Exhibit 10.46.3


    
      

    

     

    Exhibit
      10.46.3

    

      THIS
        WARRANT AND THE WARRANT SHARES (AS DEFINED BELOW) ISSUABLE UPON EXERCISE
        HEREOF
        HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
        "ACT"), APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
        JURISDICTION. THIS WARRANT AND THE WARRANT SHARES HAVE BEEN ACQUIRED FOR
        INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
        OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED
        IN THE
        ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
        STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH APPLICABLE LAWS
        OF
        ANY FOREIGN JURISDICTION, OR AN EXEMPTION FROM REGISTRATION AVAILABLE SO
        THAT
        SUCH REGISTRATION IS NOT REQUIRED AND SUCH FOREIGN JURISDICTION LAWS HAVE
        BEEN
        SATISFIED. NOTWITHSTANDING
        THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH BONA FIDE
        MARGIN
        TRANSACTIONS.

       

      


       

      


      


      WARRANT

      TO
        PURCHASE COMMON STOCK

      OF

      SMART
        ONLINE, INC.

      


      (void
        after February 21, 2010)

      


      


      No.
        W-___

      


      THIS
        CERTIFIES THAT, for value received, __________________________, or
        its
        permitted transferees or permitted assigns (the “Holder”), from and after the
        date hereof, and subject to the terms and conditions herein set forth, is
        entitled to purchase from Smart Online, Inc., a Delaware corporation (the
        “Company”), at any time before 5:00 p.m. New York City time on February 21, 2010
        (the “Termination Date”), Seven Hundred Eighty Four Thousand Three Hundred and
        Fourteen (784,314) shares (as adjusted from time to time pursuant to Section
        2
        hereof, the “Warrant Shares”) of the Company’s common stock, $0.001 par value
        per share (the “Common Stock”), at a price per share equal to the Warrant Price
        (as defined below) upon exercise of this Warrant pursuant to Section 5 hereof.
        The number of Warrant Shares is subject to adjustment under Section
        2.

      


      1. Definitions.
        As used
        in this Warrant, the following terms have the definitions ascribed to them
        below:


      
        
           

        

        
          1

          
            

          

        

        
           

        

      


      


      (a)    “Black
        Scholes Warrant Value” shall mean as
        of any
        date the value of one Warrant to purchase one Warrant Share using the Black
        Scholes method to determine the value of the Warrant based upon a term equal
        to
        the duration of the then remaining exercise period under this Warrant, a
        strike
        price equal to the then Warrant Price, and a volatility of 50. In the event
        that
        the Company’s (or any successor’s) common stock ceases to be quoted on the
        Over-the-Counter Bulletin Board or traded on any national exchange or on
        Nasdaq
        Global Market (or such calculation is not available via the Bloomberg page
        for
        any other reason), the Black Scholes Warrant Value shall be calculated using
        assumptions determined in good faith by the Company’s Board of
        Directors.

      


      (b)    “Issuance
        Date” means February 21, 2007.

      


      (c)    “Offering
        Warrants” shall have the meaning ascribed to such term in Section
        8.

      


      (d)    “Person”
        means any individual, corporation, partnership, limited liability company,
        trust, incorporated or unincorporated association, joint venture, joint stock
        company, governmental authority or other entity of any kind, and shall include
        any successor (by merger or otherwise) of such entity.

      


      (e)    “Purchase
        Agreement” means that certain Securities Purchase Agreement dated as of February
        21, 2007 between the Company and the initial Holder of this
        Warrant.

      


      (f)    “Warrant
        Price” means $3.00 subject to adjustment under Section 2.

      


      2.    Adjustments
        and Notices.
        The
        Warrant Price and/or the Warrant Shares shall be subject to adjustment from
        time
        to time in accordance with this Section 2. The Warrant Price and/or the Warrant
        Shares shall be adjusted to reflect all of the following events that occur
        on or
        after the Issuance Date.

      


      (a)    Subdivision,
        Stock Dividends or Combinations.
        In case
        the Company shall at any time subdivide the outstanding shares of the Common
        Stock (through a stock split or otherwise), the Warrant Price in effect
        immediately prior to such subdivision shall be proportionately decreased,
        and
        the number of Warrant Shares for which this Warrant may be exercised immediately
        prior to such subdivision shall be proportionately increased. In case the
        Company shall at any time combine the outstanding shares of the Common Stock
        (through a reverse stock split or otherwise), the Warrant Price in effect
        immediately prior to such combination shall be proportionately increased,
        and
        the number of Warrant Shares for which this Warrant may be exercised immediately
        prior to such combination shall be proportionately decreased. In each of
        the
        foregoing cases, the adjustment shall be effective automatically upon, and
        simultaneously with, the effectiveness of the subdivision or combination
        giving
        rise to the adjustment. If the Company at any time pays a dividend, or makes
        any
        other distribution, to holders of Common Stock payable in shares of Common
        Stock, or fixes a record date for the determination of holders of Common
        Stock
        entitled to receive a dividend or other distribution payable in shares of
        Common
        Stock, then the 

       


      
        
           

        

        
          2

          
            

          

        

        
           

        

      


      number
        of
        Warrant Shares in effect immediately prior to such action shall be
        proportionately increased so that the Holder hereof may receive upon exercise
        of
        the Warrant the aggregate number of shares of Common Stock which he or it
        would
        have owned immediately following such action if the Warrant had been exercised
        immediately prior to such action. The adjustment shall become effective
        immediately as of the date the Company shall take a record of the holders
        of its
        Common Stock for the purpose of receiving such dividend or distribution (or
        if
        no such record is taken, as of the effectiveness of such dividend or
        distribution).

       

      (b)    Reclassification,
        Exchange, Substitution, In-Kind Distribution.
        Upon
        any capital reorganization, reclassification, exchange, substitution or other
        event (other than an event described in Section 2(a) above) that results
        in a
        change of the number and/or class of the securities issuable upon exercise
        or
        conversion of this Warrant or upon the payment of a dividend in securities
        or
        property other than shares of the Common Stock, the Holder shall be entitled
        to
        receive, upon exercise of this Warrant, the number and kind of securities
        and
        property that Holder would have received if this Warrant had been exercised
        immediately before the record date for such reclassification, exchange,
        substitution, or other event or immediately prior to the record date for
        such
        dividend. The adjustment shall become effective immediately as of the date
        the
        Company shall take a record of the holders of its Common Stock for the purpose
        of receiving such dividend or distribution (or if no such record is taken,
        as of
        the effectiveness of such dividend or distribution), and the Company or its
        successor shall promptly issue to Holder a new warrant for such new securities
        or other property. The new warrant shall provide for adjustments which shall
        be
        as nearly equivalent as may be practicable to the adjustments provided for
        in
        this Section 2 including, without limitation, adjustments to the Warrant
        Price
        and to the number of securities or property issuable upon exercise or conversion
        of the new warrant. The provisions of this Section 2(b) shall similarly apply
        to
        successive reclassifications, exchanges, substitutions, or other events and
        successive dividends.

       

      (c)    Reorganization,
        Merger etc.
        In case
        of any merger or consolidation of the Company into or with another corporation
        where the Company is not the surviving corporation, or a merger or consolidation
        which results in the termination of the Company’s registration under the
        Exchange Act, or sale, transfer or lease (but not including a transfer or
        lease
        by pledge or mortgage to a bona fide lender as collateral in connection with
        the
        incurrence of indebtedness by the Company) of all or substantially all of
        the
        assets of the Company (collectively, a “Reorganization”), the Company or such
        successor entity shall on or before the date of consummation of the
        Reorganization (the “Closing Date”), at its option, either:

       

      (i)     deliver
        to the Holder a notice of redemption (the “Redemption Notice”),
        which
        shall be binding on the Company and on the Holder, stating the Company’s
        intent to redeem the Warrants at a price per Warrant equal to the Black
Scholes
        Warrant Value for each such Warrant measured as of the date immediately
to
        the
        Closing Date; or

      



      
        
           

        

        
          3

          
            

          

        

        
           

        

      


      (ii)       
        execute
        and deliver to the Holder an agreement, which shall be binding
        on the Holder, that the Holder shall have the right thereafter upon payment
        of
        the Warrant Price in effect immediately prior to such action (after giving
        to
        any applicable adjustments hereunder) to purchase upon exercise of each Warrant
        the kind and amount of shares and other securities and property (including
        cash)
        which the Holder would have owned or have been entitled to receive after
        the
        happening of such consolidation or merger had such Warrant been exercised
        immediately prior to such action. The Company shall at expense mail by first
        class mail, postage prepaid, to the Holder notice of the execution of any
        such
        agreement. Such agreement shall provide for adjustments, which shall be
        substantially identical to the adjustments provided herein.

      


      (d)    Certificate
        of Adjustment.
        In each
        case of an adjustment or readjustment of the Warrant Price or an adjustment
        of
        the kind or number of securities issuable upon exercise of the Warrant, or
        both,
        the Company, at its own expense, shall cause its principal financial officer
        to
        compute such adjustment or readjustment in accordance with the provisions
        hereof
        and prepare a certificate showing such adjustment or readjustment, and shall
        mail such certificate, by first class mail, postage prepaid, to the Holder
        at
        the address provided in or pursuant to Section 13 hereof not later than 20
        days
        following the event prompting such adjustment or readjustment. Such certificate
        shall set forth such adjustment or readjustment, showing in reasonable detail
        the facts upon which such adjustment or readjustment is based (including
        a
        description of the basis on which the Board of Directors of the Company made
        any
        determination hereunder). No adjustment of the Warrant Price shall be required
        to be made unless it would result in an increase or decrease of at least
        one
        cent ($0.01), but any adjustments not made because of this sentence shall
        be
        carried forward and taken into account in any subsequent adjustment otherwise
        required hereunder. 

       

      (e)    No
        Impairment.
        The
        Company shall not, by amendment of its Certificate of Incorporation, by-laws
        or
        other organizational documents, or through a reorganization, transfer of
        assets,
        consolidation, merger, dissolution, issue, or sale of securities or any other
        voluntary action, avoid or seek to avoid the observance or performance of
        any of
        the terms to be observed or performed under this Warrant by the Company,
        but
        shall subject to Section 10 at all times in good faith assist in carrying
        out
        all of the provisions of this Section 2 and in taking all such action as
        may be
        necessary or appropriate to protect the Holder’s rights under this Section 2
        against impairment. 

       

      (f)    Fractional
        Shares.
        No
        fractional shares shall be issuable upon exercise or conversion of the Warrant
        and the number of shares to be issued shall be rounded down to the nearest
        whole
        share. If a fractional share interest arises upon any exercise or conversion
        of
        the Warrant, the Company shall eliminate such fractional share interest by
        paying the Holder an amount computed by multiplying the fractional interest
        by
        the fair market value of a full share.

       

      3.    No
        Stockholder Rights.
        This
        Warrant, by itself, as distinguished from any shares purchased hereunder,
        shall
        not (i) entitle the Holder to any of the rights of a stockholder of the Company
        or (ii) impose any liabilities on the Holder to purchase any securities or
        as a
        stockholder of the Company, whether such liabilities are asserted by the
        Company
        or by creditors of the Company.


      
        
           

        

        
          4

          
            

          

        

        
           

        

      


      


      


      4.    Reservation
        of Stock.
        The
        Company covenants and agrees that it will reserve at all times from its
        authorized and unissued stock a sufficient number of shares to provide for
        the
        issuance of the Warrant Shares upon the exercise of this Warrant. The Company
        further covenants and agrees that this Warrant is, and any Warrants issued
        in
        substitution for or replacement of this Warrant and all Warrant Shares, will
        upon issuance be duly authorized and validly issued and, in the case of Warrant
        Shares, upon issuance will be fully paid and non-assessable and free from
        all
        preemptive rights of any stockholder, and from all taxes, liens and charges
        with
        respect to the issue thereof (other than transfer taxes) and, if the Common
        Stock of the Company is then listed on any national securities exchanges
        (as
        defined in the Exchange Act) shall be, subject to the restrictions set forth
        in
        Section 11, duly listed or quoted thereon, as the case may be. In the event
        that
        the number of authorized but unissued shares of such Common Stock shall not
        be
        sufficient to effect the exercise of this entire Warrant into Warrant Shares,
        then in addition to such other remedies as shall be available to the Holder
        of
        this Warrant, the Company shall promptly take such corporate action as may
        be
        necessary to increase its authorized but unissued shares of such Common Stock
        to
        such number of shares as shall be sufficient for such purpose. The duly
        authorized issuance of this Warrant and duly authorized approval of the Purchase
        Agreement by the Company shall constitute full authority to the Company’s
        officers who are charged with the duty of executing stock certificates to
        execute and issue the necessary certificates for the Warrant Shares issuable
        upon the exercise of this Warrant.

      


      5.    Exercise
        of Warrant.
        

      


      (a)    This
        Warrant may be exercised by the Holder hereof, in whole or in part, at any
        time
        from and after the Issuance Date and prior to the termination of this Warrant,
        at the election of the Holder hereof with the notice of exercise substantially
        in the form attached hereto as Attachment
        1
        duly
        completed, executed and delivered at the principal office of the Company
        or
        Transfer Agent (the addresses of each of which are set forth in Section 13
        hereof) and the payment to the Company, by certified or bank check, or by
        wire
        transfer to an account designated by the Company of an amount equal to the
        then
        applicable Warrant Price multiplied by the number of Warrant Shares then
        being
        purchased. This Warrant shall be deemed to have been exercised immediately
        prior
        to the close of business on the date of its surrender and payment for exercise
        as provided above, and the person entitled to receive the Warrant Shares
        issuable upon such exercise shall be treated for all purposes as the holder
        of
        such shares of record as of the close of business on such date. As promptly
        as
        practicable after such date, the Company shall issue and deliver to the person
        or persons entitled to receive the same a certificate or certificates for
        the
        number of full Warrant Shares issuable upon such exercise. 

      


      (b)    In
        lieu
        of exercising this Warrant for cash, the Holder may elect to receive shares
        equal to the value of this Warrant (or the portion thereof being exercised)
        by
        surrender of this Warrant at the principal office of the Company or the Transfer
        Agent together with notice of such election substantially in the form attached
        hereto as Attachment
        1
        duly
        completed and executed (a “Net Exercise”). The Company shall issue to a Holder
        who Net Exercises a number of Warrant Shares computed using the following
        formula:

       


      
        
           

        

        
          5

          
            

          

        

        
           

        

      


      


       

      Y
        (A -
        B)

      X
        =            A

       

      Where

       

      
        	 	
                X
                  =

              	
                The
                  number of Warrant Shares to be issued to the
                  Holder.

              


      

       

      
        	 	
                Y
                  =

              	
                The
                  number of Warrant Shares purchasable under this Warrant or, if
                  only a
                  portion of the Warrant is being exercised, the portion of the Warrant
                  being cancelled (at the date of such
                  calculation).

              


      

       

      
        	 	
                A
                  =

              	
                The
                  fair market value of one (1) Warrant Share (at the date of such
                  calculation).

              


      

       

      B
        = The
        Warrant Price (as adjusted to the date of such calculation).

      


      For
        purposes of this Section 5, the fair market value of a Warrant Share shall
        mean:

      


      
        	(i)	
                If
                  traded on a securities exchange, the fair market value of the Common
                  Stock
                  shall be deemed to be the five-day-trailing average closing price
                  of the
                  Common Stock on such exchange or market on the trading days immediately
                  prior to the date of exercise by the
                  Holder;

              


      

       

      
        	
              	(ii)	
                If
                  traded over-the-counter, the fair market value of the Common Stock
                  shall
                  be deemed to be the five-day-trailing average closing bid price
                  of the
                  Common Stock on the trading days immediately prior to the date
                  of
                  exercise; and

              


      

       

      
        	 	
                (iii)

              	
                If
                  there is no public market for the Common Stock, the fair market
                  value
                  shall be the price per Warrant Share that the Company could obtain
                  from a
                  willing buyer for Warrant Shares sold by the Company from authorized
                  but
                  unissued Warrant Shares, as such prices shall be determined in
                  good faith
                  by the Company’s Board of
                  Directors.

              


      

      


      In
        the
        event that this Warrant is exercised pursuant to this Section 5 in
        connection with the consummation of the Company’s sale of its Common Stock or
        other securities pursuant to a registration statement under the Act (other
        than
        a registration statement relating either to sale of securities to employees
        of
        the Company pursuant to its stock option, stock purchase or similar plan
        or a
        Rule 145 transaction) (a “Public Offering”), the fair market value per Warrant
        Share shall be the per share offering price to the public of the Public
        Offering.

      


      (c)    The
        Holder shall not be entitled to exercise this Warrant for a number of Warrant
        Shares in excess of that number of Warrant Shares which, upon giving effect
        to
        such exercise, would cause the aggregate number of shares of Common Stock
        beneficially owned by the Holder to exceed 9.9% of the outstanding shares
        of the
        Common Stock 


      
        
           

        

        
          6

          
            

          

        

        
           

        

      


      following
        such exercise. For purposes of the foregoing proviso, the aggregate number
        of
        shares of Common Stock beneficially owned by the Holder shall include the
        number
        of shares of Common Stock issuable upon exercise of this Warrant with respect
        to
        which determination of such proviso is being made, but shall exclude the
        shares
        of Common Stock which would be issuable upon (i) exercise of the remaining,
        unexercised Warrants beneficially owned by the Holder and (ii) exercise or
        conversion of the unexercised or unconverted portion of any other securities
        of
        the Company beneficially owned by the Holder subject to a limitation on
        conversion or exercise analogous to the limitation contained herein. Except
        as
        set forth in the preceding sentence, for purposes of this Section 5(c),
        beneficial ownership shall be calculated in accordance with Section 13(d)
        of the
        Exchange Act. The Holder may waive the foregoing limitation by written notice
        to
        the Company upon not less than 61 days prior written notice (with such waiver
        taking effect only upon the expiration of such 61 day notice period). For
        purposes of this Section 5(c), in determining the number of outstanding shares
        of Common Stock, the Holder may rely on the number of outstanding shares
        of
        Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form
        10-K, as the case may be, filed with the SEC on the date thereof, (y) a more
        recent public announcement by the Company or (z) any other notice by the
        Company
        or the Transfer Agent setting forth the number of shares of Common Stock
        outstanding. Upon the written request of the Holder, the Company shall within
        three trading days confirm in writing or by electronic mail to the Holder
        the
        number of shares of Common Stock then outstanding. 

      


      6.    Transfer
        of Warrant.
        This
        Warrant may be transferred or assigned by the Holder hereof as a whole or
        in
        part, provided that the transferor provides, at the Company’s request, an
        opinion of counsel reasonably satisfactory to the Company that such transfer
        does not require registration under the Securities Act.

      


      7.    Legends.
        Upon
        issuance, the certificate or certificates evidencing any Warrant Shares shall
        bear legends as set forth in the Purchase Agreement.

      


      8.    Purchase
        Agreement.
        This
        Warrant and any other Warrants that may be issued pursuant to Sections 2,
        10 or
        14 hereof are issued pursuant to and in connection with the Purchase Agreement,
        and constitute one or more, as applicable, of a number of warrants (the
“Offering Warrants”) issued pursuant to and in connection with the Offering (as
        defined in the Purchase Agreement). The Warrant Shares shall be entitled
        to the
        rights conferred thereon under the Purchase Agreement, including without
        limitation the registration rights provided in Section 5 thereof.

      


      9.    Termination.
        This
        Warrant shall terminate at 5:00 p.m. New York City time on the Termination
        Date.


      


      10.       
        Warrant
        Exchangeable for Different Denominations and Reissuable Upon Partial
        Exercise.
        This
        Warrant is exchangeable, upon the surrender hereof by the Holder at the
        principal office of the Company or transfer agent, for new Warrants of like
        tenor representing in the aggregate the purchase rights hereunder, and each
        of
        such new Warrants shall represent such portion of such rights as is designated
        by the Registered 


      
        
           

        

        
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      Holder
        at
        the time of such surrender. At the request of the Holder (pursuant to a transfer
        of Warrants or otherwise), this Warrant may be exchanged for one or more
        Warrants to purchase Common Stock. In the event of a partial exercise of
        this
        Warrant by the Holder, this Warrant shall be cancelled and the Company shall
        issue a new Warrant to the Holder representing purchase rights with respect
        to
        an amount of Warrant Shares equal to (x) the number of Warrant Shares
        represented hereby on the date of such partial exercise minus (y) the number
        of
        Warrant Shares exercised on the date of such partial exercise. The date the
        Company initially issues this Warrant shall be deemed to be the date of issuance
        hereof regardless of the number of times new certificates representing the
        unexpired and unexercised rights formerly represented by this Warrant shall
        be
        issued. Each warrant representing a portion of the rights hereunder constitutes
        a Warrant as defined herein.

      


      11.       
        Ownership
        of Warrants.

      


      (a)    The
        Company may treat the person in whose name any Warrant is registered on the
        register kept at the principal office of the Company as the owner and Holder
        thereof for all purposes, notwithstanding any notice to the contrary, but
        in all
        events recognizing any transfers made in accordance with the terms of this
        Warrant.

      


      (b)    THE
        HOLDER OF THIS WARRANT IS ENTITLED TO CERTAIN REGISTRATION RIGHTS WITH RESPECT
        TO THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF. SAID REGISTRATION RIGHTS
        ARE SET FORTH IN THE PURCHASE AGREEMENT BY AND BETWEEN THE INITIAL HOLDER
        AND
        THE COMPANY. If the registration statement contemplated in the Purchase
        Agreement is not effective at the time of any issuance and the shares are
        not
        exempt from registration under Rule 144, the Warrant Shares shall be issued
        in
        certificated form and shall bear the restrictive legend set forth in Section
        3.2
        of the Purchase Agreement.

      


      12.       
        Warrant
        Register.
        The
        Company shall maintain at its principal executive offices books for the
        registration and the registration of transfer of the Warrant. The Company
        may
        deem and treat the Holder so registered as the absolute owner hereof
        (notwithstanding any notation of ownership or other writing thereon made
        by
        anyone) for all purposes and shall not be affected by any notice to the
        contrary, other than a notice in conformity with Section 13 hereof signed
        by the
        previous registered Holder indicating that the warrant has been transferred
        or
        assigned pursuant to Section 6 hereof. The initial registered Holder is Magnetar
        Capital Master Fund, Ltd.

      


      13.       
        Notices.
        Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms of this Warrant must be in writing and will be deemed
        to
        have been delivered: (i) upon receipt, when delivered personally; (ii) upon
        receipt, when sent by facsimile (provided confirmation of transmission is
        mechanically or electronically generated and kept on file by the sending
        party);
        or (iii) one trading day after deposit with a nationally recognized overnight
        delivery service, in each case properly addressed to the party to receive
        the
        same. The addresses and facsimile numbers for such communications shall
        be:


      
        
           

        

        
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      If
        to the
        Company, to:

      


      Smart
        Online, Inc.

      2530
        Meridian Parkway, 2nd
        Floor

      Durham,
        NC 27713

      Attention:
        James Gayton, Corporate Counsel

      Telephone:
        (919) 765-5000

      


      with
        a
        copy to:

      


      Smith,
        Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP

      2500
        Wachovia Capitol Center

      Raleigh,
        NC 27602-2611

      Attention:
        Margaret N. Rosenfeld

      Telephone:
        (919) 821-6714

      


      If
        to the
        Holder, to:

      


      ________________________ 

      ________________________

      ________________________

      ________________________

      ________________________

      


      or
        such
        other address provided to the Company pursuant to Section 12 hereof

      


      If
        to the
        Transfer Agent, to:

      Continental
        Stock Transfer & Trust Company

      17
        Battery Place, 8th Floor

      New
        York
        City, New York 10004

      Telephone:
        212.509.4000 

      


      or
        at
        such other address and/or facsimile number and/or to the attention of such
        other
        person as the recipient party has specified by written notice given to each
        other party three (3) trading days prior to the effectiveness of such change.
        Written confirmation of receipt (A) given by the recipient of such notice,
        consent, waiver or other communication, (B) mechanically or electronically
        generated by the sender's facsimile machine containing the time, date, and
        recipient facsimile number or (C) provided by a nationally recognized overnight
        delivery service, shall be rebuttable evidence of personal service, receipt
        by
        facsimile or receipt from a nationally recognized overnight delivery service
        in
        accordance with clause (i), (ii) or (iii) above, respectively.

      



      
        
           

        

        
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      14.       
        Miscellaneous.
        This
        Warrant shall be governed by the laws of the State of Delaware, as such laws
        are
        applied to contracts to be entered into and performed entirely in Delaware
        by
        Delaware residents. The headings in this Warrant are for purposes of convenience
        and reference only, and shall not be deemed to constitute a part hereof.
        Initially capitalized terms used but not defined herein shall have the meanings
        ascribed to such terms in the Purchase Agreement. Neither this Warrant nor
        any
        term hereof may be changed or waived orally, but only by an instrument in
        writing signed by the Company and the
        Holder. Upon receipt of evidence reasonably satisfactory to the Company of
        the
        ownership of and the loss, theft, destruction or mutilation of any Warrant
        and,
        in the case of any such loss, theft or destruction, upon receipt of indemnity
        or
        security reasonably satisfactory to the Company or, in the case of any such
        mutilation, upon surrender and cancellation of such Warrant, the Company
        will
        make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant,
        a new Warrant of like tenor and representing the right to purchase the same
        aggregate number of Warrant Shares. This Warrant may be amended with, and
        only
        with, the written consent of the Company and the Holder. Any waiver of any
        term,
        covenant, agreement or condition contained in this Warrant shall not be deemed
        a
        waiver of any other term, covenant, agreement or condition, and any waiver
        of
        any default in any such term, covenant, agreement or condition shall not
        be
        deemed a waiver of any later default thereof or of any default of any other
        term, covenant, agreement or condition. All representations, warranties and
        covenants contained herein shall survive the execution and delivery of this
        Warrant and the issuance of any Warrant Shares upon the exercise hereof.
        In the
        event that any court or any governmental authority or agency declares all
        or any
        part of any Section of this Warrant to be unlawful or invalid, such unlawfulness
        or invalidity shall not serve to invalidate any other Section of this Warrant,
        and in the event that only a portion of any Section is so declared to be
        unlawful or invalid, such unlawfulness or invalidity shall not serve to
        invalidate the balance of such Section. All provisions of this Warrant shall
        be
        binding upon and inure to the benefit of the parties and their respective
        heirs,
        legatees, executors, administrators, legal representatives, successors, and
        permitted transferees and assigns. No person other than the holder of this
        Warrant and the Company shall have any legal or equitable right, remedy or
        claim
        under or in respect of, this Warrant.

      


      15       
        Attorneys’
        Fees.
        If any
        suit or action is instituted or attorneys employed to enforce this Warrant
        or
        any part hereof, the Company agrees to pay all reasonable costs and expenses
        associated with such action, including reasonable attorneys’ fees and court
        costs.

      


      


      ISSUED: February
        21, 2007

      


      


      SMART
        ONLINE, INC.

      


      


      By:__________________________________

      


      Name:________________________________

      


      Title:_________________________________


      
        
           

        

        
          10

          
            

          

        

        
           

        

      


      


       

      Attachment
        1

       

      


       

      


       

      NOTICE
        OF
        EXERCISE

      


      TO:
         SMART
        ONLINE, INC.

      


      
        	1.	
                The
                  undersigned hereby:

              


      

      


      
        	
              	q	
                elects
                  to purchase    
                  shares of Common Stock of the Company pursuant to the terms of
                  the
                  attached Warrant, and tenders herewith payment of the purchase
                  price of
                  such shares in full, or

              


      

      


      
        	
              	q	
                elects
                  to exercise its net issuance rights pursuant to Section 5(b) of the
                  attached Warrant with respect to    
                  shares of Common Stock.

              


      

      


      
        	2.	
                Please
                  issue a certificate or certificates representing said Warrant Shares
                  in
                  the name of the undersigned or in such other name as is specified
                  below:

              


      

      


      ______________________________________

      (Name
        in
        which certificate(s) are to be issued)

      


      ______________________________________

      (Address)

      


      


      


      


      
        	 	
                ______________________________

                (Name
                  of Warrant Holder)

                


                By:___________________________

                


                Title:_________________________

                


                Date
                  signed:___________________