Exhibit 10.29


    
      

    

     

    Exhibit
      10.29

     

    

      FORM
        OF

      REGISTRATION
        RIGHTS AGREEMENT

      


      


      REGISTRATION
        RIGHTS AGREEMENT (this “Agreement”), dated as of __________, 2005, by and among
        Smart Online, Inc., a Delaware corporation with its headquarters located
        at 2530
        Meridian Parkway, Durham, North Carolina 27713 (the “Company”), and the
        undersigned (together with its affiliates and any assignees or transferees
        of
        all of its respective rights hereunder, the “Investors”).

      


      WHEREAS:

      


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

      


      B.    To
        induce
        the Investors to execute and deliver the Subscription Agreement, the Company
        has
        agreed to provide certain 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, 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.

      


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


      
        
          
          

        

        
           

          
            

          

        

        
          
          

        

      


      


      


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

      


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

      


      (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 September 30, 2005 (the “Target Filing Date”), the Company shall
        prepare and file with the SEC a Registration Statement on Form S-1, SB-1
        or SB-2
        as determined by the Company in its sole discretion (or, if such Forms are
        not
        then available, on such form of Registration Statement as is then available)
        to
        effect a registration of the Registrable Securities covering the resale of
        the
        Registrable Securities. The Company may also include in such Registration
        Statement in its sole discretion, shares for sale by the Company or the Company
        may file a separate Registration Statement covering shares to be sold by
        the
        Company before, at the same time or after the Company files a Registration
        Statement covering resale of Registrable Securities by Investors.

      


      (b)    Payments
        by the Company.
        The
        Company shall use its best efforts to 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 “Purchase Price”) paid for the Registrable Securities by the
        Investor, by (ii) the Applicable Percentage (as defined below) by (iii) the
        number of 30-day periods (prorated for partial periods) after the Target
        Filing
        Date that the Registration Statement covering the Registrable Securities
        of the
        Investor is actually filed; provided, however, that there shall be excluded
        from
        such period any delays which are attributable (i) to Investor, or any other
        Investor who holds Registrable Securities, with respect to information relating
        to the Investors, including, without limitation, the plan of distribution
        or
        beneficial ownership of securities, or (ii) to the failure of any Investor
        (or
        legal counsel to the Investor) to conduct their review of the Registration
        Statement pursuant to Section 3(h) below in a reasonably prompt manner or
        (iii)
        any person or entity named in the Prospectus as an underwriter. The term
        “Applicable Percentage” means one half of one percent. (For example, if the
        Registration Statement is filed thirty days after the Target Filing Date,
        the
        Company would pay as the Damage Amount $500 for each $100,000 of the Purchase
        Price. In the sole discretion of the Company, the Company may issue to Investor
        in lieu of the cash payment described above, a number of shares of Common
        Stock
        of the Company equal to the quotient derived by dividing (i) the Damage Amount,
        by (ii) Purchase Price per share (as defined above).


      
        
          
          

        

        
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      (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 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. 


      
        
          
          

        

        
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      (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. 

      


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


      
        
          
          

        

        
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      (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.

      


      (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.


      
        
          
          

        

        
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      (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.


      
        
          
          

        

        
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      (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.


      
        
          
          

        

        
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      (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.

      


      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. 


      
        
          
          

        

        
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      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
        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. 


      
        
          
          

        

        
          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 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
        


      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      


      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

      


      (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.



      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      


      


      


      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 not be a “U.S. Person” as that term defined in
        Regulation S 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.

      


      (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:


      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      


      


      


      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, or on the address set forth immediately below
        such Investor’s name on the agreement entered into pursuant to Section 9 of this
        Agreement.

      


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

      


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

      


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

      


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


      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      


      


      


      (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.

      


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

      


      [The
        Remainder of this Page is Blank.]

      



      
        
          
          

        

        
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      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:
        ______________________________

      Address:
        ____________________________

      ____________________________________

      Telephone:___________________________

      Facsimile:___________________________

      Email:_______________________________

      Initial
        Number of Registrable Securities: _______________ Shares 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      15