EMPLOYMENT
      AGREEMENT





THIS
      EMPLOYMENT AGREEMENT is made as of the 21st day of June, 2005, between Smart
      Online, Inc. (the “Company”) and Joan A. Keston (the “Employee”).





W
      I T
      N E S S E T H :





WHEREAS,
      the Company is engaged in the business of providing web-hosted applications
      and
      technology infrastructure syndication;




WHEREAS,
      the Company and the Employee wish to contract for the employment by the Company
      of the Employee, and the Employee wishes to serve the Company, in the capacities
      and on the terms and conditions set forth in this Agreement; and





WHEREAS,
      the Company is an enterprise whose success is attributable largely to the
      creation and maintenance of certain Confidential Data (as defined below) and
      during the period of employment Employee will be situated to have access to
      and
      be knowledgeable with respect to the Confidential Data as well as the customers
      of the Company; and





WHEREAS,
      Company has a legitimate protectible business interest in the creation and
      maintenance of its Confidential Data and the protection of the identity of,
      and
      related information concerning, its customers and the Company’s customer lists;
      and





WHEREAS,
      the Company wishes to protect its Confidential Data from disclosure by Employee
      by means of the restrictive covenants contained in this Agreement and Employee
      agrees to such covenants in exchange for the Company’s commitment to continue to
      employ Employee and for other additional consideration agreed to between the
      parties;





THEREFORE,
      it is hereby agreed as follows:





1. EMPLOYMENT
      PERIOD .
      The
      Company shall employ the Employee, and the Employee shall serve the Company,
      on
      the terms and conditions set forth in this Agreement. Such employment pursuant
      to the terms of this Agreement shall commence on June 21, 2005, and shall
      terminate on the first to occur of (i) the termination of this Agreement as
      provided herein, or (ii) June 30, 2006; provided, however, that if neither
      party
      has given written notice to the other, at least thirty (30) days prior to the
      expiration date then in effect, of the intention not to renew the Agreement
      beyond such expiration date, then the term of this Agreement shall automatically
      extend for an additional year at the conclusion of such expiration date. The
      term during which this Agreement is in effect is referred to herein as the
      “Employment Period.”





2. POSITION
      AND DUTIES .





(a) During
      the Employment Period, the Employee shall serve as a full-time employee of
      the
      Company as General Counsel and Corporate Secretary with such duties and
      responsibilities as are customarily assigned to such position and such other
      duties and responsibilities not inconsistent therewith as may from time to
      time
      be assigned to her by the President, Chief Executive Officer or Board of
      Directors.














(b) During
      the Employment Period, the Employee shall devote his loyalty, attention, and
      time to the business and affairs of the Company and, to the extent necessary
      to
      discharge the responsibilities assigned to the Employee under this Agreement,
      use the Employee’s best efforts to carry out such responsibilities faithfully
      and efficiently.





(c) The
      Employee’s services shall be performed primarily at the Company’s headquarters
      in Durham, North Carolina.





3. COMPENSATION .





(a) Salary.
      The Employee’s base salary, payable monthly, shall be (i) $100,000 per annum for
      the period commencing on the date hereof through July 31, 2005, (ii) $125,000
      per annum for the period commencing on August 1, 2005 through September 30,
      2005
      and (iii) $150,000 per annum for the period commencing on October 1, 2205 and
      continuing for the Employment Period. The base salary shall be reevaluated
      from
      time to time and is subject to such increases as the Board of Directors
      approves. The term “Annual Base Salary” shall refer to the base salary
      prevailing during the applicable period until such time of any increase in
      base
      salary whereupon it shall thereafter refer to such increased
      amount.





(b) Stock.
      Effective as of July 22, 2005, the Company shall grant options to purchase
      50,000 shares of the Company’s Common Stock to Employee, contingent upon
      Employee and Company executing an appropriate Stock Option Agreement in a form
      acceptable to the Company.





(c) Fringe
      Benefits. Employee shall be entitled to all of the non-wage benefits the Company
      provides from time to time to all other full-time employees.





(d) Withholding.
      All compensation paid pursuant to this Section 3 shall be subject to withholding
      of taxes and other amounts as shall be required by law.





3. EXPENSES .





Company
      agrees to reimburse Employee for reasonable and necessary expenses incurred
      by
      Employee in the furtherance of the Company’s business in accordance with such
      procedures as the Company may from time to time establish.





4. TERMINATION
      OF EMPLOYMENT .





( a) By
      the
      Company . The
      Company may terminate the Employee’s employment at any time with immediate
      effect for Cause or without Cause.





(i) “For
      Cause,” means unacceptable conduct, including:





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A. participation
      in a fraud or act of dishonesty against the Company;





B. any
      chemical dependence which affects the performance of her duties and
      responsibilities to the Company;





C. breach
      of
      Employee’s fiduciary obligations to the Company;





D. Employee
      willfully fails to perform her duties;





E. breach
      of
      the Company’s policies or any material provision of this Agreement;





F. misconduct
      resulting in loss to the Company or damage to the reputation of the Company;
      or





G. conduct
      by the Employee which, in the determination of the Company’s Board of Directors,
      demonstrates unfitness to serve.





(ii) “Without
      cause” means termination of Employee’s employment for some reason other than
      that listed in Paragraph 4(b)(i) above. A termination of the Employee’s
      employment Without Cause shall be effective when communicated to the Employee by
      verbal or written notice.





(b) By
      the
      Employee. The Employee may signify her intention to terminate her employment
      at
      any time upon the giving of thirty (30) days notice (“Notice Period”) to the
      Company of her intent to do so. Upon expiration of the Notice Period the
      termination will be effective and the Date of Termination will be effective
      as
      referred to below. The Company reserves the right to accelerate the effective
      “Date of Termination” in its discretion after the inception of the Notice
      Period.





(c) Date
      of
      Termination. The “Date of Termination” means the date on which the termination
      of the Employee’s employment by the Company for Cause or without Cause is
      effective, or the date on which the termination of the Employee’s employment by
      the Employee is effective, as the case may be.





5. REPRESENTATIONS
      AND WARRANTIES OF EMPLOYEE .





Employee
      represents and warrants that:





(a) Employee
      is under no contractual or other restriction or obligation which is inconsistent
      with the execution of this Agreement, the performance of duties hereunder or
      other rights of the Company hereunder; and





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(b) To
      the
      best of Employee’s knowledge, Employee is under no physical or mental disability
      render her incapable of performing the essential functions involved in her
      anticipated duties or that would otherwise hinder the performance of duties
      under this Agreement.




6. COVENANT
      NOT TO COMPETE .





Employee
      covenants that during the “Noncompetition Period,” as defined in
      paragraph 12, and within the “Noncompetition Area,” as defined in
      paragraph 13, she shall not, directly or indirectly, as principal, agent,
      consultant, trustee or through the agency of any corporation, partnership,
      association, or agency engage in the “Business,” as defined in
      paragraph 14. Specifically, but without limiting the foregoing, Employee
      agrees that during such period and within such area, she shall not do any of
      the
      following: (a) be the owner of the outstanding capital stock of any corporation
      which conducts a business of a like or similar nature to the “Business” (other
      than stock of a corporation traded on a national securities exchange or
      automated quotation service); (b) be an officer or director of any corporation
      which conducts a business of a like or similar nature to the “Business”; (c) be
      a member of any partnership which conducts a business of a like or similar
      nature to the “Business”; or (d) be a consultant to, an owner of or an employee
      of any other business which conducts a business of a like or similar nature
      to
      the Business.




7. NONDISCLOSURE
      COVENANT .





(a) The
      parties acknowledge that the Company is an enterprise whose success is
      attributable largely to the ownership, use and development of certain valuable
      confidential and proprietary information (the “Confidential Data”), and that
      Employee’s employment with the Company will involve Employee’s access to and
      work with such information. Employee acknowledges that her relationship with
      the
      Company is a confidential relationship. Employee covenants and agrees that
      (i)
      she shall keep and maintain the Confidential Data in strictest confidence,
      and
      (ii) she shall not, either directly or indirectly, use any Confidential Data
      for
      her own benefit, or divulge, disclose, or communicate any Confidential Data
      in
      any manner whatsoever to any person or entity other than employees or agents
      of
      the Company having a need to know such Confidential Data, and only to the extent
      necessary to perform their responsibilities on behalf of the Company, and other
      than in the performance of Employee’s duties in the employment by the Company.
      Employee’s agreement not to disclose Confidential Data shall apply to all
      Confidential Data, whether or not Employee participated in the development
      thereof. Upon termination of employment for any reason, Employee will return
      to
      the Company all documents, notes, programs, data and any other materials
      (including any copies thereof) in her possession.





(b) For
      purposes of this Agreement, the term “Confidential Data” shall include any and
      all information related to the business of the Company, or to its products,
      sales or businesses which is not general public knowledge, specifically
      including (but without limiting the generality of the foregoing) all financial
      and accounting data; computer software; processes; formulae; inventions;
      methods; trade secrets; computer programs; engineering or technical data,





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drawings,
      or designs; manufacturing techniques; patents, patent applications, copyrights
      and copyright applications (in any such case, whether registered or to be
      registered in the United States of America or elsewhere) applied for, issued
      to
      or owned by the Company; information concerning pricing and pricing policies;
      marketing techniques; suppliers; methods and manner of operations; and
      information relating to the identity, needs and location of all past, present
      and prospective customers. The parties stipulate that as between them the
      above-described matters are important and confidential and gravely affect the
      successful conduct of the business of the Company and that any breach of the
      terms of this paragraph shall be a material breach of this
      Agreement.




8. NONSOLICITATION/INTERFERENCE.





(a) The
      Employee covenants that during the Noncompetition Period and in the
      Noncompetition Area, she shall not directly or indirectly, on behalf of herself
      or on behalf of any other person, firm, partnership, corporation, association
      or
      other entity, call upon any of the customers or clients of the Company for
      the
      purpose of soliciting or providing any product or service similar to that
      provided by the Company nor will he, in any way, directly or indirectly, for
      himself, or on behalf of any other person, firm, partnership, corporation,
      association, or other entity solicit, divert or take away, or attempt to
      solicit, divert,  or
      take
      away any of the customers, clients, business, or patrons of the Company.





(b) The
      Employee covenants that during the Noncompetition Period and in the
      Noncompetition Area, she shall not directly or indirectly, on behalf of herself
      or on behalf of any other person, firm, partnership, corporation, association
      or
      entity, contract with, induce or attempt to influence, any individual or entity
      who is an employee, contractor, agent or representative of the Company to
      terminate or otherwise impair her employment or relationship with the Company.





9. INVENTIONS .





All
      inventions, designs, improvements and developments made by Employee, either
      solely or in collaboration with others, during her employment with the Company,
      whether or not during working hours, and relating to any methods, apparatus
      or
      products which are manufactured, sold, leased, used or developed by the Company
      or which pertain to the Business (the “Developments”), shall become and remain
      the property of the Company. Employee shall disclose promptly in writing to
      the
      Company all such Developments. Employee acknowledges and agrees that all
      Developments shall be deemed “works made for hire” within the meaning of the
      United States Copyright Act, as amended. If, for any reason, such Developments
      are not deemed works made for hire, Employee shall assign, and hereby assigns,
      to the Company, all of Employee’s right, title and interest (including, but not
      limited to, copyright and all rights of inventorship) in and to such
      Developments. At the request and expense of the Company, whether during or
      after
      employment hereunder, Employee shall make, execute and deliver all application
      papers, assignments or instruments, and perform or cause to be performed such
      other lawful acts as the Company may deem necessary or desirable in making
      or
      prosecuting applications, domestic or foreign, for patents (including reissues,
      continuations and extensions thereof) and copyrights related to such
      Developments or in vesting in the Company full legal title





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to
      such
      Developments. Employee shall assist and cooperate with the Company or its
      representatives in any controversy or legal proceeding relating to such
      Developments, or to any patents, copyrights or trade secrets with respect
      thereto. If for any reason Employee refuses or is unable to assist the Company
      in obtaining or enforcing its rights with respect to such Developments, Employee
      hereby irrevocably designates and appoints the Company and its duly authorized
      agents as Employee’s agents and attorneys-in-fact to execute and file any
      documents and to do all other lawful acts necessary to protect the Company’s
      rights in the Developments. Employee expressly acknowledges that the special
      foregoing power of attorney is coupled with an interest and is therefore
      irrevocable and shall survive (i) Employee’s death or incompetency and (ii) any
      termination of this Agreement.





10. INDEPENDENT
      COVENANTS .





Each
      of
      the covenants on the part of Employee contained in paragraphs 6, 7, 8, and
      9 of
      this Agreement shall be construed as an agreement independent of each other
      such
      covenant. The existence of any claim or cause of action of Employee against
      the
      Company, whether predicated on this Agreement or otherwise, shall not constitute
      a defense to the enforcement by the Company of any such covenant.





11. REASONABLENESS;
      INJUNCTION .





Employee
      acknowledges that the covenants contained in this agreement are reasonably
      necessary and designed for the protection of the Company and its business,
      and
      that such covenants are reasonably limited with respect to the activities
      prohibited, the duration thereof, the geographic area thereof, the scope thereof
      and the effect thereof on Employee and the general public. Employee further
      acknowledges that violation of the covenants would immeasurably and irreparably
      damage the Company, and by reason thereof Employee agrees that for violation
      or
      threatened violation of any of the provisions of this Agreement, the Company
      shall, in addition to any other rights and remedies available to it, at law
      or
      otherwise, by entitled to any injunction to be issued by any court of competent
      jurisdiction enjoining and restraining Employee from committing any violation
      or
      threatened violation of this Agreement. Employee consents to the issuance of
      such injunction.





12. NONCOMPETITION
      PERIOD .





This
      Agreement shall remain enforceable during Employee’s employment with the Company
      and for a period of one year after termination of Employee’s employment for any
      reason (such period not to include any period(s) of violation or period(s)
      of
      time required for litigation to enforce the covenants set forth
      herein).





13. NONCOMPETITION
      AREA .




(a) Employee
      acknowledges and agrees that the Company does business on an international
      basis
      and that Employee will assist Company in developing Company’s business in both
      the United States and Europe, with customers throughout the United States and
      additionally existing in Europe, particularly servicing France, Spain, United
      Kingdom and Germany, and that any breach of Employee’s covenants contained
      herein would materially damage the Company, regardless of the area of the world
      in which the activities constituting such breach were to occur. Accordingly,
      the
      terms and provisions of this Agreement shall apply in the following
      Noncompetition Area:





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(i) The
      State
      of North Carolina;





(ii) Any
      state
      other than North Carolina where Company conducts the “Business” and in or for
      which the Employee assists or performs services assisting Company;





(iii) Any
      political subdivision of foreign countries where Company does “Business” or will
      do “Business” during the period of employment; and





(iv) Any
      other
      state, country, or political subdivision where Company does “Business” and in or
      for which the Employee assists or performs services assisting
      Company.




14. BUSINESS .





For
      the
      purposes of this Agreement, the “Business” shall include any business, service,
      or product engaged in, provided, or produced by the Company from the date of
      this Agreement to the date of the termination of the employment, including,
      but
      not limited to: (i) the business of development, production, marketing, design,
      manufacturing, leasing or selling software related to business plans, legal
      services, whether for use by professionals or consumers; (ii) providing
      web-hosted applications and technology infrastructure syndication and/or (iii)
      any other business conducted by the Company immediately prior to the date of
      termination of Employee’s employment or in which the Company shall at the time
      of termination of Employee’s employment with the Company be actively preparing
      to enter.





15. MISCELLANEOUS .





(a) This
      Agreement shall be subject to and governed by the substantive laws of the State
      of North Carolina, without giving effect to the conflicts of laws provisions
      thereof. The Employee hereby submits to the jurisdiction and venue of the state
      and federal courts of North Carolina, and Employee agrees that the Company
      may,
      at its option, enforce its rights hereunder in such courts.





(b) Company’s
      failure to insist upon strict compliance with any provision of this Agreement
      shall not be deemed a waiver of such provision or any other
      provision.





(c) This
      Agreement may not be modified except by an agreement in writing executed by
      the
      parties. The parties expressly waive their right to orally modify this
      provision.





(d) The
      invalidity or unenforceability of any provision of this Agreement
      shall


not
      affect the validity or enforceability of any other provision.





(e) This
      Agreement shall not be assignable without the written consent of the Company
      and
      Employee.





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(f) This
      Agreement expresses the whole and entire Employment Agreement between the
      parties and supersedes and replaces any prior employment Agreement,
      understanding or arrangement between Company and Employee.







IN
      WITNESS WHEREOF, the parties executed this Agreement as of the day and year
      first above written.





SMART
                ONLINE, INC.By: 
                /s/ Michael NouriTitle: 
                CEO








WITNESS:
                /s/ Patricia Rodenburg
            EMPLOYEE:
                /s/ Joan Keston










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