri





Gentlemen:





(1) Pursuant
      to prior understandings and discussions, the undersigned (“Subscriber”) hereby
      agrees to purchase from Smart Online, a Delaware corporation (the “Company”),
      for a purchase price of Two Dollars and Fifty Cents ($2.50) per share the number
      of shares of Common Stock, par value $0.001 per share (“Common Stock”) set forth
      on the signature page of this Agreement. (The Common Stock is sometimes
      hereinafter referred to as the “Securities.”) Subscriber hereby acknowledges (i)
      that this subscription shall not be deemed to have been accepted by the Company
      until the Company indicates its acceptance by returning to Subscriber an
      executed copy of this subscription, and (ii) that acceptance by the Company
      of
      this subscription is conditioned upon the information and representations of
      Subscriber hereunder being complete, true and correct as of the date of this
      subscription and as of the date of closing of sale of the Securities to
      Subscriber. As a condition to Subscriber’s purchase of the Securities pursuant
      to this Agreement, Subscriber and the Company will execute and deliver to one
      another a copy of the Subscriber Rights Agreement in substantially the form
      attached hereto as Appendix
      A (the
“Subscriber Rights Agreement”) and a Dribble Out Agreement in the form attached
      hereto as Appendix
      B (the
“Dribble Out Agreement”).





(2) Until
      actual delivery of the purchase price to the Company and acceptance by the
      Company of the purchase price and this Subscription Agreement, the Company
      shall
      have no obligation to Subscriber. The Company may revoke a prior acceptance
      of
      this Subscription Agreement at any time prior to delivery to and acceptance
      by
      the Company of the purchase price for the Securities.





(3)  Subscriber
      hereby represents and warrants to the Company as follows:





(a) Disclosure .
      Subscriber has carefully reviewed the Summary Private Placement Memorandum,
      including financial information, provided by the Company, including all risk
      factors, and fully understands all risks associated with investment in the
      Company, including, without limitation, the risks posed by prior disclosures
      made by the company to its shareholders and investors in connection with a
      reorganization and private placement, and the remedies such shareholders have,
      including the company’s planned rescission offer.





(b) Authorization .
      Subscriber has full power and authority to enter into this Agreement. This
      Agreement constitutes Subscriber’s valid and legally binding obligation,
      enforceable in accordance with its terms except as limited by (i) applicable
      bankruptcy, insolvency, receivership, reorganization, moratorium and other
      laws
      of general application affecting enforcement of creditors’ rights generally, and
      (ii) general principals of equity, the application of which may deny the Company
      the right to specific performance, injunctive relief and other equitable
      remedies.











(c) Experience .
      Subscriber is experienced in evaluating and investing in private placement
      transactions of securities of technology companies such as the Company, has
      such
      knowledge and experience in financial and business matters that Subscriber
      is
      capable of evaluating the merits and risks of Subscriber’s investment in the
      Securities, is able to bear the economic risk of the investment and is prepared
      to hold the shares for an indefinite period of time.





(d) Investment .
      Subscriber is acquiring the Securities for investment for Subscriber’s own
      account and not with a view to, or for resale in connection with, any
      distribution thereof, and Subscriber has no present intention of selling or
      distributing the Securities. Subscriber 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. Subscriber understands
      that the Securities to be purchased by Subscriber have not been registered
      under
      the Securities Act of 1933, as amended (the “Act”) by reason of a specific
      exemption from the registration provisions of the Act which depends upon, among
      other things, the bona fide nature of the investment intent as expressed
      herein.





(e) Reliance
      Upon Subscriber Representations .
      Subscriber understands that the Securities are not registered under the Act
      on
      the grounds that the sale provided for in this Agreement and the issuance of
      Securities hereunder is being made in reliance upon an exemption from the
      registration requirements of the Act pursuant to Section 4(2) thereof as a
      transaction by an issuer of Securities not involving a public offering or
      pursuant to Section 4(6) thereof as a transaction by an issuer of securities
      solely to accredited investors, and is similarly exempt under applicable state
      securities laws, and that the Company’s reliance on such exemption is predicated
      on Subscriber’s representations as set forth in this Agreement.





(f) Restricted
      Securities .
      Subscriber acknowledges that the Securities have not been registered under
      the
      Act or any applicable state securities law and that the Securities may not
      be
      sold, assigned, pledged, hypothecated or transferred, unless there exists an
      effective registration statement therefor under the Act and all applicable
      state
      securities laws or the Company has received an opinion of counsel, reasonably
      acceptable to counsel for the Company, or other reasonable assurances, that
      such
      sale, assignment, pledge, hypothecation or transfer is exempt from registration.
      Subscriber understands that in the absence of an effective registration
      statement covering the Securities or an exemption therefrom under the Act and
      all applicable state securities laws, the Securities must be held indefinitely.
      In particular, Subscriber is aware that the Securities may not be sold pursuant
      to Rule 144 promulgated under the Act, unless all conditions of Rule 144 are
      met. Among the conditions for the use of Rule 144 may be the availability of
      current and adequate information to the public about the Company. Such
      information is not now available and, except as set forth in the Subscriber
      Rights Agreement, the Company has no obligation to make such information
      available. Notwithstanding the foregoing, no opinion of counsel shall be
      required by the Company in connection with the transfer of the Securities to
      an
      entity that is a direct or indirect wholly-owned subsidiary of Subscriber.





2








(g) Legends .





(i) Each
      certificate representing the Securities shall, in addition to any legends
      required elsewhere, bear the following legend as appropriate for stock
      certificates and warrant agreements:





THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY
      NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR TRANSFERRED UNLESS THERE EXISTS
      AN EFFECTIVE REGISTRATION STATEMENT THEREFOR UNDER THE SECURITIES ACT OF 1933,
      AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS OR THE ISSUER HEREOF HAS
      RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL OF THE
      ISSUER, THAT SUCH SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR TRANSFER IS EXEMPT
      FROM REGISTRATION.





(ii) 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.





(h) No
      Public Market .
      Subscriber understands that no public market now exists for any of the
      securities issued by the Company and that it is uncertain whether a public
      market will ever exist for the Securities.





(i) Access
      to Information .
      Subscriber has received all information that Subscriber considers necessary
      or
      appropriate for deciding whether to purchase Securities. Subscriber has had
      an
      opportunity to ask questions and receive answers from the Company’s management
      regarding the terms and conditions of the offering of the Securities and the
      business, properties, prospects and financial condition of the Company and
      to
      obtain additional information from the Company (to the extent that the Company
      possessed such information or could acquire it without unreasonable effort
      or
      expense) necessary to verify the accuracy of any information furnished to
      Subscriber or to which Subscriber had access.





(j) Accredited
      Investor . Subscriber
      recognizes it is important under the Act and state securities law that the
      Company determine if potential investors are “accredited investors,” as defined
      in Appendix
      C attached
      hereto. Subscriber represents that Subscriber is an “accredited investor” by
      reason of the following: __________________________________ (indicate number
      from Appendix
      C ).
      Subscriber further represents that Subscriber is a citizen of the country of
      Switzerland. Subscriber is not a resident of any other
      jurisdiction.





(4) 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 acceptance hereof by the Company and shall
      survive thereafter.





3











(5) 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 Subscriber, the Subscriber’s heirs, estate, legal
      representatives, successors and assigns and shall inure to the benefit of the
      Company and its successors and assigns.





(6) Subscriber
      agrees not to transfer or assign this Agreement, or any of Subscriber’s interest
      herein, without the express written consent of the Company.





(7) This
      Agreement constitutes 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. This Agreement may be amended only by a writing executed by all
      parties hereto. This Agreement may be executed in one or more
      counterparts.





(The
      remainder of this page is intentionally left blank.)















4





IN
      WITNESS WHEREOF, Subscriber has executed this Subscription Agreement this ____
      day of March, 2006.





*SUBSCRIPTION*400,000
            Number
                of Shares of Common Stock$1,000,000
            Total
                payment enclosedAtas
                Capital SA
            Atlas
                Capital SA(Address)
            (Name
                of Subscriber)Rue
                du Rhone 116
            /s/ Moise
                Dwek            /s/
                Avy LugassyCH
                - 1204 Geneve
            (Signature)Tel: 
                (+41 22)  718 1 718
              Fax: 
(+41
                22_ 786-5855(Address)_______________________Social
                Security Number





ACCEPTANCE





The
      foregoing Subscription Agreement is accepted on this the 30th day of March,
      2006.





SMART
                ONLINE, INC.By:
                /s/ Michael NouriMichael Nouri, President

















5





**APPENDIX
      A**





**SUBSCRIBER
      RIGHTS AGREEMENT**








SUBSCRIBER
      RIGHTS AGREEMENT (this “Agreement”), dated as of March 30, 2006, by and among
      Smart Online, Inc., a Delaware corporation with its headquarters located at
      2530
      Meridian Parkway, Durham, North Carolina 27713 (the “Company”), and the
      undersigned (together with its affiliates and any assignees or transferees
      of
      all of its respective rights hereunder, the “Investors”).





WHEREAS:





A. In
      connection with the Subscription Agreement by and among the parties hereto
      dated
      as of the date hereof (the “Subscription Agreement”), the Company has agreed,
      upon the terms and subject to the conditions contained therein, to issue and
      sell to the Investors shares of the Company’s common stock (the “Common Stock”),
      upon the terms and subject to the limitations and conditions set forth in such
      Subscription Agreement; and





B. To
      induce
      the Investors to execute and deliver the Subscription Agreement, the Company
      has
      agreed to provide certain rights under the Securities Act of 1933, as amended,
      and the rules and regulations thereunder, or any similar successor statute
      (collectively, the “1933 Act”), and applicable state securities
      laws;





NOW,
      THEREFORE, in consideration of the premises and the mutual covenants contained
      herein and other good and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged, the Company and each of the Investors hereby
      agree as follows:





1. DEFINITIONS.





(a) As
      used
      in this Agreement, the following terms shall have the following
      meanings:





(i) “Investors”
      means any person who acquires shares of Common Stock of the Company, or any
      security of the Company pursuant to which the holder has a right to receive
      shares of Common Stock of the Company upon exercise or conversion of such
      security, who agrees to become bound by the provisions of this Agreement or
      a
      counterpart of this Agreement, and permitted transfers and assignees of
      Investors in accordance with Section 9 hereof.





(ii)  “Pro
      Rata
      Share” means the ratio of the sum of the shares of Common Stock then held by the
      Investor to the sum of the total number of shares of Common Stock then
      outstanding, assuming the full exercise of all outstanding options, warrants
      and
      other rights to acquire the Company’s capital stock.





6








(iii)  "New
      Offering" means any offering for sale, issuance or distribution of any shares
      of
      capital stock of the Company, whether now authorized or not, and rights, options
      or warrants to purchase said shares of capital stock, and securities of any
      type
      whatsoever that are, or may become convertible into said shares of capital
      stock
      (collectively defined as “Securities” for purposes of this subsection), where
      the per share price of the capital stock being offered is less than US$2.50,
      as
      adjusted for any stock split, combination, stock dividend, reverse split or
      similar event. Notwithstanding the foregoing, a "New Offering" shall not include
      (A) Securities issued to employee, directors, consultants, or others pursuant
      to
      plans, agreements or arrangements where such issuance is approved by the
      Company's Board of Directors or a committee thereof; (B) Securities issued
      to
      financial institutions, lessors or other entities or persons, in connection
      with
      commercial credit arrangements, equipment financings or similar transactions,
      or
      any strategic alliances, licensing agreement, or other on-going business
      relationship between the Company and such other person or entity; provided
      that any such
      offering is for other than primarily equity financing purposes; (C) any asset
      or
      technology purchase or other acquisition whereby Securities of the Company
      are
      issued; (D) Securities issued pursuant to the acquisition of another corporation
      by the Company by merger, purchase, reorganization, or other transaction; (E)
      Securities issued in lieu of cash penalties for noncompliance with any
      registration rights agreement or other agreement; (F) Securities issued by
      the
      Company in an any public offering; (G) Securities issued upon exercise or
      conversion of any convertible or exercisable security where (i) such Security
      was exempt from this definition of New Offering, or (ii) the convertible or
      exercisable securities were offered to the Investor and the Investor failed
      to
      exercise its right to purchase any such securities; and (H) Securities issued
      in
      connection with any stock split, stock dividend or similar transactions by
      the
      Company.





(iv) “register,”
      “registered,” and “registration” refer to a registration effected by preparing
      and filing a Registration Statement or Statements in compliance with the 1933
      Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing
      for offering securities on a continuous basis (“Rule 415”), and the declaration
      or ordering of effectiveness of such Registration Statement by the United States
      Securities and Exchange Commission (the “SEC”).





(v) “Registrable
      Securities” means (x) all shares of Common Stock sold by the Company pursuant to
      the Subscription Agreement or pursuant to a warrant issued to Investor at the
      time of purchase of such shares of common stock; and (z) all shares of capital
      stock issued or issuable as a dividend on or in exchange for or otherwise with
      respect to the foregoing.





(vi) “Registration
      Statement” means a registration statement of the Company under the 1933
      Act.





7











(b) Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Subscription Agreement.





2. SUBSCRIBER
      RIGHTS.





(a) Mandatory
      Registration .
      No
      later than September 30, 2006 (the “Target Filing Date”), the Company shall
      prepare and file with the SEC a Registration Statement on Form S-1, SB-1 or
      SB-2
      as determined by the Company in its sole discretion (or, if such Forms are
      not
      then available, on such form of Registration Statement as is then available)
      to
      effect a registration of the Registrable Securities covering the resale of
      the
      Registrable Securities. The Company may also include in such Registration
      Statement in its sole discretion, shares for sale by the Company or the Company
      may file a separate Registration Statement covering shares to be sold by the
      Company before, at the same time or after the Company files a Registration
      Statement covering resale of Registrable Securities by Investors.





(b) Payments
      by the Company .
      The
      Company shall use its best efforts to cause the Registration Statement to be
      effective as soon as reasonably practicable. If the Registration Statement
      covering the Registrable Securities required to be filed by the Company pursuant
      to Section 2(a) hereof is not filed by the Target Filing Date, then the Company
      will make payments to the Investors in such amounts and at such times as shall
      be determined pursuant to this Section 2(b) as liquidated damages by reason
      of
      any such delay in their ability to sell the Registrable Securities (which remedy
      shall be exclusive of any other remedies available at law or in equity). The
      Company shall pay to each holder of Registrable Securities an amount (the
“Damage Amount”) equal to the product obtained by multiplying (i) the purchase
      price (the “Purchase Price”) paid for the Registrable Securities by the
      Investor, by (ii) the Applicable Percentage (as defined below) by (iii) the
      number of 30-day periods (prorated for partial periods) after the Target Filing
      Date that the Registration Statement covering the Registrable Securities of
      the
      Investor is actually filed; provided, however, that there shall be excluded
      from
      such period any delays which are attributable (i) to Investor, or any other
      Investor who holds Registrable Securities, with respect to information relating
      to the Investors, including, without limitation, the plan of distribution or
      beneficial ownership of securities, or (ii) to the failure of any Investor
      (or
      legal counsel to the Investor) to conduct their review of the Registration
      Statement pursuant to Section 3(h) below in a reasonably prompt manner or (iii)
      any person or entity named in the Prospectus as an underwriter. The term
“Applicable Percentage” means one half of one percent. (For example, if the
      Registration Statement is filed thirty days after the Target Filing Date, the
      Company would pay as the Damage Amount $500 for each $100,000 of the Purchase
      Price. In the sole discretion of the Company, the Company may issue to Investor
      in lieu of the cash payment described above, a number of shares of Common Stock
      of the Company equal to the quotient derived by dividing (i) the Damage Amount,
      by (ii) Purchase Price per share (as defined above).




(c) Eligibility
      for Form S-3; Conversion to Form S-3 .
      If the
      Company meets the registration eligibility and transaction requirements for
      the
      use of Form S-3 (or any successor form) for registration of the offer and sale
      by the Investor and any other Investors of their Registrable Securities before
      the earlier of the dates stated in clauses (ii) and (iii) in the definition
      of
      the Registration Period (as defined in Section 3(a) below), the Company shall
      file a





8





Registration
      Statement on Form S-3 (or such successor form) with respect to the Registrable
      Securities covered by the Registration Statement, filed pursuant to Section
      2(a)
      (and include in such Registration Statement on Form S-3 the information required
      by Rule 429 under the 1933 Act) or convert the Registration Statement, filed
      pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933
      Act
      and cause such Registration Statement (or such amendment) to be declared
      effective as soon as practicable after filing. If the Company becomes eligible
      to use Form S-3 during the Registration Period, the Company agrees to use
      reasonable efforts to file all reports required to be filed by the Company
      with
      the SEC in a timely manner so as to remain eligible or become eligible, as
      the
      case may be, and thereafter to maintain its eligibility, for the use of Form
      S-3. After such Registration Statement on Form S-3 become effective, subject
      to
      Section 3 hereof, the Company shall maintain such Registration Statement in
      effect until the earlier of clauses (ii) and (iii) in the definition of
      Registration Period in Section 3(a) hereof.





(d) (i) Right
      of First Purchase .
      The
      Company hereby grants to the Investors the right of first offer to purchase
      its
      Pro Rata Share of any part of a New Offering which the Company may, from time
      to
      time, propose.





(ii) Notice
      of New Offering .
      In the
      event the Company proposes to undertake a New Offering, it shall give the
      Investors written notice of its intention, describing the type of securities
      to
      be issued, and the price and terms upon which the Company proposes to issue
      the
      same. The Investors shall have ten (10) calendar days from the date of receipt
      of any such notice to agree to purchase up to its respective Pro Rata Share
      of
      such New Offering for the price and upon the terms specified in the notice
      by
      giving written notice to the Company and stating therein the number of shares
      from the New Offering to be purchased. Notwithstanding the foregoing, the
      Company may enter into a New Offering with others during this ten (10) calendar
      day period, provided
      that the
      Company reserves the Investor’s Pro Rata Share of the New Offering.





(iii) In
      the
      event an Investor fails to exercise the right of first refusal within the ten
      (10) day period described above, the Company shall have one-hundred eighty
      (180)
      days thereafter to enter into a New Offering whereby the shares not elected
      to
      be purchased by the Investor may be sold at the price and upon the terms no
      more
      favorable to the purchasers of such securities than specified in the Company's
      notice. In the event the Company has not entered into an agreement for the
      New
      Offering within said one-hundred eighty (180) period, the Company shall not
      thereafter enter into any New Offering without first providing notice to the
      Investor in the manner provided above.





(iv) The
      rights described in this Section 2(d) shall expire upon the acquisition of
      the
      Company by merger, reorganization, or other transaction whereby the Company
      or
      its stockholders own less than fifty percent (50%) of the voting power of the
      surviving or successor corporation, or by purchase of substantially all of
      the
      assets of the Company.





9








3. OBLIGATIONS
      OF THE COMPANY.





In
      connection with the registration of the Registrable Securities, the Company
      shall have the following obligations:





(a) The
      Company shall prepare promptly, and use reasonable efforts to file with the
      SEC
      not later than the Target Filing Date, a Registration Statement with respect
      to
      the number of Registrable Securities provided in Section 2(a), and thereafter
      use its best efforts to cause such Registration Statement relating to
      Registrable Securities to become effective as soon as possible after such
      filing, and use reasonable efforts to keep the Registration Statement effective
      pursuant to Rule 415 at all times until such date as is the earlier of (i)
      270
      days after the effective date of the Registration Statement; (ii) the date
      on
      which all of the Registrable Securities have been sold by Investor and (iii)
      the
      date on which the Registrable Securities of Investor (in the opinion of counsel
      to the Company) may be immediately sold to the public without registration
      or
      restriction (including without limitation as to volume by Investor) under the
      1933 Act (the “Registration Period”), which Registration Statement (including
      any amendments or supplements thereto and prospectuses contained therein) shall
      not contain any untrue statement of a material fact or omit to state a material
      fact required to be stated therein, or necessary to make the statements therein
      not misleading. The right of other Investors to have the Registration Statement
      remain in effect shall not confer any rights on Investor.





(b) The
      Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to the Registration Statements and
      the prospectus used in connection with the Registration Statement as may be
      necessary to keep the Registration Statement effective at all times during
      the
      Registration Period, and, during such period, comply with the provisions of
      the
      1933 Act with respect to the disposition of all Registrable Securities of the
      Company covered by the Registration Statement until such time as all of such
      Registrable Securities have been disposed of in accordance with the intended
      methods of disposition by the Investor as set forth in the Registration
      Statement.





(c) If
      requested, the Company shall furnish to one legal counsel for all Investors
      whose Registrable Securities are included in a Registration Statement (i)
      promptly (but in no event more than two (2) business days) after the same is
      prepared and publicly distributed, filed with the SEC, or received by the
      Company, one copy of each Registration Statement and any amendment thereto,
      each
      preliminary prospectus and prospectus and each amendment or supplement thereto,
      and, in the case of the Registration Statement referred to in Section 2(a),
      each
      letter written by or on behalf of the Company to the SEC or the staff of the
      SEC, and each item of correspondence from the SEC or the staff of the SEC,
      in
      each case relating to such Registration Statement (other than any portion of
      any
      thereof which contains information for which the Company has sought confidential
      treatment), and (ii) promptly (but in no event more than two (2) business days)
      after the Registration Statement is declared effective by the SEC, such number
      of copies of a prospectus, including a preliminary prospectus, and all
      amendments and supplements thereto and such other documents as Investor may
      reasonably request in order to facilitate the disposition of the Registrable
      Securities owned by Investor. The Company will immediately notify one legal
      counsel representing all Investors where Registrable Securities are included
      in
      a Registration Statement by facsimile of the effectiveness of each Registration
      Statement or any post-effective amendment. The Company will promptly respond
      to
      any and all comments received from the SEC (which comments shall promptly be
      made available to one





10





legal
      counsel representing all Investors whose Registration Securities are included
      in
      a Registration Statement upon request), with a view towards causing the
      Registration Statement or any amendment thereto to be declared effective by
      the
      SEC as soon as reasonably practicable, and (ii) promptly file an acceleration
      request as soon as reasonably practicable (but in no event more than two (2)
      business days) following the resolution or clearance of all SEC comments. If
      applicable, following notification by the SEC that any such Registration
      Statement or any amendment thereto will not be subject to review, the Company
      shall promptly file with the SEC a final prospectus as soon as reasonably
      practicable (but in no event more than two (2) business days) following receipt
      by the Company from the SEC of an order declaring the Registration Statement
      effective.





(d) The
      Company shall use reasonable efforts to (i) register and qualify the Registrable
      Securities covered by the Registration Statement under such other securities
      or
“blue sky” laws of such jurisdictions in the United States as the Investors who
      hold a majority of the Registrable Securities being offered by the Registration
      Statement reasonably request or qualify for an exemption for resale afforded
      companies listed in a Standard & Poor’s corporate handbook or similar
      publications, (ii) prepare and file in those jurisdictions such amendments
      (including post-effective amendments) and supplements to such registrations
      and
      qualifications as may be necessary to maintain the effectiveness thereof during
      the Registration Period, (iii) take such other actions as may be reasonably
      necessary to maintain such registrations and qualifications in effect during
      the
      Registration Period, and (iv) take all other actions reasonably necessary or
      advisable to qualify the Registrable Securities for sale in such jurisdictions;
      provided, however, that the Company shall not be required in connection
      therewith or as a condition thereto to (i) qualify to do business in any
      jurisdiction where it would not otherwise be required to qualify but for this
      Section 3(d), (ii) subject itself to general taxation in any such jurisdiction,
      (iii) file a general consent to service of process in any such jurisdiction,
      (iv) provide any undertakings that cause the Company undue expense or burden,
      (v) make any change in its charter or bylaws, or (vi) spend more than $10,000
      in
      filing fees and legal fees and expenses for such “blue sky”
compliance.





(e) If
      the
      Company has not selected an underwriter for the offering, and in the event
      Investors who hold a majority of the Registrable Securities being offered by
      the
      Registration Statement select underwriters for the offering, the Company shall
      enter into and perform its obligations under an underwriting agreement, in
      usual
      and customary form, including, without limitation, customary indemnification
      and
      contribution obligations, with the underwriters of such offering.





(f) As
      promptly as practicable after becoming aware of such event, the Company shall
      notify each Investor of the happening of any event, of which the Company has
      knowledge, as a result of which the prospectus included in any Registration
      Statement, as then in effect, includes an untrue statement of a material fact
      or
      omission to state a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, and use its best efforts promptly
      to
      prepare a supplement or amendment to any Registration Statement to correct
      such
      untrue statement or omission, and deliver such number of copies of such
      supplement or amendment to each Investor as such Investor may reasonably
      request; provided that, for not more than sixty (60) consecutive trading days
      (or a total of not more than ninety (90) trading





11





days
      in
      any twelve (12) month period), the Company may delay the disclosure of material
      non-public information concerning the Company (as well as prospectus or
      Registration Statement updating) the disclosure of which at the time is not,
      in
      the good faith opinion of the Company, in the best interests of the Company
      (an
“Allowed Delay”); provided, further, that the Company shall promptly (i) notify
      the Investors in writing of the existence of material non-public information
      giving rise to an Allowed Delay and (ii) advise the Investors in writing to
      cease all sales under such Registration Statement until the end of the Allowed
      Delay. Upon expiration of the Allowed Delay, the Company shall again be bound
      by
      the first sentence of this Section 3(f) with respect to the information giving
      rise thereto.





(g) The
      Company shall use its reasonable best efforts to prevent the issuance of any
      stop order or other suspension of effectiveness of any Registration Statement,
      and, if such an order is issued, to obtain the withdrawal of such order within
      a
      reasonable time and to notify each Investor who holds Registrable Securities
      being sold (or, in the event of an underwritten offering, the managing
      underwriters) of the issuance of such order and the resolution
      thereof.





(h) The
      Company shall permit a single firm of legal counsel designated by Investors
      who
      own a majority of the Registrable Securities offered under the Registration
      Statement to review such Registration Statement and all amendments and
      supplements thereto (as well as all requests for acceleration or effectiveness
      thereof) a reasonable period of time prior to their filing with the SEC. The
      role of such legal counsel to the Investors shall be to confirm that the
      sections of such Registration Statement covering information with respect to
      the
      Investors, the Investor’s beneficial ownership of securities of the Company and
      the Investors intended method of disposition of Registrable Securities shall
      conform to the information provided to the Company by each of the Investors,
      subject to review and approval by the Company and its legal counsel. Such legal
      counsel for the Investors shall not have the right to require changes to the
      description of the Company, its business or other matters not related to selling
      stockholders.





(i) The
      Company shall make generally available to its security holders as soon as
      practicable, but not later than ninety (90) days after the close of the period
      covered thereby, an earnings statement (in form complying with the provisions
      of
      Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
      than the first day of the Company’s fiscal quarter next following the effective
      date of the Registration Statement.





(j) Until
      the
      Registration Statement ceases to be effective, the Company shall make available
      for inspection following reasonable prior written notice by (i) any underwriter
      participating in any disposition pursuant to a Registration Statement, (ii)
      one
      firm of attorneys or other agents retained by the Investors who own a majority
      of the Registrable Securities, and (iii) one firm of attorneys retained by
      all
      such underwriters (collectively, the “Inspectors”) all pertinent financial and
      other records, and pertinent corporate documents and properties of the Company
      (collectively, the “Records”), as shall be reasonably deemed necessary by each
      Inspector to enable each Inspector to exercise its due diligence responsibility,
      and cause the Company’s officers, directors and employees to supply all
      information which any Inspector may reasonably request for purposes of such
      due
      diligence; provided, however, that each Inspector shall hold in confidence
      and
      shall not make any disclosure (except to an Investor) of any Record





12





or
      other
      information which the Company determines in good faith to be confidential,
      and
      of which determination the Inspectors are so notified, unless (a) the release
      of
      such Records is ordered pursuant to a subpoena or other order from a court
      or
      government body of competent jurisdiction, or (b) the information in such
      Records has been made generally available to the public other than by disclosure
      in violation of this or any other agreement. The Company shall not be required
      to allow such inspection more than once per calendar year. Following such due
      diligence review, Investor may require the Company to withdraw the Registrable
      Securities of such Investor from the Registration Statement, if the Company
      does
      not make changes to the Registration Statement requested by such
      Investor.





(k) The
      Company shall not be required to disclose any confidential information in such
      Records to any Inspector or to any Investor pursuant to this Agreement until
      and
      unless such Inspector and Investor shall have entered into confidentiality
      agreements (in form and substance satisfactory to the Company) with the Company
      with respect thereto. Each Investor agrees that it shall, upon learning that
      disclosure of such Records or other information is sought in or by a court
      or
      governmental body of competent jurisdiction or through other means, give prompt
      notice to the Company and allow the Company, at its expense, to undertake
      appropriate action to prevent disclosure of, or to obtain a protective order
      for, the Records deemed confidential. Nothing herein (or in any other
      confidentiality agreement between the Company and any Investor) shall be deemed
      to limit the Investor’s ability to sell Registrable Securities in a manner which
      is otherwise consistent with applicable laws and regulations.





(l) The
      Company shall (i) cause all the Registrable Securities covered by the
      Registration Statement to be listed on each national securities exchange, if
      any, on which securities of the same class or series issued by the Company
      are
      then listed, if any, if the listing of such Registrable Securities is then
      permitted under the rules of such exchange, or (ii) to the extent the securities
      of the same class or series are not then listed on a national securities
      exchange, to use reasonable efforts to arrange for at least two market makers
      to
      register with the National Association of Securities Dealers, Inc. (“NASD”) as
      such with respect to such Registrable Securities.





(m) The
      Company shall provide a transfer agent and registrar, which may be a single
      entity, for the Registrable Securities not later than the effective date of
      the
      Registration Statement.





(n) At
      the
      request of the holders of a majority of the Registrable Securities offered
      pursuant to the Registration Statement, the Company shall prepare and file
      with
      the SEC such amendments (including post-effective amendments) and supplements
      to
      a Registration Statement and any prospectus used in connection with the
      Registration Statement as may be necessary in order to change the plan of
      distribution set forth in such Registration Statement.





(o) The
      Company shall take all other reasonable actions necessary to expedite and
      facilitate disposition by the Investors of Registrable Securities pursuant
      to a
      Registration Statement.





13








4. OBLIGATIONS
      OF THE INVESTORS.





In
      connection with the registration of the Registrable Securities, the Investors
      shall have the following obligations:





(a) It
      shall
      be a condition precedent to the obligations of the Company to complete the
      registration pursuant to this Agreement with respect to the Registrable
      Securities of a particular Investor that such Investor shall furnish to the
      Company such information regarding itself, the Registrable Securities held
      by it
      and the intended method of disposition of the Registrable Securities held by
      it
      as shall be reasonably required to effect the registration of such Registrable
      Securities and shall execute such documents in connection with such registration
      as the Company may reasonably request. At least five (5) business days prior
      to
      the first anticipated filing date of the Registration Statement, the Company
      shall notify each Investor of the information the Company requires from each
      such Investor.





(b) Each
      Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of the Registration Statements hereunder, unless
      such Investor has notified the Company in writing of such Investor’s election to
      exclude all of such Investor’s Registrable Securities from the Registration
      Statements.





(c) In
      the
      event the Company or Investors holding a majority of the Registrable Securities
      being registered determine to engage the services of an underwriter, each
      Investor agrees to enter into and perform such Investor’s obligations under an
      underwriting agreement, in usual and customary form, including, without
      limitation, customary indemnification and contribution obligations, with the
      managing underwriter of such offering and take such other actions as are
      reasonably required in order to expedite or facilitate the disposition of the
      Registrable Securities, unless such Investor has notified the Company in writing
      of such Investor’s election to exclude all of such Investor’s Registrable
      Securities from such Registration Statement.





(d) Each
      Investor agrees that, upon receipt of any notice from the Company of the
      happening of any event of the kind described in Section 3(f) or 3(g), such
      Investor will immediately discontinue disposition of Registrable Securities
      pursuant to the Registration Statement covering such Registrable Securities
      until such Investor’s receipt of the copies of the supplemented or amended
      prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
      Company, such Investor shall deliver to the Company (at the expense of the
      Company) or destroy (and deliver to the Company a certificate of destruction)
      all copies in such Investor’s possession, of the prospectus covering such
      Registrable Securities current at the time of receipt of such notice.





(e) No
      Investor may participate in any underwritten registration hereunder unless
      such
      Investor if requested by the Company (i) agrees to sell such Investor’s
      Registrable Securities on the basis provided in any underwriting arrangements
      in
      usual and customary form entered into by the Company, (ii) completes and
      executes all questionnaires, powers of attorney, indemnities, underwriting
      agreements and other documents reasonably required under the terms of such
      underwriting arrangements, and (iii) agrees to pay its pro rata share of all
      underwriting





14





discounts
      and commissions and any expenses in excess of those payable by the Company
      pursuant to Section 5 below. Notwithstanding the foregoing, there is no
      obligation on the part of the Company or any underwriter to include Registrable
      Securities of Investor in the securities to be purchased or sold by the
      underwriter.





5. EXPENSES
      OF REGISTRATION.





All
      reasonable expenses, other than underwriting discounts and commissions, incurred
      in connection with registrations, filings or qualifications pursuant to Sections
      2 and 3, including, without limitation, all registration, listing and
      qualification fees, printers and accounting fees, the fees and disbursements
      of
      counsel for the Company, and the reasonable fees and disbursements of one
      counsel selected by the Investors holding a majority of the Registrable
      Securities shall be borne by the Company, provided the Company shall not be
      required to pay legal fees and disbursements of such legal counsel in excess
      of
      $15,000.




6. INDEMNIFICATION.





In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:





(a) To
      the
      extent permitted by law, the Company will indemnify, hold harmless and defend
      (i) each Investor who holds such Registrable Securities, (ii) the directors,
      officers, partners, employees, agents and each person who controls any Investor
      within the meaning of the 1933 Act or the Securities Exchange Act of 1934,
      as
      amended (the “1934 Act”), if any, (iii) any underwriter (as defined in the 1933
      Act) for the Investors, and (iv) the directors, officers, partners, employees
      and each person who controls any such underwriter within the meaning of the
      1933
      Act or the 1934 Act, if any (each, an “Indemnified Person”), against any joint
      or several losses, claims, damages, liabilities or expenses (collectively,
      together with actions, proceedings or inquiries by any regulatory or
      self-regulatory organization, whether commenced or threatened, in respect
      thereof, “Claims”) to which any of them may become subject insofar as such
      Claims arise out of or are based upon: (i) any untrue statement of a material
      fact in a Registration Statement or the omission to state therein a material
      fact required to be stated or necessary to make the statements therein not
      misleading; (ii) any untrue statement of a material fact contained in any
      preliminary prospectus if used prior to the effective date of such Registration
      Statement, or contained in the final prospectus (as amended or supplemented,
      if
      the Company files any amendment thereof or supplement thereto with the SEC)
      or
      the omission to state therein any material fact necessary to make the statements
      made therein, in light of the circumstances under which the statements therein
      were made, not misleading; or (iii) any violation by the Company of the 1933
      Act, the 1934 Act, any other law, including, without limitation, any state
      securities law, or any rule or regulation thereunder relating to the offer
      or
      sale of the Registrable Securities (the matters in the foregoing clauses (i)
      through (iii) being, collectively, “Violations”). Subject to the restrictions
      set forth in Section 6(c) with respect to the number of legal counsel, the
      Company shall reimburse the Indemnified Person, promptly as such expenses are
      incurred and are due and payable, for any reasonable legal fees or other
      reasonable expenses incurred by them in connection with investigating or
      defending any such Claim. Notwithstanding anything to the contrary contained
      herein, the indemnification agreement





15





contained
      in this Section 6(a): (i) shall not apply to a Claim arising out of or based
      upon a Violation which occurs in reliance upon and in conformity with
      information furnished in writing to the Company by any Indemnified Person or
      underwriter for such Indemnified Person, or any of their legal counsel,
      expressly for use in connection with the preparation of such Registration
      Statement or any such amendment thereof or supplement thereto; (ii) shall not
      apply to amounts paid in settlement of any Claim if such settlement is effected
      without the prior written consent of the Company, which consent shall not be
      unreasonably withheld; and (iii) with respect to any preliminary prospectus,
      shall not inure to the benefit of any Indemnified Person if the untrue statement
      or omission of material fact contained in the preliminary prospectus was
      corrected on a timely basis in the prospectus, as then amended or supplemented.
      Such indemnity shall remain in full force and effect regardless of any
      investigation made by or on behalf of the Indemnified Person and shall survive
      the transfer of the Registrable Securities by the Investors pursuant to Section
      9.





(b) In
      connection with any Registration Statement in which an Investor is
      participating, each such Investor agrees severally and not jointly to indemnify,
      hold harmless and defend, to the same extent and in the same manner set forth
      in
      Section 6(a), the Company, each of its directors, each of its officers who
      signs
      the Registration Statement, each person, if any, who controls the Company within
      the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
      shareholder selling securities pursuant to the Registration Statement or any
      of
      its directors or officers or any person who controls such shareholder or
      underwriter within the meaning of the 1933 Act or the 1934 Act (collectively
      and
      together with an Indemnified Person, an “Indemnified Party”), against any Claim
      to which any of them may become subject, under the 1933 Act, the 1934 Act or
      otherwise, insofar as such Claim arises out of or is based upon any Violation
      by
      such Investor, in each case to the extent (and only to the extent) that such
      Violation occurs in reliance upon and in conformity with written information
      furnished to the Company by such Investor, or its legal counsel, expressly
      for
      use in connection with such Registration Statement; and subject to Section
      6(c)
      such Investor will reimburse any legal or other expenses (promptly as such
      expenses are incurred and are due and payable) reasonably incurred by them
      in
      connection with investigating or defending any such Claim; provided, however,
      that the indemnity agreement contained in this Section 6(b) shall not apply
      to
      amounts paid in settlement of any Claim if such settlement is effected without
      the prior written consent of such Investor, which consent shall not be
      unreasonably withheld; provided, further, however, that the Investor shall
      be
      liable under this Agreement (including this Section 6(b) and Section 7) for
      only
      that amount as does not exceed the net proceeds to such Investor as a result
      of
      the sale of Registrable Securities pursuant to such Registration Statement.
      Such
      indemnity shall remain in full force and effect regardless of any investigation
      made by or on behalf of such Indemnified Party and shall survive the transfer
      of
      the Registrable Securities by the Investors pursuant to Section 9.
      Notwithstanding anything to the contrary contained herein, the indemnification
      agreement contained in this Section 6(b) with respect to any preliminary
      prospectus shall not inure to the benefit of any Indemnified Party if the untrue
      statement or omission of material fact contained in the preliminary prospectus
      was corrected on a timely basis in the prospectus, as then amended or
      supplemented.





(c) Promptly
      after receipt by an Indemnified Person or Indemnified Party under this Section
      6
      of notice of the commencement of any action (including any governmental





16





action),
      such Indemnified Person or Indemnified Party shall, if a Claim in respect
      thereof is to be made against any indemnifying party under this Section 6,
      deliver to the indemnifying party a written notice of the commencement thereof,
      and the indemnifying party shall have the right to participate in, and, to
      the
      extent the indemnifying party so desires, jointly with any other indemnifying
      party similarly noticed, to assume control of the defense thereof with counsel
      mutually satisfactory to the indemnifying party and the Indemnified Person
      or
      the Indemnified Party, as the case may be; provided, however, that an
      Indemnified Person or Indemnified Party shall have the right to retain its
      own
      counsel with the fees and expenses to be paid by the indemnifying party, if,
      in
      the reasonable opinion of counsel retained by the indemnifying party, the
      representation by such counsel of the Indemnified Person or Indemnified Party
      and the indemnifying party would be inappropriate due to actual or potential
      differing interests between such Indemnified Person or Indemnified Party and
      any
      other party represented by such counsel in such proceeding. The indemnifying
      party shall pay for only one separate legal counsel for the Indemnified Persons
      or the Indemnified Parties, as applicable, and such legal counsel shall be
      selected by Investors holding a majority of the Registrable Securities included
      in the Registration Statement to which the Claim relates (with the approval
      of a
      majority-in-interest of the Investors), if the Investors are entitled to
      indemnification hereunder, or the Company, if the Company is entitled to
      indemnification hereunder, as applicable. The failure to deliver written notice
      to the indemnifying party within a reasonable time of the commencement of any
      such action shall not relieve such indemnifying party of any liability to the
      Indemnified Person or Indemnified Party under this Section 6, except to the
      extent that the indemnifying party is actually prejudiced in its ability to
      defend such action. The indemnification required by this Section 6 shall be
      made
      by periodic payments of the amount thereof during the course of the
      investigation or defense, as such expense, loss, damage or liability is incurred
      and is due and payable.





7. CONTRIBUTION.





To
      the
      extent any indemnification by an indemnifying party is prohibited or limited
      by
      law, the indemnifying party agrees to make the maximum contribution with respect
      to any amounts for which it would otherwise be liable under Section 6 to the
      fullest extent permitted by law; provided, however, that (i) no contribution
      shall be made under circumstances where the maker would not have been liable
      for
      indemnification under the fault standards set forth in Section 6, (ii) no seller
      of Registrable Securities guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
      from
      any seller of Registrable Securities who was not guilty of such fraudulent
      misrepresentation, and (iii) contribution (together with any indemnification
      or
      other obligations under this Agreement) by any seller of Registrable Securities
      shall be limited in amount to the net amount of proceeds received by such seller
      from the sale of such Registrable Securities.





8. ASSIGNMENT
      OF REGISTRATION RIGHTS.





The
      rights under this Agreement shall be automatically assignable by the Investors
      to any transferee of all or any portion of Registrable Securities if: (i) the
      Investor agrees in writing with the transferee or assignee to assign such
      rights, and a copy of such agreement is furnished to the Company within a
      reasonable time after such assignment, (ii) the Company is, within a





17





reasonable
      time after such transfer or assignment, furnished with written notice of (a)
      the
      name and address of such transferee or assignee, and (b) the securities with
      respect to which such registration rights are being transferred or assigned,
      (iii) following such transfer or assignment, the further disposition of such
      securities by the transferee or assignee is restricted under the 1933 Act and
      applicable state securities laws, (iv) at or before the time the Company
      receives the written notice contemplated by clause (ii) of this sentence, the
      transferee or assignee agrees in writing with the Company to be bound by all
      of
      the provisions contained herein, (v) such transfer shall have been made in
      accordance with the applicable requirements of the Subscription Agreement,
      and
      (vi) such transferee shall not be a “U.S. Person” as that term defined in
      Regulation S promulgated under the 1933 Act.





9. AMENDMENT
      OF REGISTRATION RIGHTS.





Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with written consent of the Company and Investors who
      hold
      a majority of the Registrable Securities, except that any person or entity
      who
      acquires Registrable Securities may become a part to this Agreement by the
      Company and such person or entity signing a counterpart of this Agreement.
      Any
      amendment or waiver effected in accordance with this Section 10 shall be binding
      upon each Investor and the Company. In the event the Company becomes a
      subsidiary of any company whose Common Stock is publicly traded (“Holding
      Company”), and the Investor receives shares of Common Stock of such Holding
      Company, all obligations of the Company under this Agreement shall terminate
      upon such Holding Company assuming this Agreement, which may be done without
      the
      consent or approval of Investor.





10. MISCELLANEOUS.





(a) A
      person
      or entity is deemed to be a holder of Registrable Securities whenever such
      person or entity owns of record such Registrable Securities. If the Company
      receives conflicting instructions, notices or elections from two or more persons
      or entities with respect to the same Registrable Securities, the Company shall
      act upon the basis of instructions, notice or election received from the
      registered owner of such Registrable Securities.





(b) Any
      notices required or permitted to be given under the terms hereof shall be sent
      by certified or registered mail (return receipt requested) or delivered
      personally or by courier (including a recognized overnight delivery service)
      or
      by facsimile and shall be effective five days after being placed in the mail,
      if
      mailed by regular United States mail, or upon receipt, if delivered personally
      or by courier (including a recognized overnight delivery service) or by
      facsimile, in each case addressed to a party. The addresses for such
      communications shall be:





If
      to the
      Company:





Michael
      Nouri


Smart
      Online, Inc.


Post
      Office Box 12794


Research
      Triangle Park, NC 27709-2794


Telephone:
      (919) 765-5000


E-mail:
      dnouri@us.smartonline.com





18





With
      copies to:





Daniels
      Daniels & Verdonik, P.A.


Post
      Office Drawer 12218


Research
      Triangle Park, NC 27709-2218


Telephone:
      (919) 544-5444


Facsimile:
      (919) 544-5920


Email:
      jverdonik@d2vlaw.com





If
      to an
      Investor:





to
      the
      address set forth immediately below such Investor’s name on the signature pages
      to the Subscription Agreement, or on the address set forth immediately below
      such Investor’s name on the agreement entered into pursuant to the Assignment
      Section of this Agreement.





(c) Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.





(d) THIS
      AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO AGREEMENTS MADE AND TO BE
      PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
      CONFLICT OF LAWS.





(e) In
      the
      event that any provision of this Agreement is invalid or unenforceable under
      any
      applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law. Any provision hereof
      which
      may prove invalid or unenforceable under any law shall not affect the validity
      or enforceability of any other provision hereof.





(f) This
      Agreement constitutes the entire agreement among the parties hereto with respect
      to the subject matter hereof and thereof. There are no restrictions, promises,
      warranties or undertakings, other than those set forth or referred to herein
      and
      therein. This Agreement supersede all prior agreements and understandings among
      the parties hereto with respect to the subject matter hereof and
      thereof.





(g) Subject
      to the requirements of Section 9 hereof, this Agreement shall be binding upon
      and inure to the benefit of the parties and their successors and
      assigns.





(h) The
      headings in this Agreement are for convenience of reference only and shall
      not
      form part of, or affect the interpretation of, this Agreement.





19








(i) This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original but all of which shall constitute one and the same agreement
      and shall become effective when counterparts have been signed by each party
      and
      delivered to the other party. This Agreement, once executed by a party, may
      be
      delivered to the other party hereto by facsimile transmission of a copy of
      this
      Agreement bearing the signature of the party so delivering this
      Agreement.





(j) Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.





(k) Except
      as
      otherwise provided herein, all consents and other determinations to be made
      by
      the Investors pursuant to this Agreement shall be made by Investors holding
      a
      majority of the Registrable Securities, determined as if the all options,
      warrants and convertible securities then outstanding have been issued and/or
      converted into Registrable Securities.





(l) The
      Company and each Investor acknowledges that a breach by it of its obligations
      hereunder will cause irreparable harm by vitiating the intent and purpose of
      the
      transactions contemplated hereby. Accordingly, the parties acknowledge that
      the
      remedy at law for breach of its obligations under this Agreement will be
      inadequate and agrees, in the event of a breach or threatened breach of any
      of
      the provisions under this Agreement, that the other parties shall be entitled,
      in addition to all other available remedies in law or in equity, and in addition
      to the penalties assessable herein, to an injunction or injunctions restraining,
      preventing or curing any breach of this Agreement and to enforce specifically
      the terms and provisions hereof, without the necessity of showing economic
      loss
      and without any bond or other security being required.





(m) The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.





(n) No
      Investor may bring any legal or other action or proceeding for breach of this
      Agreement or arising out of any matter related to this Agreement, unless the
      Investors who own a majority of the Registrable Securities consent to the
      bringing of such action. Any claim may be settled by the Company and the
      Investors who own a majority of the Registrable Securities.







[The
      Remainder of this Page is Blank.]








20





IN
      WITNESS WHEREOF, the Company and the undersigned Investors have caused this
      Agreement to be duly executed as of the date on the first page of this
      Agreement.








SMART
      ONLINE, INC.





By:/s/ Michael Nouri


Name:
      D. M. Nouri


Title:
      CEO











INVESTOR:


_________________________________








By: 
      /s/ Avy Lugassy       /s/ Moise
      Dwek


Name: 
      Avy Lugassy        Moise
      Dwek


Title: 
      Atlas Capital SA


Address: 
      Rue du Rhone 116


CH
      -
      1204 GENEVE


Telephone: 
      (+ 41 22) 718 1 718


Facsimile: 
      (+41 22) 786 5 855


Email: _______________________________











21





**APPENDIX
      B**





**DRIBBLE
      OUT AGREEMENT**








AGREEMENT
      dated as of 30 March, 2006 between Smart Online, Inc., Delaware corporation
      (the
“Company”), and Atlas Capital, S.A. (Subscriber”).





WHEREAS,
      Subscriber has purchased shares of Common Stock (the “Purchased Shares”) from
      the Company and the Company desires Subscriber to agree to limit its sales
      of
      the Purchased Shares in return for granting Subscriber the right to have the
      Purchased Shares registered. (The Purchased Shares are hereinafter individually
      and collectively referred to as the “Securities”).





NOW,
      THEREFORE, the parties hereby agree as follows:





(1) Registration
      of Shares. The
      Company agrees to enter into the Registration Rights Agreement with
      Subscriber.





(2) “ Dribble-Out”
      Agreement .





(a) In
      consideration for the Registration Rights Agreement, Subscriber hereby agrees
      that, except as permitted under subsection (c) of this Section, during the
      Dribble Out Period, as defined herein, Subscriber will not:





(i) Sell
      any
      of the Securities or other securities of the Company or Holding Company received
      on account of ownership of the Securities (the “Dribble-Out
      Securities”).





(ii) Transfer,
      assign or otherwise dispose of any of the Dribble-Out Securities.





(iii) Pledge,
      hypothecate or otherwise create a lien on any of the Dribble-Out
      Securities.





(iv) Loan
      to
      any person or entity any shares or other securities of the Company or Holding
      Company.





(v) Sell
      short any shares or other securities of the Company or Holding
      Company.





(vi) Acquire
      a
      put option or grant a call option with respect to any shares or other securities
      of the Company or Holding Company.





(vii) Enter
      into any agreement concerning any of the foregoing transactions, or otherwise
      facilitate any other person conducting any of the foregoing
      transactions.





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(b) For
      purposes of this Section, Holding Company shall mean any company whose stock
      is
      publicly traded (i) with which the Company merges or consolidates or (ii) of
      which the Company or its successor becomes a subsidiary. For purposes of this
      Section, the Dribble Out Period shall mean the period beginning on the date
      of
      this Agreement and ending six (6) months after the effective date of the first
      registration statement of the Company that registers for resale the Dribble-Out
      Securities (the “Effective Date”). Notwithstanding the foregoing, after the
      Effective Date Subscriber may sell (if permitted under a registration
      statement), during any rolling thirty-day period during the Dribble Out Period,
      up to 25% of the Dribble-Out Securities owned by Subscriber on the Effective
      Date. The Board of Directors of the Company or Holding Company may terminate
      the
      Dribble Out Period or allow Subscriber to take a prohibited action prior to
      termination of the Dribble Out Period with respect to some or all of the
      Dribble-Out Securities owned by the Subscriber, if the Board provides all other
      Subscribers of the Company or Holding Company who have the same Dribble Out
      Period with the same termination or waiver at the same time and to the same
      extent as for Subscriber.





(c) Notwithstanding
      the foregoing, provided the transferee first signs an agreement on substantially
      the terms set forth herein and reasonably acceptable to the Company or Holding
      Company, Subscriber may transfer securities of the Company or Holding Company
      without payment or other consideration: (i) if Subscriber is an individual,
      to
      any family member, (ii) if Subscriber is a corporation, to any direct or
      indirect parent or subsidiary or any shareholder of Subscriber, (iii) if
      Subscriber is a partnership, to any partner of Subscriber, (iv) if Subscriber
      is
      a limited liability company, to any member of Subscriber, and (v) if Subscriber
      is a trust, to any beneficiary of such trust.





(d) Subscriber
      further agrees that before and after termination of the Dribble Out Period,
      Subscriber will comply with all securities laws, rules and regulations when
      purchasing or reselling securities of the Company or Holding Company, including,
      without limitation, those prohibiting sales and purchases of securities while
      in
      possession of material nonpublic information.





(e) The
      Dribble-Out Securities of Subscriber shall have a legend in form and substance
      acceptable to the Company and Holding Company referring to the restrictions
      of
      this Agreement and the Company or Holding Company may instruct the transfer
      agent of the Company or Holding Company to stop any transfer of any securities
      in violation of this Agreement and may take any other action required to avoid
      violation of this Agreement, including, without limitation, obtaining an
      injunction.





(f) The
      provisions of this Section shall continue in effect after the Dribble-Out
      Securities are registered pursuant to the Registration Rights
      Agreement.





(g) Stop
      Transfer Instructions. Subscriber agrees that the Company may issue instructions to its transfer agent
      that prohibit transfer in violation of this Agreement.





(h) Legends. The
      Company may place a legend on the Dribble Out Securities referring to the
      restrictions contained in this Agreement.





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(3) 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 acceptance hereof by the Company and shall
      survive thereafter.





(4) 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 Subscriber, the Subscriber’s heirs, estate, legal
      representatives, successors and assigns and shall inure to the benefit of the
      Company and its successors and assigns.





(5) Subscriber
      agrees not to transfer or assign this Agreement, or any of Subscriber’s interest
      herein, without the express written consent of the Company.





(6) This
      Agreement constitutes 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. This Agreement may be amended only by a writing executed by all
      parties hereto. This Agreement may be executed in one or more
      counterparts.





(The
      remainder of this page is intentionally left blank.)





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IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.











SMART
                ONLINE, INC.By:
                /s/ Michae Nouri
            By: 
                /s/ Moise Dwek       /s/ Asvy
                LugassyMichael Nouri, President
            Name: 
                Moise Dwek     Avy LugassyTitle:____________________Address:
                Atlas Capital SARue du Rhone 116CH - 1204 GENEVETel:  (+41 22) 718 1 718
              Fax:  (+41 22) 786 5 855

















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**APPENDIX
      C**





An
      Accredited Investor is defined as follows:





(1)
            a
                natural person whose individual net worth, or joint net worth, with
                that
                person’s spouse, at the time of purchase exceeds
                $1,000,000;





(2)
            a
                natural person who had an individual income in excess of $200,000
                in each
                of the two most recent years or joint income with that person’s spouse in
                excess of $300,000 in each of those years and has a reasonable expectation
                of reaching the same income level in the current year (the year in
                which
                the purchase is made);





(3)
            any
                trust, with total assets in excess of $5,000,000, not formed for
                the
                specific purpose of investing in the Company, whose purchase is directed
                by a sophisticated person having such knowledge and experience in
                financial and business matters that she is capable of evaluating
                the risks
                and merits of investing in the
                Company;





(4)
            a
                director or executive officer of the
                Company;





(5)
            an
                organization described in Section 501(c)(3) of the Internal Revenue
                Code,
                corporation, Massachusetts or similar business trust, or partnership,
                not
                formed for the specific purpose of acquiring the securities offered,
                with
                total assets in excess of
                $5,000,000;





(6)
            a
                bank as defined in the Securities Act of 1933 (the “Act”), or a savings
                and loan association or other institution as defined in the Act whether
                acting in its individual or fiduciary capacity; a broker or dealer
                registered under the Securities Exchange Act of 1934; an insurance
                company
                as defined in the Act; an investment company registered under the
                Investment Company act of 1940 or a business development company
                as
                defined in the Act; a Small Business Investment Company licensed
                under the
                Small Business Investment Act of 1958; an employee benefit plan within
                the
                meaning of Title I of the Employee Retirement Income Security Act
                of 1974,
                if the investment decision is made by a plan fiduciary, which is
                either a
                bank, savings and loan association, an insurance company, or registered
                investment adviser, or if the employee benefit plan has total assets
                in
                excess of $5,000,000 or, if a self-directed plan, with investment
                decisions made solely by persons that are accredited
                investors;





(7)
            a
                “private business development company” as defined in the Investment
                Advisers Act of 1940; or





(8)
            an
                entity in which all of the equity owners are accredited investors.





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