**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 Five Dollars ($5.00) 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 collectively 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 Registration Rights Agreement in substantially the
        form
        attached hereto as Appendix
        A (the
“Registration Rights 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
        and
        Draft Registration Statement, 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 Registration
        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.
 
 (iii) Each
        certificate representing the Securities shall also bear a legend referring
        to
        the Lock-Up Agreement set forth in Section (5) below.
 
 (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
        B attached
        hereto. Subscriber represents that Subscriber is an “accredited investor” by
        reason of the following: __________________________________ (indicate number
        from Appendix
        B ).
        Subscriber further represents that Subscriber is a citizen of the state of
        _______________________. Subscriber is not a resident of any other
        jurisdiction.
  3
  
 (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.
 
 (5) Lockup
        Agreement .
 
 (a) Subscriber
        hereby agrees that, except as permitted under subsection (b) of this Section
        (5), during the Restricted 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 “Lock-Up
        Securities”).
 
 (ii) Transfer,
        assign or otherwise dispose of any of the Lock-up Securities.
 
 (iii) Pledge,
        hypothecate or otherwise create a lien on any of the Lock-Up
        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.
 
 (b) For
        purposes of this Section (5), 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 (5), the Restricted Period shall mean the period beginning on the
        date
        of this Agreement and ending 18 months after the effective date of the first
        registration statement of the Company that registers for resale the Lock-Up
        Securities (the “Effective Date”). Notwithstanding the foregoing, after the
        Effective Date Subscriber may sell, during any rolling thirty-day period
        during
        the Restricted Period, up to 331⁄3% of the Lock-Up Securities owned by Subscriber
        on the Effective Date. The Board of Directors of the Company or Holding Company
        may terminate the Restricted Period or allow Subscriber to take a prohibited
        action prior to termination of the Restricted Period with respect to some
        or all
        of the Lock-Up Securities owned by the Subscriber, if the Board provides
        all
        other Subscribers of the Company or Holding Company who have the same Restricted
        Period with the same termination or waiver at the same time and to the same
        extent as for Subscriber.
  4
  
 (c) Notwithstanding
        the foregoing, provided the transferee first signs a Lockup Agreement on
        substantially the terms set forth in this Section 5 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 Restricted 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
        Lock-Up 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 (5) shall continue in effect after the Lock-Up
        Securities are registered pursuant to the Registration Rights
        Agreement.
 
 (6) 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.
 
 (7) Subscriber
        agrees not to transfer or assign this Agreement, or any of Subscriber’s interest
        herein, without the express written consent of the Company.
 
 (8) 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.)
  5
  IN
        WITNESS WHEREOF, Subscriber has executed this Subscription Agreement this
        ____
        day of ___________, 2004.
 
 SUBSCRIPTION________________
              Number
                  of Shares of Common Stock$_______________
              Total
                  payment enclosed___________________________
              __________________________________(Address)
              (Name
                  of Subscriber)______________________________
              ________________________________________________________________
              (Signature)______________________________(Address)_______________________Social
                  Security Number
 
 ACCEPTANCE
 
 The
        foregoing Subscription Agreement is accepted on this the ____ day of
        ____________, 2004.
 
 SMART
                  ONLINE, INC.By:
                  ___________________________Michael
                  Nouri, President
 
 F:\cl\1211-007\SubscriptAgrmt
        without Warrant 0604.d2.doc
 
 
 
  6
  **APPENDIX
        A**
 
 **REGISTRATION
        RIGHTS AGREEMENT**
 
 
 REGISTRATION
        RIGHTS AGREEMENT (this “Agreement”), dated as of August 1, 2004, 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 and signatories of counterparts of this Agreement and prior
        registration rights agreements dated as of February 1, 2004 (together with
        their
        respective affiliates and any assignees or transferees of all of their
        respective rights hereunder, the “Investors”).
 
 WHEREAS:
 
 A. In
        connection with the Subscription Agreement by and among the parties hereto
        dated
        on or after February 1, 2004 (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 registration 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, or agreements dated as of February 1, 2004
        and
        permitted transfers and assignees of Investors in accordance with Section
        9
        hereof.
 
 (ii) “Listing
        Date” the date on which the Common Stock of the Company becomes listed on the
        OTCBB.
 
 (iii) “OTCBB”
        the Over-the-Counter Bulletin Board.
  7
  
 (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 on or after
        February 1, 2004 but before the date a Registration Statement covering the
        Registrable Securities, including, without limitation, any shares issued
        pursuant to Section 2(b) of this Agreement (the “Damages Shares”); (y) all
        shares of Common Stock issued, or issuable pursuant to warrants or other
        securities, issued to any broker, dealer, finder or other person in connection
        with the sale of Registrable Securities; and (z) all shares of capital stock
        issued or issuable as a dividend on or in exchange for or otherwise with
        respect
        to any of the foregoing.
 
 (vi) “Registration
        Statement” means a registration statement of the Company under the 1933
        Act.
 
 (b) Capitalized
        terms used herein and not otherwise defined herein shall have the respective
        meanings set forth in the Subscription Agreement.
 
 2. REGISTRATION.
 
 (a) Mandatory
        Registration .
        No
        later than the earlier of (i) thirty (30) days after the date the Company
        raises
        at least $7,000,000 from one or more sales of shares of its securities occurring
        on or after August 1 st ,
        2004
        and (ii) September 30, 2004 (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 Investor.
 
 (b) Payments
        by the Company .
        The
        Company shall use its best efforts to obtain effectiveness of the Registration
        Statement as soon as reasonably practicable. If (i) 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
  8
  “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 two percent (2%). (For example, if the Registration Statement
        is filed thirty days after the Target Filing Date, the Company would pay
        as the
        Damage Amount $2,000 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 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.
 
 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
  9
  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 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.
  10
  
 (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, (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 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.
  11
  
 (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 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.
 
 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 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.
  12
  
 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 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
  13
  
 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 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
  14
  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. REPORTS
        UNDER THE 1934 ACT.
 
 With
        a
        view to making available to the Investors the benefits of Rule 144 promulgated
        under the 1933 Act or any other similar rule or regulation of the SEC that
        may
        at any time permit the investors to sell securities of the Company to the
        public
        without registration (“Rule 144”), the Company agrees to use its best efforts
        to:
 
 (a) make
        and
        keep public information available, as those terms are understood and defined
        in
        Rule 144;
 
 (b) file
        with
        the SEC in a timely manner all reports and other documents required of the
        Company under the 1933 Act and the 1934 Act so long as the Company remains
        subject to such requirements and the filing of such reports and other documents
        is required for the applicable provisions of Rule 144; and
  15
  
 
 (c) furnish
        to each Investor so long as such Investor owns Registrable Securities, promptly
        upon request, (i) a written statement by the Company that it has complied
        with
        the reporting requirements of Rule 144, the 1933 Act and the 1934 Act and
        (ii)
        such other information as may be reasonably requested to permit the Investors
        to
        sell such securities pursuant to Rule 144 without registration.
 
 9. 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 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 be an “accredited investor” as that term defined in
        Rule 501 of Regulation D promulgated under the 1933 Act.
 
 10. 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.
 
 11. 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.
  16
  
 
 (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
 
 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.
 
 (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.
  17
  
 (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.
 
 (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.
  18
  
 (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.
 
 (o) In
        determining a majority of the Registrable Securities, Investors are deemed
        to
        own all Registrable Securities issuable pursuant to any options, warrants
        convertible securities or other rights to acquire Registrable Securities,
        whether or not then exercisable or convertible.
 
 [The
        Remainder of this Page is Blank.]
 
  19
  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:
        ______________________________
 Name:
        ___________________________
 Title:
        ____________________________
 
 
 
 INVESTOR:
 _________________________________
 
 
 By: _________________________________
 Name: _______________________________
 Title: ________________________________
 Address: _____________________________
 ____________________________________
 Telephone: ___________________________
 Facsimile: ____________________________
 Email: _______________________________
 Initial
        Number of Registrable Securities: __________________
 
 
 
 F:\cl\1211-007\Registration
        Rights Agreement.d5.doc
 
 
 
  20
  **APPENDIX
        B**
 
 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.
 
 
  21