Document:

Exhibit
      10.7

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (this “Agreement”)
      is
      made as of November 14, 2007, among SMART ONLINE, INC., a Delaware corporation
      (the “Company”),
      and
      Doron Roethler, as agent for the Investors (as defined below) (together with
      its
      successors and assigns in such capacity, “Collateral
      Agent”).

     

    RECITALS

     

    A. Company,
      Collateral Agent and certain purchasers (each an “Investor”,
      and
      collectively, the “Investors”)
      have
      entered into a Convertible Secured Subordinated Note Purchase Agreement, dated
      as of the date hereof (the “Purchase
      Agreement”),
      pursuant to which Company has issued convertible promissory notes, dated as
      of
      the date hereof (as amended, modified or otherwise supplemented from time to
      time, each a “Note”
and
      collectively, the “Notes”).

     

    B. In
      order
      to induce each Investor to extend the credit evidenced by the Notes, Company
      has
      agreed to enter into this Security Agreement and to grant Collateral Agent,
      for
      the benefit of itself and the Investors, the security interest in the Collateral
      described below.

     

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the above recitals and for other good and
      valuable consideration, the receipt and adequacy of which are hereby
      acknowledged, Company hereby agrees with Collateral Agent and the Investors
      as
      follows:

     

    1.  Definitions
      and Interpretation.
      When
      used in this Security Agreement, the following terms have the following
      respective meanings:

     

    “Collateral”
has
      the
      meaning given to that term in Section
      2
      hereof.

     

    “Excluded
      Investment Property”
means
      any and all right, title and interest of the
      Company
      in and
      to 100 shares of the capital stock of Smart Commerce, Inc., a Delaware
      corporation (“Smart
      Commerce”),
      issued to the Company, and respectively evidenced by stock certificate no.
      1 and
      all
      rights incident thereto, and in and to any additional interest in Smart Commerce
      hereafter acquired by the Company including all the Company’s now existing or
      hereafter acquired shares of stock or other equity security (including any
      interests, rights and other securities however evidenced which are convertible
      to stock or any other equity security of Smart Commerce and all rights incident
      thereto), including the right to vote the foregoing interests during the
      continuation of an event of default, and further including, but not limited
      to,
      the Company’s interest in, and rights to: (x) the profits, surplus,
      distributions and dividends, whether in cash or in kind (and including, but
      not
      limited to, any distributions of the proceeds of the liquidation of the assets
      of Smart Commerce made in connection with, as a result of, or pursuant to,
      a
      dissolution of Smart Commerce), and (y) the assets of Smart
      Commerce.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Obligations”
means
      all loans, advances, debts, liabilities and obligations, howsoever arising,
      owed
      by Company to Collateral Agent and the Investors of every kind and description
      (whether or not evidenced by any note or instrument and whether or not for
      the
      payment of money), now existing or hereafter arising under or pursuant to the
      terms of the Notes and the other Transaction Documents, including all interest,
      fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and
      costs chargeable to and payable by Company hereunder and thereunder, in each
      case, whether direct or indirect, absolute or contingent, due or to become
      due,
      and whether or not arising after the commencement of a proceeding under Title
      11
      of the United States Code (11 U.S.C. Section 101 et seq.), as amended from
      time
      to time (including post-petition interest) and whether or not allowed or
      allowable as a claim in any such proceeding.

     

    “Permitted
      Liens”
means
      (a) Liens granted to secure indebtedness of Company permitted under the Purchase
      Agreement and incurred to finance the acquisition (whether by purchase or
      capitalized lease) of tangible assets (other than Inventory), but only on the
      assets acquired with the proceeds of such indebtedness, (b) Liens for taxes,
      assessments or other governmental charges or levies not at the time delinquent
      or thereafter payable without penalty or being contested in good faith by
      appropriate proceedings and for which adequate reserves in accordance with
      GAAP
      shall have been set aside on its books, (c) Liens incurred in connection with
      the extension, renewal or refinancing of the indebtedness secured by Liens
      existing on the date of the Notes or of Liens described in clause (a) above,
      provided
      that any
      extension, renewal or replacement Lien shall be limited to the property
      encumbered by the existing Lien and the principal amount of indebtedness being
      extended, renewed or refinanced does not increase, (d) statutory Liens of
      landlords and Liens of carriers, warehousemen, mechanics and materialman and
      other similar Liens arising in favor of a person imposed without action by
      such
      person, in each case that are incurred in the ordinary course of business for
      sums not overdue or being contested in good faith by appropriate proceedings
      and
      for which adequate reserves in accordance with GAAP shall have been set aside
      on
      its books, (e) Liens (other than Liens arising under the Employee Retirement
      Income Security Act of 1974, as amended, or Section 412(n) of the Internal
      Revenue Code of 1986, as amended) incurred in the ordinary course of business
      in
      connection with workers’ compensation, unemployment insurance, social security
      or other forms of governmental insurance or benefits, or to secure performance
      of tenders, statutory obligations, leases and contracts (other than for borrowed
      money) entered into in the ordinary course of business or to secure obligations
      on surety or appeal bonds, (f) judgment Liens in existence less than 60 days
      after the entry thereof or with respect to which execution has been stayed
      in an
      amount not to exceed $500,000 singly or in the aggregate and (g) Liens existing
      on the date hereof and described on Attachment
      2
      hereto.

     

    “Senior
      Obligations”
means
      all indebtedness and obligations of Smart Commerce to Fifth Third Bank evidenced
      by that certain promissory note issued by Smart Commerce to Fifth Third Bank
      on
      October 17, 2006 under that certain Business Loan Agreement dated October 17,
      2006 between Smart Commerce and Fifth Third Bank and any amendment, restatement,
      modification, renewal, extension or refinance thereof.

     

    “UCC”
means
      the Uniform Commercial Code as in effect in the State of California from time
      to
      time.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    All
      capitalized terms not otherwise defined herein shall have the respective
      meanings given in the Notes. Unless otherwise defined herein or in the Notes,
      all terms used herein that are defined in the UCC, whether capitalized or not,
      have the respective meanings given to those terms in the UCC. 

     

    2.  Grant
      of Security Interest.
      To
      secure prompt payment and performance of the Obligations, Company hereby pledges
      to Collateral Agent and grants to Collateral Agent, for the benefit of
      Collateral Agent and the Investors, a security interest in all right, title
      and
      interests of Company in and to the property described in Attachment
      1
      hereto,
      whether now existing or hereafter from time to time acquired (collectively,
      the
“Collateral”).
      Such
      security interest shall be prior to all Liens other than Permitted Liens.
      Notwithstanding the foregoing, the security interest granted herein shall not
      extend to and the term “Collateral” shall not include any equipment or other
      property financed by a third party, provided
      that
      such third party’s Liens are Liens of the type described in clause (a) of the
      definition of Permitted Liens; provided,
      further,
      that
      such equipment or other property shall be deemed “Collateral” hereunder if such
      third party’s Lien is released or otherwise terminated or if the agreement
      governing such Lien does not prohibit the Lien granted hereunder. For avoidance
      of doubt, so long as the Senior Obligations are outstanding, the security
      interest granted herein shall not extend to and the term “Collateral” shall not
      include the Excluded Investment Property and upon the indefeasible satisfaction
      of the Senior Obligations in full, the security interest granted herein shall
      automatically extend to and the term “Collateral” shall include the Excluded
      Investment Property effective as of the date such Senior Obligations are
      satisfied in full.

     

    3.  General
      Representations and Warranties.
      Company
      represents and warrants to Collateral Agent and the Investors that
      (a) Company is the owner of the Collateral (or, in the case of (i)
      after-acquired Collateral, at the time Company acquires rights in the
      Collateral, or (ii) the Excluded Investment Property, at the time the Excluded
      Investment Property becomes subject to the security interested granted herein,
      will be the owner thereof) and that no other Person has (or, in the case of
      (i)
      after-acquired Collateral, at the time Company acquires rights in the
      Collateral, or (ii) the Excluded Investment Property, at the time the Excluded
      Investment Property becomes subject to the security interested granted herein,
      will have) any right, title, claim or interest (by way of Lien or otherwise)
      in,
      against or to the Collateral, other than Permitted Liens; (b) this Security
      Agreement creates a valid security interest in favor of Collateral Agent, for
      the benefit of Collateral Agent and the Investors, in the Collateral of Company,
      to the extent a security interest therein can be created under the UCC; (c)
      upon
      the filing of UCC-1 financing statements in the filing office listed on
Attachment
      3
      hereto,
      Collateral Agent has (or in the case of (i) after-acquired Collateral, at the
      time Company acquires rights in the Collateral, or (ii) the Excluded Investment
      Property, at the time the Excluded Investment Property becomes subject to the
      security interested granted herein, will have) a perfected security interest
      in
      the Collateral, prior to all Liens other than Permitted Liens, to the extent
      that a security interest in the Collateral can be perfected by such filing,
      except for Permitted Liens; (d) with respect to any Collateral consisting
      of a Deposit Account, Securities Entitlement or held in a Securities Account,
      upon execution and delivery by Company, the applicable depository bank or
      Securities Intermediary and Collateral Agent of an authenticated agreement
      granting control in accordance with the UCC to Collateral Agent over such
      Collateral, Collateral Agent shall have a valid and perfected, security interest
      in such Collateral, prior to all Liens other than Permitted Liens; (e) all
      Inventory has been (or, in the case of hereafter produced Inventory, will be)
      produced in compliance with applicable laws, including the Fair Labor Standards
      Act; and (f) all accounts receivable and payment intangibles are genuine
      and enforceable against the party obligated to pay the same; 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    4.  Covenants
      Relating to Collateral.
      Company
      covenants and agrees with Collateral Agent and Investors that from and after
      the
      date of this Security Agreement and until the date of termination of this
      Security Agreement in accordance with the terms hereof:

     

    (a)  Company
      shall (i) perform all acts that may be necessary to maintain, preserve and
      protect the Collateral and to maintain, preserve, protect and perfect the Lien
      granted to Collateral Agent therein and the perfection and priority (subject
      to
      Permitted Liens) of such Lien; (ii) not use or permit any Collateral to be
      used (A) in violation in any material respect of any applicable law, rule
      or regulation, or (B) in violation of any policy of insurance covering the
      Collateral; (iii) pay promptly when due all taxes and other governmental
      charges, all obligations to which any Lien is related and all other charges
      and
      other obligations now or hereafter imposed upon or affecting any Collateral;
      (iv) not, without 30 days prior written notice to Collateral Agent,
      (A)  change Company’s name or place of business (or, if Company has more
      than one place of business, its chief executive office), or the office in which
      Company’s records relating to accounts receivable and payment intangibles are
      kept or (B) change Company’s state of incorporation, entity type or state
      organizational number, (v) procure,
      execute and deliver from time to time any endorsements, assignments, financing
      statements and other writings reasonably deemed necessary or appropriate by
      Collateral Agent to perfect, maintain and protect its Lien hereunder and the
      priority thereof and to deliver promptly upon the request of Collateral Agent
      all originals of Collateral consisting of instruments.

     

    (b)  Company
      covenants and agrees that upon the acquisition of any fee interest in real
      property it will promptly (and in any event within five (5) business days of
      acquisition) notify Collateral Agent of the acquisition of such real property
      and will grant to Collateral Agent, for the benefit of Collateral Agent and
      the
      Investors, a mortgage or other real property security instrument on each fee
      interest in real property now or hereafter owned by Company and shall deliver
      such other documentation and opinions, in form and substance satisfactory to
      Collateral Agent, in connection with the grant of such mortgage or security
      instrument as Collateral Agent shall request, including title insurance
      policies, financing statements, fixture filings and environmental audits and
      Company shall pay all recording costs, intangible taxes and other fees and
      costs
      (including reasonable attorneys fees and expenses) incurred in connection
      therewith. Such mortgage or other real property security instrument shall be
      prior to all Liens other than Permitted Liens. Company acknowledges and agrees
      that, to the extent permitted by applicable law, all of the Collateral shall
      remain personal property regardless of the manner of its attachment or
      affixation to real property.

     

    (c)  Company
      shall promptly (and in any event within five (5) business days of receipt
      thereof), notify Collateral Agent in writing upon incurring or otherwise
      obtaining a Commercial Tort Claim after the date hereof against any third party
      and, upon request of Collateral Agent, authorize the filing of additional
      financing statements or amendments to existing financing statements and do
      such
      other acts or things deemed necessary or desirable by Collateral Agent to give
      Collateral Agent, perfected security interest in any such Commercial Tort Claim,
      prior to all Liens other than Permitted Liens.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (d)  Company
      shall promptly (and in any event within five (5) business days of acquiring
      or
      obtaining such Collateral) notify Collateral Agent in writing upon (i) acquiring
      or otherwise obtaining any Collateral after the date hereof consisting of
      Trademarks, Patents, Copyrights, licenses with respect to any of the foregoing,
      Investment Property, Chattel Paper (electronic, tangible or otherwise),
      Documents, Instruments or Letter-of-Credit Rights or (ii) any amount payable
      under or in connection with any of the Collateral being or becoming evidenced
      after the date hereof by any Chattel Paper, Documents or Instruments and, in
      each such case upon the request of Collateral Agent and in accordance with
      Section 6 hereof, promptly execute such other documents, or if applicable,
      deliver such Chattel Paper, Documents, Instruments, other possessory collateral
      or certificates evidencing any Investment Property (other than the Excluded
      Investment Property) in accordance with Section 6 hereof and do such other
      acts
      or things reasonably deemed necessary or desirable by Collateral Agent to
      protect Collateral Agent’s Lien therein.

     

    (e)  At
      the
      request of Collateral Agent, Company shall obtain an authenticated control
      agreement, in form and substance satisfactory to Collateral Agent, from each
      bank holding a Deposit Account for Company and each issuer of uncertificated
      securities, securities intermediary, or commodities intermediary issuing or
      holding any financial assets or commodities to or for Company.

     

    (f)  Company
      shall not (i) sell, assign (by operation of law or otherwise) or otherwise
      dispose of, or grant any option with respect to, any of the Collateral, except
      (A) expressly permitted by the Purchase Agreement, (B) sales, assignments or
      other dispositions of inventory in the ordinary course of business, (C) sales,
      assignments or other dispositions of worn-out or obsolete equipment no longer
      used or useful in the business of Company in the ordinary course of business,
      (D) licenses of intellectual property pursuant to a non-exclusive license
      granted to others not interfering in any material respect with the business
      of
      Company, and (E) licenses of intellectual property pursuant to an exclusive
      license with respect to geographic location, limited time duration or field
      of
      use granted to others not interfering in any material respect with the business
      of Company, or (ii) create or permit to exist any Lien upon or with respect
      to
      any of the Collateral, except for Permitted Liens. The inclusion of proceeds
      in
      the Collateral shall not be deemed to constitute Collateral Agent’s consent to
      any sale or other disposition of any of the Collateral except as expressly
      permitted in this Security Agreement or the Purchase Agreement.

     

    5.  Authorized
      Action by Collateral Agent.
      Company
      hereby appoints Collateral Agent as its attorney-in-fact (which appointment
      is
      coupled with an interest) and agrees that Collateral Agent may perform (but
      Collateral Agent shall not be obligated to and shall incur no liability to
      Company or any third party for failure so to do) any act which Company is
      obligated by this Security Agreement to perform, exercise such rights and powers
      as Company might exercise with respect to the Collateral, and take any other
      action and execute any instrument which Collateral Agent may deem necessary
      or
      advisable to accomplish the purposes of this Security Agreement, including
      the
      right to (a) collect by legal proceedings or otherwise and endorse, receive
      and receipt for all dividends, interest, payments, proceeds and other sums
      and
      property now or hereafter payable on or on account of the Collateral;
      (b) enter into any extension, reorganization, deposit, merger,
      consolidation or other agreement pertaining to, or deposit, surrender, accept,
      hold or apply other property in exchange for the Collateral; (c) make any
      compromise or settlement, and take any action it deems advisable, with respect
      to the Collateral; (d) insure, process and preserve the Collateral;
      (e) pay any indebtedness of Company relating to the Collateral; and (f) to
      perform any and all of the obligations of Company contained in any contract,
      lease, or other agreement and exercise any and all rights of Company therein
      contained as fully as Company itself could; and (g) execute other
      documents, instruments and agreements required hereunder; provided,
      however,
      that
      Collateral Agent shall not exercise any such powers granted pursuant to
      subsections (a) through (f) prior to the occurrence of an Event of Default
      and
      shall only exercise such powers during the continuance of an Event of Default.
      Company agrees to reimburse Collateral Agent upon demand for any costs and
      expenses, including reasonable attorneys’ fees, Collateral Agent may incur while
      acting as Company’s attorney-in-fact hereunder, all of which costs and expenses
      are included in the Obligations. It is further agreed and understood between
      the
      parties hereto that such care as Collateral Agent gives to the safekeeping
      of
      its own property of like kind shall constitute reasonable care of the Collateral
      when in Collateral Agent’s possession; provided,
      however,
      that
      Collateral Agent shall not be required to make any presentment, demand or
      protest, or give any notice and need not take any action to preserve any rights
      against any prior party or any other person in connection with the Obligations
      or with respect to the Collateral. To the extent permitted by law, Company
      hereby ratifies all that such attorney-in-fact shall lawfully do or cause to
      be
      done by virtue hereof and within the limits set forth above. This power of
      attorney is coupled with an interest and shall be irrevocable until this
      Security Agreement is terminated.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    6.  Further
      Assurances.
      

     

    (a)  Company
      agrees that from time to time, at its own expense, Company will promptly execute
      and deliver all further endorsements, assignments, instruments, documents and
      other writings, and take all further action, that may be necessary or that
      Collateral Agent may reasonably request, in order to perfect, protect and
      maintain any Lien granted or purported to be granted hereby or to enable
      Collateral Agent to exercise and enforce its rights and remedies hereunder
      with
      respect to any of the Collateral. 

     

    (b)  Company
      authorizes the filing by Collateral Agent financing or continuation statements,
      or amendments thereto, and Company will execute and deliver to Collateral Agent
      such other instruments or notices as may be necessary or as Collateral Agent
      may
      reasonably request, in order to perfect and preserve the Lien granted or
      purported to be granted hereby. 

     

    (c)  Company
      authorizes Collateral Agent at any time and from time to time to file, transmit,
      or communicate, as applicable, financing statements and amendments (i)
      describing the Collateral as “all personal property of debtor” or “all assets of
      debtor” or words of similar effect, (ii) describing the Collateral as being of
      equal or lesser scope or with greater detail, or (iii) that contain any
      information required by part 5 of Article 9 of the UCC for the sufficiency
      or
      filing office acceptance. Company also hereby ratifies any and all financing
      statements or amendments previously filed by Collateral Agent in any
      jurisdiction. 

     

    (d)  Company
      acknowledges that it is not authorized to file any financing statement or
      amendment or termination statement with respect to any financing statement
      filed
      in connection with this Security Agreement without the prior written consent
      of
      Collateral Agent, subject to Company’s rights under Section 9-509(d)(2) of the
      UCC.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    7.  Default
      and Remedies.
      

     

    (a)  Default.
      Company
      shall be deemed in default under this Security Agreement upon the occurrence
      and
      during the continuance of an Event of Default (as defined in the Notes).

     

    (b)  General
      Remedies.
      Upon
      the occurrence of an Event of Default and during continuation thereof,
      Collateral Agent shall have, in addition to the rights and remedies provided
      herein, in the Transaction Documents, in any other documents relating to the
      Obligations, or by applicable law (including, but not limited to, levy of
      attachment, garnishment and the rights and remedies set forth in the UCC of
      the
      jurisdiction applicable to the affected Collateral), the rights and remedies
      of
      a secured party under the UCC (regardless of whether the UCC is the law of
      the
      jurisdiction where the rights and remedies are asserted and regardless of
      whether the UCC applies to the affected Collateral), and further, Collateral
      Agent may, with or without judicial process or the aid and assistance of others,
      (i) enter on any premises on which any of the Collateral may be located and,
      without resistance or interference by Company, take possession of the
      Collateral, (ii) dispose of any Collateral on any such premises, (iii) require
      Company to assemble and make available to Collateral Agent at the expense of
      Company any Collateral at one or more locations where Company regularly
      maintains inventory, (iv) remove any Collateral from any such premises for
      the
      purpose of effecting sale or other disposition thereof, and/or (v) without
      notice, except as provided below, which Company hereby waives to the fullest
      extent permitted by law, at any place and time or times, sell and deliver any
      or
      all Collateral held by or for it at public or private sale, at any exchange
      or
      broker’s board or elsewhere, by one or more contracts, in one or more parcels,
      for cash, upon credit or otherwise, at such prices and upon such terms as
      Collateral Agent deems advisable, in its sole discretion (subject to any and
      all
      mandatory legal requirements). Company acknowledges that any such private sale
      may be at prices and on terms less favorable to the seller than the prices
      and
      other terms which might have been obtained at a public sale and, notwithstanding
      the foregoing, agrees that such private sale shall be deemed to have been made
      in a commercially reasonable manner. Neither Collateral Agent’s compliance with
      applicable law nor its disclaimer of warranties relating to the Collateral
      shall
      be considered to adversely affect the commercial reasonableness of any sale.
      Company agrees that to the extent notice of sale shall be required by law,
      any
      requirement of reasonable notice shall be met if such notice, specifying the
      place of any public sale or the time after which any private sale is to be
      made,
      is personally served on or mailed, postage prepaid, to Company in accordance
      with the notice provisions of this Security Agreement at least 10 days before
      the time of sale or other event giving rise to the requirement of such notice.
      Collateral Agent shall not be obligated to make any sale or other disposition
      of
      the Collateral regardless of notice having been given. To the extent permitted
      by applicable law, Collateral Agent or any Investor may be a purchaser at any
      such sale. To the extent permitted by applicable law, Company hereby waives
      all
      of its rights of redemption with respect to any such sale. Subject to the
      provisions of applicable law, Collateral Agent may postpone or cause the
      postponement of the sale of all or any portion of the Collateral by announcement
      at the time and place of such sale, and such sale may, without further notice,
      to the extent permitted by law, be made at the time and place to which the
      sale
      was postponed, or Collateral Agent may further postpone such sale by
      announcement made at such time and place.

     

    (c)  Intellectual
      Property License.
      In
      furtherance of Collateral Agent’s rights hereunder, Company hereby grants to
      Collateral Agent an irrevocable, non-exclusive license, exercisable without
      royalty or other payment by Collateral Agent, and in connection with the
      exercise of remedies hereunder, to use, license or sublicense any patent,
      trademark, trade name, copyright or other intellectual property in which Company
      now or hereafter has any right, title or interest, together with the right
      of
      access to all media in which any of the foregoing may be recorded or
      stored.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (d)  Access.
      In
      addition to the rights and remedies hereunder, upon the occurrence of an Event
      of Default and during the continuance thereof, Collateral Agent shall have
      the
      right to enter and remain upon the various premises of Company without cost
      or
      charge to Collateral Agent, and use the same, together with materials, supplies,
      books and records of Company for the purpose of collecting and liquidating
      the
      Collateral, or for preparing for sale and conducting the sale of the Collateral,
      whether by foreclosure, auction or otherwise. In addition, upon the occurrence
      and during the continuation of an Event of Default, Collateral Agent may remove
      Collateral, or any part thereof, from such premises and/or any records with
      respect thereto, in order to effectively collect or liquidate such
      Collateral.

     

    (e)  Nonexclusive
      Nature of Remedies.
      Failure
      by Collateral Agent or the Investors to exercise any right, remedy or option
      under this Security Agreement, any other Transaction Document, any other
      document relating to the Obligations, or as provided by applicable law, or
      any
      delay by Collateral Agent or the holders of the Obligations in exercising the
      same, shall not operate as a waiver of any such right, remedy or option. To
      the
      extent permitted by law, neither Collateral Agent, the Investors, nor any party
      acting as attorney for Collateral Agent or the Investors, shall be liable
      hereunder for any acts or omissions or for any error of judgment or mistake
      of
      fact or law other than their gross negligence or willful misconduct hereunder.
      The rights and remedies of Collateral Agent and the Investors under this
      Security Agreement shall be cumulative and not exclusive of any other right
      or
      remedy which Collateral Agent or the Investors may have.

     

    (f)  Marshaling.
      Collateral Agent shall not be required to marshal any present or future
      collateral security (including but not limited to the Collateral) for, or other
      assurances of payment of, the Obligations or any of them or to resort to such
      collateral security or other assurances of payment in any particular order,
      and
      all of its rights and remedies hereunder and in respect of such collateral
      security and other assurances of payment shall be cumulative and in addition
      to
      all other rights and remedies, however existing or arising. To the extent that
      it lawfully may, Company hereby agrees that it will not invoke any law relating
      to the marshaling of collateral which might cause delay in or impede the
      enforcement of Collateral Agent’s rights and remedies under this Security
      Agreement or under any other instrument creating or evidencing any of the
      Obligations or under which any of the Obligations is outstanding or by which
      any
      of the Obligations is secured or payment thereof is otherwise assured, and,
      to
      the extent that it lawfully may, Company hereby irrevocably waives the benefits
      of all such laws.

     

    (g)  Application
      of Collateral Proceeds.
      The
      proceeds and/or avails of the Collateral, or any part thereof, and the proceeds
      and the avails of any remedy hereunder (as well as any other amounts of any
      kind
      held by Collateral Agent at the time of, or received by Collateral Agent after,
      the occurrence of an Event of Default) shall be paid to and applied as
      follows:

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (i)  First,
      to the
      payment of costs and expenses, including all amounts expended to preserve the
      value of the Collateral, of foreclosure or suit, if any, and of such sale and
      the exercise of any other rights or remedies, and of all proper fees, expenses,
      liability and advances, including reasonable legal expenses and attorneys’ fees,
      incurred or made hereunder by Collateral Agent;

     

    (ii)  Second,
      to the
      payment to each Investor of the interest due, owing or unpaid on such Investor’s
      Note, and in case such proceeds shall be insufficient to pay in full the whole
      amount due, owing or unpaid upon such Note, then its Pro Rata Share of the
      amount remaining to be distributed;

     

    (iii)  Third,
      to the
      payment to each Investor of the principal amount due, owing or unpaid on such
      Investor’s Note, and in case such proceeds shall be insufficient to pay in full
      the whole amount due, owing or unpaid upon such Note, then its Pro Rata Share
      of
      the amount remaining to be distributed;

     

    (iv)  Fourth,
      to the
      payment of other amounts payable to Collateral Agent and each Investor under
      any
      of the Transaction Documents, and in case such proceeds shall be insufficient
      to
      pay in full the whole amount due, owing or unpaid under such Transaction
      Documents, the amount remaining to be distributed shall be distributed pro
      rata
      in accordance with such other amounts payable; and

     

    (v)  Fifth,
      to the
      payment of the surplus, if any, to Company, its successors and assigns, or
      to
      whomsoever may be lawfully entitled to receive the same.

     

    For
      purposes of this Security Agreement, the term “Pro Rata Share” shall mean, when
      calculating a Investor’s portion of any distribution or amount, that
      distribution or amount (expressed as a percentage) equal to a fraction (i)
      the
      numerator of which is the outstanding principal amount of such Investor’s
      Note(s) and (ii) the denominator of which is the aggregate outstanding principal
      amount of all Notes issued under the Purchase Agreement. In the event that
      an
      Investor receives payments or distributions in excess of its Pro Rata Share,
      then such Investor shall hold in trust all such excess payments or distributions
      for the benefit of the other Investors and shall pay such amounts held in trust
      to such other Investors upon demand by such Investors in accordance with the
      Pro
      Rata Shares of such Investors.

     

    (h)  Deficiency.
      In the
      event that the proceeds of any sale, collection or realization are insufficient
      to pay all amounts to which Collateral Agent or the Investors are legally
      entitled, Company shall be liable for the deficiency, together with interest
      thereon at the rate of interest set forth in the Notes the costs of collection
      and the reasonable fees, charges and disbursements of counsel. Any surplus
      remaining after the full payment and satisfaction of the Obligations shall
      be
      returned to Company or to whomsoever a court of competent jurisdiction shall
      determine to be entitled thereto.

     

    8.  Miscellaneous.

     

    (a)  Notices.
      Except
      as otherwise provided herein, all notices, requests, demands, consents,
      instructions or other communications to or upon Company or Collateral Agent
      under this Security Agreement shall be in writing and faxed, mailed or delivered
      to each party to the facsimile number or its address set forth below (or to
      such
      other facsimile number or address as the recipient of any notice shall have
      notified the other in writing). All such notices, requests, demands, consents,
      instructions or other communications will be deemed effectively given the
      earlier of (i) when received, (ii) when delivered personally, (iii) one business
      day after being delivered by facsimile (with receipt of appropriate
      confirmation), (iv) one business day after being deposited with an overnight
      courier service of recognized standing or (v) four days after being deposited
      in
      the U.S. mail, first class with postage prepaid.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Collateral
      Agent:

     

    Doron
      Roethler

     

    c/o
      Michal Raviv, Adv.

    Gibor
      Sport House (28th floor)

    7,
      Menahem Begin (Betzalel) St.

    Ramat
      Gan
      52521, Israel

    Tel.: 
      +972 (3) 575-5525 ext. 111

    Fax:
      +972
      (3) 575-5526 

     

    Company:
      

    Smart
      Online, Inc

    2530
      Meridian Parkway, 2nd
      Floor

    Durham,
      NC 27713

    Attention:
      James Gayton, Corporate Counsel

    Telephone:
      (919) 765-5000

    Facsimile:
      (919) 765-5020

     

    with
      a
      copy to:

    Smith,
      Anderson, Blount, Dorsett, 

    Mitchell
      & Jernigan, LLP

    2500
      Wachovia Capitol Center

    Raleigh,
      North Carolina 27602-2611

    Attention:
      Margaret N. Rosenfeld

    Telephone: (919)
      821-6714

    Facsimile:
      (919) 821-6800

     

    (b)  Termination
      of Security Interest.
      

     

    (i)  Upon
      the
      payment in full of all Obligations to the satisfaction of Collateral Agent
      and
      the Investors, the security interest granted herein shall terminate. Upon such
      termination Collateral Agent shall, upon the request and at the expense of
      Company, forthwith release all of its liens and security interests hereunder
      and
      shall execute and deliver all UCC termination statements and/or other documents
      reasonably requested by Company evidencing such termination.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (ii)  This
      Security Agreement shall continue to be effective or be automatically
      reinstated, as the case may be, if at any time payment, in whole or in part,
      of
      any of the Obligations is rescinded or must otherwise be restored or returned
      by
      Collateral Agent or any Investor as a preference, fraudulent conveyance or
      otherwise under any federal, state or foreign bankruptcy, reorganization,
      insolvency or similar law, all as though such payment had not been made;
      provided that in the event payment of all or any part of the Obligations is
      rescinded or must be restored or returned, all reasonable costs and expenses
      (including without limitation any reasonable legal fees and disbursements)
      incurred by Collateral Agent or any Investor in defending and enforcing such
      reinstatement shall be deemed to be included as a part of the Obligations.
      

     

    (c)  Nonwaiver.
      No
      failure or delay on Collateral Agent’s part in exercising any right hereunder
      shall operate as a waiver thereof or of any other right nor shall any single
      or
      partial exercise of any such right preclude any other further exercise thereof
      or of any other right.

     

    (d)  Amendments
      and Waivers.
      This
      Security Agreement may not be amended or modified, nor may any of its terms
      be
      waived, except by written instruments signed by Company and Collateral Agent.
      Each waiver or consent under any provision hereof shall be effective only in
      the
      specific instances for the purpose for which given.

     

    (e)  Assignments.
      This
      Security Agreement shall be binding upon and inure to the benefit of Collateral
      Agent and Company and their respective successors and assigns; provided,
      however,
      that
      Company may not sell, assign or delegate rights and obligations hereunder
      without the prior written consent of Collateral Agent.

     

    (f)  Cumulative
      Rights, etc.
      The
      rights, powers and remedies of Collateral Agent under this Security Agreement
      shall be in addition to all rights, powers and remedies given to Collateral
      Agent by virtue of any applicable law, rule or regulation of any governmental
      authority, any Transaction Document or any other agreement, all of which rights,
      powers, and remedies shall be cumulative and may be exercised successively
      or
      concurrently without impairing Collateral Agent’s rights hereunder. Company
      waives any right to require Collateral Agent to proceed against any person
      or
      entity or to exhaust any Collateral or to pursue any remedy in Collateral
      Agent’s power.

     

    (g)  Payments
      Free of Taxes, Etc.
      All
      payments made by Company under the Transaction Documents shall be made by
      Company free and clear of and without deduction for any and all present and
      future taxes, levies, charges, deductions and withholdings. In addition, Company
      shall pay upon demand any stamp or other taxes, levies or charges of any
      jurisdiction with respect to the execution, delivery, registration, performance
      and enforcement of this Security Agreement. Upon request by Collateral Agent,
      Company shall furnish evidence satisfactory to Collateral Agent that all
      requisite authorizations and approvals by, and notices to and filings with,
      governmental authorities and regulatory bodies have been obtained and made
      and
      that all requisite taxes, levies and charges have been paid.

     

    (h)  Partial
      Invalidity.
      If at
      any time any provision of this Security Agreement is or becomes illegal, invalid
      or unenforceable in any respect under the law or any jurisdiction, neither
      the
      legality, validity or enforceability of the remaining provisions of this
      Security Agreement nor the legality, validity or enforceability of such
      provision under the law of any other jurisdiction shall in any way be affected
      or impaired thereby.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (i)  Construction.
      Each of
      this Security Agreement and the other Transaction Documents is the result of
      negotiations among, and has been reviewed by, Company, the Investors, Collateral
      Agent and their respective counsel. Accordingly, this Security Agreement and
      the
      other Transaction Documents shall be deemed to be the product of all parties
      hereto, and no ambiguity shall be construed in favor of or against Company,
      Investors or Collateral Agent.

     

    (j)  Entire
      Agreement.
      This
      Security Agreement taken together with the other Transaction Documents
      constitute and contain the entire agreement of Company, Investors and Collateral
      Agent and supersede any and all prior agreements, negotiations, correspondence,
      understandings and communications among the parties, whether written or oral,
      respecting the subject matter hereof.

     

    (k)  Other
      Interpretive Provisions.
      References in this Security Agreement and each of the other Transaction
      Documents to any document, instrument or agreement (a) includes all
      exhibits, schedules and other attachments thereto, (b) includes all
      documents, instruments or agreements issued or executed in replacement thereof,
      and (c) means such document, instrument or agreement, or replacement or
      predecessor thereto, as amended, modified and supplemented from time to time
      and
      in effect at any given time. The words “hereof,” “herein” and “hereunder” and
      words of similar import when used in this Security Agreement or any other
      Transaction Document refer to this Security Agreement or such other Transaction
      Document, as the case may be, as a whole and not to any particular provision
      of
      this Security Agreement or such other Transaction Document, as the case may
      be.
      The words “include” and “including” and words of similar import when used in
      this Security Agreement or any other Transaction Document shall not be construed
      to be limiting or exclusive.

     

    (l)  Governing
      Law.
      This
      Security Agreement shall be governed by and construed in accordance with the
      laws of the State of Delaware without reference to conflicts of law rules
      (except to the extent governed by the UCC).

     

    (m)  Counterparts.
      This
      Security Agreement may be executed in any number of counterparts, each of which
      shall be an original, but all of which together shall be deemed to constitute
      one instrument. Delivery of an executed counterpart of this Security Agreement
      by telefacsimile or other electronic method of transmission shall be equally
      as
      effective as delivery of an original executed counterpart of this Security
      Agreement. 

     

    (n)  Collateral
      Agent’s Duties.
      The
      powers conferred on Collateral Agent hereunder are solely to protect Collateral
      Agent’s interest in the Collateral, for the benefit of Collateral Agent and the
      Investors, and shall not impose any duty upon Collateral Agent to exercise
      any
      such powers. Except for the safe custody of any Collateral in its actual
      possession and the accounting for moneys actually received by it hereunder,
      Collateral Agent shall have no duty as to any Collateral or as to the taking
      of
      any necessary steps to preserve rights against prior parties or any other rights
      pertaining to any Collateral. Collateral Agent shall be deemed to have exercised
      reasonable care in the custody and preservation of any Collateral in its actual
      possession if such Collateral is accorded treatment substantially equal to
      that
      which Collateral Agent accords its own property.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (o)  Collateral
      Agent May Perform.
      After
      the occurrence and during the continuation of an Event of Default, if Company
      fails to perform any agreement contained herein, Collateral Agent may itself
      perform, or cause performance of, such agreement, and the reasonable expenses
      of
      Collateral Agent incurred in connection therewith shall be payable by
      Company.

     

    [The
      remainder of this page is intentionally left blank]

     

     

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, Company has caused this Security Agreement to be executed
      as of
      the day and year first above written.

     

    SMART
      ONLINE, INC.

     

    By:
      /s/ David E.
      Colburn                                         

    Name: David
      E.
      Colburn                                       
  

    Title:
      President and
      CEO                                         

     

    

     

    DORON
      ROETHLER

     

    As
      Collateral Agent

    

    /s/
      Doron
      Roethler                                                    

    

    Name:
      Doron Roethler

    
[Signature
      page to Security
      Agreement]

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    ATTACHMENT
      1

     

    TO
      SECURITY AGREEMENT

     

    All
      right, title, interest, claims and demands of Company in and to the following
      property in full:

     

    (i)  All
      Accounts;

     

    (ii)  All
      Chattel Paper;

     

    (iii)  All
      Commercial Tort Claims listed on Exhibit
      A;

     

    (iv)  All
      Deposit Accounts and cash;

     

    (v)  All
      Documents;

     

    (vi)  All
      Equipment;

     

    (vii)  All
      General Intangibles;

     

    (viii)  All
      Goods;

     

    (ix)  All
      Instruments;

     

    (x)  All
      Intellectual Property;

     

    (xi)  All
      Inventory;

     

    (xii)  All
      Investment Property;

     

    (xiii)  All
      Letter-of-Credit Rights; and

     

    (xiv)  To
      the
      extent not otherwise included, all Supporting Obligations, Proceeds and products
      of any and all of the foregoing, and all accessions to, substitutions and
      replacements for, and rents and profits of each of the foregoing. 

     

    Provided,
      however,
      Collateral does not include the Excluded Investment Property until such time
      as
      the Senior Obligations have been indefeasibly satisfied in full; provided,
      further, however
      upon the
      indefeasible satisfaction of the Senior Obligations in full, Collateral does
      include the Excluded Investment Property.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      term
“Intellectual
      Property”
      means
      all
      intellectual and similar property of every kind and nature now owned or
      hereafter acquired by Company, including inventions, designs, patents (whether
      registered or unregistered), copyrights (whether registered or unregistered),
      trademarks (whether registered or unregistered), trade secrets, domain names,
      confidential or proprietary technical and business information, know-how,
      methods, processes, drawings, specifications or other data or information and
      all memoranda, notes and records with respect to any research and development,
      software and databases and all embodiments or fixations thereof whether in
      tangible or intangible form or contained on magnetic media readable by machine
      together with all such magnetic media and related documentation, registrations
      and franchises, and all additions, improvements and accessions to, and books
      and
      records describing or used in connection with, any of the
      foregoing.

     

    All
      capitalized terms used in this Attachment
      1
      and not
      otherwise defined herein shall have the respective meanings given to such terms
      in the Uniform Commercial Code of the State of California as in effect from
      time
      to time.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    ATTACHMENT
      2

     

    TO
      SECURITY AGREEMENT

     

    

     

    Loan
      Agreement dated as of November 14, 2006 between the Company and Wachovia Bank,
      N.A. and Security Agreement dated as of November 14, 2006 between the Company
      and Wachovia Bank, N.A.

     

     

     

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    ATTACHMENT
      3

     

    TO
      SECURITY AGREEMENT

     

    State
      of
      DelawareExhibit
      10.8

     

    PROMISSORY
      NOTE

    

    
      	$2,500,000.00 	
              January
                24,
                2007

            

    

    

    Smart
      Online, Inc. 

    2530
      Meridian Parkway, 2nd Floor 

    Durham,
      North Carolina 27713 

    (Hereinafter
      referred to as “Borrower”)

    

    Wachovia
      Bank, National Association 

    Charlotte,
      North Carolina 28202 

    (Hereinafter
      referred to as “Bank”)

    

    

    Borrower
      promises to pay to the order of Bank, in lawful money of the United States
      of
      America, at its office indicated above or wherever else Bank may specify, the
      sum of Two Million, Five Hundred Thousand and No/100 Dollars ($2,500,000.00)
      or
      such sum as may be advanced and outstanding from time to time, with interest
      on
      the unpaid principal balance at the rate and on the terms provided in this
      Promissory Note (including all renewals, extensions or modifications hereof,
      this “Note”).

    

    RENEWAL/MODIFICATION.
      This
      Promissory Note renews, extends and/or modifies that certain Promissory Note
      dated November 14, 2006 (the “Original Promissory Note”), evidencing an original
      principal amount of $1,300,000.00. This Promissory Note is not a
      novation.

    

    LOAN
      AGREEMENT.
      This
      Note is subject to the provisions of that certain Loan Agreement between Bank
      and Borrower dated November 14, 2006, as modified from time to
      time.

    

    USE
      OF PROCEEDS.
      Borrower shall use the proceeds of the loan(s) evidenced by this Note for the
      commercial purposes of Borrower, as follows: for working capital needs of
      Borrower.

    

    SECURITY.
      Borrower has granted Bank a security interest in the collateral described in
      the
      Loan Documents, including, but not limited to, personal property collateral
      described in that certain Security Agreement of even date herewith.

    

    INTEREST
      RATE.
      Interest shall accrue on the unpaid principal balance of this Note from the
      date
      hereof at the LIBOR Market Index Rate plus 0.9%, as that rate may change from
      day to day in accordance with changes in the LIBOR Market Index Rate (“Interest
      Rate”). “LIBOR Market Index Rate”, for any day, means the rate for 1 month U.S.
      dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London
      time,
      on such day, or if such day is not a London business day, then the immediately
      preceding London business day (or if not so reported, then as determined by
      Bank
      from another recognized source or interbank quotation).

    

    DEFAULT
      RATE.
      In
      addition to all other rights contained in this Note, if a default in the payment
      of Obligations occurs, all outstanding Obligations, other than Obligations
      under
      any swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to
      time) between Borrower and Bank or its affiliates, shall bear interest at the
      Interest Rate plus 3% (“Default Rate”), except if the Note is governed by the
      laws of the State of North Carolina and the original principal amount is less
      than or equal to $300,000.00. The Default Rate shall also apply from demand
      until the Obligations or any judgment thereon is paid in full.

    

    INTEREST
      AND FEE(S) COMPUTATION (ACTUAL/360).
      Interest and fees, if any, shall be computed on the basis of a 360-day year
      for
      the actual number of days in the applicable period (“Actual/360 Computation”).
      The Actual/360 Computation determines the annual effective interest yield by
      taking the stated (nominal) rate for a year’s period and then dividing said rate
      by 360 to determine the daily periodic rate to be applied for each day in the
      applicable period. Application of the Actual/360 Computation produces an
      annualized effective rate exceeding the nominal rate.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    REPAYMENT
      TERMS.
      This
      Note shall be due and payable in consecutive monthly payments of accrued
      interest only, commencing on February 1, 2007, and continuing on the same day
      of
      each month thereafter until fully paid. In any event, this Note shall be due
      and
      payable in full, including all principal and accrued interest, on demand or
      in
      no event later than August 1, 2008. 

    

    LINE
      OF CREDIT.
      Borrower may borrow, repay and reborrow, and, upon the request of Borrower,
      Bank
      shall advance and readvance under this Note from time to time (each an “Advance”
and together the “Advances”), so long as the total principal balance outstanding
      under this Note at any one time does not exceed the principal amount stated
      on
      the face of this Note minus the sum of (i) the amount available to be drawn
      under all letters of credit issued by Bank for the account of Borrower plus
      (ii)
      the amount of unreimbursed drawings under all letters of credit issued by Bank
      for the account of Borrower, subject to the limitations described in any loan
      agreement to which this Note is subject. Bank’s obligation to make Advances
      under this Note shall terminate if a demand for payment is made under this
      Note
      or if a Default (as defined in the other Loan Documents) under any Loan Document
      occurs or in any event, on August 1, 2008, hereof unless renewed or extended
      by
      Bank in writing upon such terms then satisfactory to Bank. As of the date of
      each proposed Advance, Borrower shall be deemed to represent that each
      representation made in the Loan Documents is true as of such date.

    

    If
      Borrower subscribes to Bank’s cash management services and such services are
      applicable to this line of credit, the terms of such service shall control
      the
      manner in which funds are transferred between the applicable demand deposit
      account and the line of credit for credit or debit to the line of
      credit.

    

    APPLICATION
      OF PAYMENTS.
      Monies
      received by Bank from any source for application toward payment of the
      Obligations shall be applied to accrued interest and then to principal. Upon
      the
      occurrence of a default in the payment of the Obligations or a Default (as
      defined in the other Loan Documents) under any other Loan Document, monies
      may
      be applied to the Obligations in any manner or order deemed appropriate by
      Bank.

    

    If
      any
      payment received by Bank under this Note or other Loan Documents is rescinded,
      avoided or for any reason returned by Bank because of any adverse claim or
      threatened action, the returned payment shall remain payable as an obligation
      of
      all persons liable under this Note or other Loan Documents as though such
      payment had not been made.

    

    DEFINITIONS.
      Loan
      Documents.
      The
      term “Loan Documents”, as used in this Note and the other Loan Documents, refers
      to all documents executed in connection with or related to the loan evidenced
      by
      this Note and any prior notes which evidence all or any portion of the loan
      evidenced by this Note, and any letters of credit issued pursuant to any loan
      agreement to which this Note is subject, any applications for such letters
      of
      credit and any other documents executed in connection therewith or related
      thereto, and may include, without limitation, a commitment letter that survives
      closing, a loan agreement, this Note, guaranty agreements, security agreements,
      security instruments, financing statements, mortgage instruments, any renewals
      or modifications, whenever any of the foregoing are executed, but does not
      include swap agreements (as defined in 11 U.S.C. § 101, as in effect from time
      to time). Obligations.
      The
      term “Obligations”, as used in this Note and the other Loan Documents, refers to
      any and all indebtedness and other obligations under this Note, all other
      obligations under any other Loan Document(s), and all obligations under any
      swap
      agreements (as defined in 11 U.S.C. § 101, as in effect from time to time)
      between Borrower and Bank, or its affiliates, whenever executed. Certain
      Other Terms.
      All
      terms that are used but not otherwise defined in any of the Loan Documents
      shall
      have the definitions provided in the Uniform Commercial Code.

    

    LATE
      CHARGE.
      If any
      payments are not timely made, Borrower shall also pay to Bank a late charge
      equal to 4% of each payment past due for 15 or more days. This late charge
      shall
      not apply to payments due at maturity or by acceleration hereof, unless such
      late payment is in an amount not greater than the highest periodic payment
      due
      hereunder.

    

    Acceptance
      by Bank of any late payment without an accompanying late charge shall not be
      deemed a waiver of Bank’s right to collect such late charge or to collect a late
      charge for any subsequent late payment received.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    ATTORNEYS’
      FEES AMD OTHER COLLECTION COSTS.
      Borrower shall pay all of Bank’s reasonable expenses actually incurred to
      enforce or collect any of the Obligations including, without limitation,
      reasonable arbitration, paralegals’, attorneys’ and experts’ fees and expenses,
      whether incurred without the commencement of a suit, in any trial, arbitration,
      or administrative proceeding, or in any appellate or bankruptcy
      proceeding.

    

    USURY.
      If at
      any time the effective interest rate under this Note would, but for this
      paragraph, exceed the maximum lawful rate, the effective interest rate under
      this Note shall be the maximum lawful rate, and any amount received by Bank
      in
      excess of such rate shall be applied to principal and then to fees and expenses,
      or, if no such amounts are owing, returned to Borrower.

    

    DEMAND
      NOTE.
      This is
      a demand Note and all Obligations hereunder shall become immediately due and
      payable upon demand. In addition, the Obligations hereunder shall automatically
      become immediately due and payable if Borrower or any guarantor or endorser
      of
      this Note commences or has commenced against it a bankruptcy or insolvency
      proceeding.

    

    REMEDIES.
      Upon
      the occurrence of a default in the payment of the Obligations or a Default
      (as
      defined in the other Loan Documents) under any other Loan Document, Bank may
      at
      any time thereafter, take the following actions: Bank
      Lien.
      Foreclose its security interest or lien against Borrower’s deposit accounts and
      investment property without notice. Cumulative.
      Exercise any rights and remedies as provided under the Note and the other Loan
      Documents, or as provided by law or equity.

    

    FINANCIAL
      AND OTHER INFORMATION.
      Borrower shall deliver to Bank such information as Bank may reasonably request
      from time to time, including without limitation, financial statements and
      information pertaining to Borrower’s financial condition. Such information shall
      be true, complete, and accurate.

    

    WAIVERS
      AND AMENDMENTS.
      No
      waivers, amendments or modifications of this Note and other Loan Documents
      shall
      be valid unless in writing and signed by an officer of Bank. No waiver by Bank
      of any Default (as defined in the other Loan Documents) shall operate as a
      waiver of any other Default or the same Default on a future occasion. Neither
      the failure nor any delay on the part of Bank in exercising any right, power,
      or
      remedy under this Note and other Loan Documents shall operate as a waiver
      thereof, nor shall a single or partial exercise thereof preclude any other
      or
      further exercise thereof or the exercise of any other right, power or
      remedy.

    

    Except
      to
      the extent otherwise provided by the Loan Documents or prohibited by law, each
      Borrower and each other person liable under this Note waives presentment,
      protest, notice of dishonor, notice of intention to accelerate maturity, notice
      of acceleration of maturity, notice of sale and all other notices of any kind.
      Further, each agrees that Bank may (i) extend, modify or renew this Note or
      make
      a novation of the loan evidenced by this Note, and/or (ii) grant releases,
      compromises or indulgences with respect to any collateral securing this Note,
      or
      with respect to any Borrower or other person liable under this Note or any
      other
      Loan Documents, all without notice to or consent of each Borrower and other
      such
      person, and without affecting the liability of each Borrower and other such
      person; provided, Bank may not extend, modify or renew this Note or make a
      novation of the loan evidenced by this Note without the consent of the Borrower,
      or if there is more than one Borrower, without the consent of at least one
      Borrower; and further provided, if there is more than one Borrower, Bank may
      not
      enter into a modification of this Note which increases the burdens of a Borrower
      without the consent of that Borrower.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    MISCELLANEOUS
      PROVISIONS.
      Assignment.
      This
      Note and the other Loan Documents shall inure to the benefit of and be binding
      upon the parties and their respective heirs, legal representatives, successors
      and assigns. Bank’s interests in and rights under this Note and the other Loan
      Documents are freely assignable, in whole or in part, by Bank. In addition,
      nothing in this Note or any of the other Loan Documents shall prohibit Bank
      from
      pledging or assigning this Note or any of the other Loan Documents or any
      interest therein to any Federal Reserve Bank. Borrower shall not assign its
      rights and interest hereunder without the prior written consent of Bank, and
      any
      attempt by Borrower to assign without Bank’s prior written consent is null and
      void. Any assignment shall not release Borrower from the Obligations.
Applicable
      Law; Conflict Between Documents.
      This
      Note and, unless otherwise provided in any other Loan Document, the other Loan
      Documents shall be governed by and interpreted under the laws of the state
      named
      in Bank’s address on the first page hereof without regard to that state’s
      conflict of laws principles. If the terms of this Note should conflict with
      the
      terms of any loan agreement or any commitment letter that survives closing,
      the
      terms of this Note shall control. Borrower’s
      Accounts.
      Except
      as prohibited by law, Borrower grants Bank a security interest in all of
      Borrower’s deposit accounts and investment property with Bank and any of its
      affiliates. Swap
      Agreements.
      All
      swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time),
      if any, between Borrower and Bank or its affiliates are independent agreements
      governed by the written provisions of said swap agreements, which will remain
      in
      full force and effect, unaffected by any repayment, prepayment, acceleration,
      reduction, increase or change in the terms of this Note, except as otherwise
      expressly provided in said written swap agreements, and any payoff statement
      from Bank relating to this Note shall not apply to said swap agreements except
      as otherwise expressly provided in such payoff statement. Jurisdiction.
      Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state
      identified as the Jurisdiction above. Severability.
      If any
      provision of this Note or of the other Loan Documents shall be prohibited or
      invalid under applicable law, such provision shall be ineffective but only
      to
      the extent of such prohibition or invalidity, without invalidating the remainder
      of such provision or the remaining provisions of this Note or other such
      document. Notices.
      Any
      notices to Borrower shall be sufficiently given, if in writing and mailed or
      delivered to the Borrower’s address shown above or such other address as
      provided hereunder, and to Bank, if in writing and mailed or delivered to
      Wachovia Bank, National Association, Mail Code VA7628, P. 0. Box 13327, Roanoke,
      VA 24040 or Wachovia Bank, National Association, Mail Code VA7628, 10 South
      Jefferson Street, Roanoke, VA 24011 or such other address as Bank may specify
      in
      writing from time to time. Notices to Bank must include the mail code. In the
      event that Borrower changes Borrower’s address at any time prior to the date the
      Obligations are paid in full, Borrower agrees to promptly give written notice
      of
      said change of address by registered or certified mail, return receipt
      requested, all charges prepaid. Plural;
      Captions.
      All
      references in the Loan Documents to Borrower, guarantor, person, document or
      other nouns of reference mean both the singular and plural form, as the case
      may
      be, and the term “person” shall mean any individual, person or entity. The
      captions contained in the Loan Documents are inserted for convenience only
      and
      shall not affect the meaning or interpretation of the Loan Documents.
Advances.
      Bank
      may, in its sole discretion, make other advances which shall be deemed to be
      advances under this Note, even though the stated principal amount of this Note
      may be exceeded as a result thereof. Posting
      of Payments.
      All
      payments received during normal banking hours after 2:00 p.m. local time at
      the
      office of Bank first shown above shall be deemed received at the opening of
      the
      next banking day. Joint
      and Several Obligations.
      If
      there is more than one Borrower, each is jointly and severally obligated
      together with all other parties obligated for the Obligations. Fees
      and Taxes.
      Borrower shall promptly pay all documentary, intangible recordation and/or
      similar taxes on this transaction whether assessed at closing or arising from
      time to time. LIMITATION
      ON LIABILITY; WAIVER OF PUNITIVE DAMAGES.
      EACH OF
      THE PARTIES HERETO INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY
      JUDICIAL, MEDIATION OR ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY
      BETWEEN OR AMONG THEM THAT MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH
      THIS
      AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR
      AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT
      SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT,
      SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES. EACH
      OF
      THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY
      DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY
      SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY
      ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE. Patriot
      Act Notice.
      To help
      fight the funding of terrorism and money laundering activities, Federal law
      requires all financial institutions to obtain, verify, and record information
      that identifies each person who opens an account. For purposes of this section,
      account shall be understood to include loan accounts. Final
      Agreement.
      This
      Note and the other Loan Documents represent the final agreement between the
      parties and may not be contradicted by evidence of prior, contemporaneous or
      subsequent oral agreements of the parties. There are no unwritten oral
      agreements between the parties.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    ARBITRATION.
      Upon
      demand of any party hereto, whether made before or after institution of any
      judicial proceeding, any claim or controversy arising out of or relating to
      the
      Loan Documents between parties hereto (a “Dispute”) shall be resolved by binding
      arbitration conducted under and governed by the Commercial Financial Disputes
      Arbitration Rules (the “Arbitration Rules”) of the American Arbitration
      Association (the “AAA”) and the Federal Arbitration Act. Disputes may include,
      without limitation, tort claims, counterclaims, a dispute as to whether a matter
      is subject to arbitration, or claims arising from documents executed in the
      future, but shall specifically exclude claims brought as or converted to class
      actions. A judgment upon the award may be entered in any court having
      jurisdiction. Notwithstanding the foregoing, this arbitration provision does
      not
      apply to disputes under or related to swap agreements. Special
      Rules.
      All
      arbitration hearings shall be conducted in the city named in the address of
      Bank
      first stated above. A hearing shall begin within 90 days of demand for
      arbitration and all hearings shall conclude within 120 days of demand for
      arbitration. These time limitations may not be extended unless a party shows
      cause for extension and then for no more than a total of 60 days. The expedited
      procedures sat forth in Rule 51 et
      seq.
      of the
      Arbitration Rules shall be applicable to claims of less than $1,000,000.00.
      Arbitrators shall be licensed attorneys selected from the Commercial Financial
      Dispute Arbitration Panel of the AAA. The parties do not waive applicable
      Federal or state substantive law except as provided herein. Preservation
      and Limitation of Remedies.
      Notwithstanding the preceding binding arbitration provisions, the parties agree
      to preserve, without diminution, certain remedies that any party may exercise
      before or after an arbitration proceeding is brought. The parties shall have
      the
      right to proceed in any court of proper jurisdiction or by self-help to exercise
      or prosecute the following remedies, as applicable: (i) all rights to foreclose
      against any real or personal property or other security by exercising a power
      of
      sale or under applicable law by judicial foreclosure including a proceeding
      to
      confirm the sale; (ii) all rights of self-help including peaceful occupation
      of
      real property and collection of rents, set-off, and peaceful possession of
      personal property; (iii) obtaining provisional or ancillary remedies including
      injunctive relief, sequestration, garnishment, attachment, appointment of
      receiver and filing an involuntary bankruptcy proceeding; and (iv) when
      applicable, a judgment by confession of judgment. Any claim or controversy
      with
      regard to any party’s entitlement to such remedies is a Dispute. Waiver
      of Jury Trial.
      THE
      PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE
      IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A
      DISPUTE AS TO WHICH BINDING ARBITRATION HAS BEEN DEMANDED.

    

    IN
      WITNESS WHEREOF,
      Borrower, on the day and year first above written, has caused this Note to
      be
      duly executed under seal.

     

    
      	 	 	 	 
	 	Smart
              Online,
              Inc.	 
	 
 	 
 	 
 	 
	 	By:  	/s/
              Nicholas A.
              Sinigaglia	(SEAL) 
	 	
              
Nicholas
              A. Sinigaglia, Chief Financial Officer	 

    

     

    Tracking#:
      201318

    CAT-Deal
      #794013 Facility ID 588018

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    MODIFICATION
      NUMBER ONE

    TO
      LOAN AGREEMENT

    

    Smart
      Online, Inc. 

    2530
      Meridian Parkway, 2nd Floor 

    Durham,
      North Carolina 27713 

    (Hereinafter
      referred to as “Borrower”)

    

    Wachovia
      Bank, National Association 

    Charlotte,
      North Carolina 28202 

    (Hereinafter
      referred to as “Bank”)

    

    THIS
      AGREEMENT
      is
      entered into as of January 24, 2007 by and between Bank and
      Borrower.

    

    RECITALS

    

    Bank
      is
      the holder of a Promissory Note executed and delivered by Borrower, dated of
      even date herewith, in the original principal amount of $2,500,000.00 (the
      “Note”); and certain other loan documents, including without limitation, a Loan
      Agreement, dated November 14, 2006 (the “Loan Agreement”);

    

    Borrower
      and Bank have agreed to modify the terms of the Loan Agreement.

    

    In
      consideration of Bank’s continued extension of credit and the agreements
      contained herein, the parties agree as follows:

    

    AGREEMENT

    

    ACKNOWLEDGMENT
      OF BALANCE,
      Borrower acknowledges that the most recent Commercial Loan Invoice sent to
      Borrower with respect to the Obligations under the Note is correct.

    

    MODIFICATIONS.

    

    The
      section entitled AVAILABILITY of the Loan Agreement is hereby deleted and the
      following is substituted in its place and stead:

    

    AVAILABILITY.
      With
      respect to the line of credit Promissory Note in the amount of $2,500,000.00,
      dated January 24 , 2007, notwithstanding anything to the contrary contained
      herein, the aggregate outstanding principal balance of Advances (as defined
      in
      the Note), plus the sum of (i) the aggregate amount available to be drawn under
      all letters of credit issued by Bank for the account of Borrower plus (ii)
      the
      aggregate amount of unreimbursed drawings under all letters of credit issued
      by
      Bank for the account of Borrower at any one time shall not exceed
      $2,500,000.00.

    

    ACKNOWLEDGMENTS
      AND REPRESENTATIONS.
      Borrower acknowledges and represents that the Note and other Loan Documents,
      as
      amended hereby, are in full force and effect without any defense, counterclaim,
      right or claim of set-off; that, after giving effect to this Agreement, no
      default or event that with the passage of time or giving of notice would
      constitute a default under the Loan Documents has occurred, all representations
      and warranties contained in the Loan Documents are true and correct as of this
      date, all necessary action to authorize the execution and delivery of this
      Agreement has been taken; and this Agreement is a modification of an existing
      obligation and is not a novation.

    

    COLLATERAL.
      Borrower acknowledges and confirms that there have been no changes in the
      ownership of any collateral pledged to secure the Obligations (the “Collateral”)
      since the Collateral was originally pledged; Borrower acknowledges and confirms
      that the Bank has existing, valid first priority security interests and liens
      in
      the Collateral; and that such security interests and liens shall secure
      Borrower’s Obligations, including any modification of the Note or Loan
      Agreement, if any, and all future modifications, extensions, renewals and/or
      replacements of the Loan Documents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    MISCELLANEOUS.
      This
      Agreement shall be construed in accordance with and governed by the laws of
      the
      applicable state as originally provided in the Loan Documents, without reference
      to that state’s conflicts of law principles. This Agreement and the other Loan
      Documents constitute the sole agreement of the parties with respect to the
      subject matter thereof and supersede all oral negotiations and prior writings
      with respect to the subject matter thereof. No amendment of this Agreement,
      and
      no waiver of any one or more of the provisions hereof shall be effective unless
      set forth in writing and signed by the parties hereto. The illegality,
      unenforceability or inconsistency of any provision of this Agreement shall
      not
      in any way affect or impair the legality, enforceability or consistency of
      the
      remaining provisions of this Agreement or the other Loan Documents. This
      Agreement and the other Loan Documents are intended to be consistent. However,
      in the event of any inconsistencies among this Agreement and any of the Loan
      Documents, the terms of this Agreement, and then the Note, shall control. This
      Agreement may be executed in any number of counterparts and by the different
      parties on separate counterparts. Each such counterpart shall be deemed an
      original, but all such counterparts shall together constitute one and the same
      agreement. Terms used in this Agreement which are capitalized and not otherwise
      defined herein shall have the meanings ascribed to such terms in the Note.
      LIMITATION
      ON LIABILITY; WAIVER OP PUNITIVE DAMAGES.
      EACH OF
      THE PARTIES HERETO, INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY
      JUDICIAL, MEDIATION OR ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY
      BETWEEN OR AMONG THEM THAT MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH
      THIS
      AGREEMENT. THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR
      AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT
      SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT,
      SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES. EACH
      OF
      THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY
      DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY
      SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY
      ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE. Final
      Agreement.
      This
      Agreement and the other Loan Documents represent the final agreement between
      the
      parties and may not be contradicted by evidence of prior, contemporaneous or
      subsequent oral agreements of the parties. There are no unwritten oral
      agreements between the parties.

    

    ARBITRATION.
      Upon
      demand of any party hereto, whether made before or after institution of any
      judicial proceeding, any claim or controversy arising out of or relating to
      the
      Loan Documents between parties hereto (a “Dispute”) shall be resolved by binding
      arbitration conducted under and governed by the Commercial Financial Disputes
      Arbitration Rules (the “Arbitration Rules”) of the American Arbitration
      Association (the “AAA”) and the Federal Arbitration Act. Disputes may include,
      without limitation, tort claims, counterclaims, a dispute as to whether a matter
      is subject to arbitration, or claims arising from documents executed in the
      future, but shall specifically exclude claims brought as or converted to class
      actions. A judgment upon the award may be entered in any court having
      jurisdiction. Notwithstanding the foregoing, this arbitration provision does
      not
      apply to disputes under or related to swap agreements. Special
      Rules.
      All
      arbitration hearings shall be conducted in the city named in the address of
      Bank
      first stated above. A hearing shall begin within 90 days of demand for
      arbitration and all hearings shall conclude within 120 days of demand for
      arbitration. These time limitations may not be extended unless a party shows
      cause for extension and then for no more than a total of 60 days. The expedited
      procedures set forth in Rule 51 et
      seq.
      of the
      Arbitration Rules shall be applicable to claims of less than $1,000,000.00.
      Arbitrators shall be licensed attorneys selected from the Commercial Financial
      Dispute Arbitration Panel of the AAA. The parties do not waive applicable
      Federal or state substantive law except as provided herein. Preservation
      and Limitation of Remedies.
      Notwithstanding the preceding binding arbitration provisions, the parties agree
      to preserve, without diminution, certain remedies that any party may exercise
      before or after an arbitration proceeding is brought. The parties shall have
      the
      right to proceed in any court of proper jurisdiction or by self-help to exercise
      or prosecute the following remedies, as applicable: (i) all rights to foreclose
      against any real or personal property or other security by exercising a power
      of
      sale or under applicable law by judicial foreclosure including a proceeding
      to
      confirm the sale; (ii) all rights of self-help including peaceful occupation
      of
      real property and collection of rents, set-off, and peaceful possession of
      personal property; (iii) obtaining provisional or ancillary remedies including
      injunctive relief, sequestration, garnishment, attachment, appointment of
      receiver and filing an involuntary bankruptcy proceeding; and (iv) when
      applicable, a judgment by confession of judgment. Any claim or controversy
      with
      regard to any party’s entitlement to such remedies is a Dispute. Waiver
      of Jury Trial.
      THE
      PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE
      IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A
      DISPUTE AS TO WHICH BINDING ARBITRATION HAS BEEN DEMANDED.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      the
      undersigned have duly signed and sealed this Agreement the day and year first
      above written.

     

    
      	 	 	 	 
	 	Smart
              Online,
              Inc.	 
	 
 	 
 	 
 	 
	 	By:  	/s/
              Nicholas A.
              Sinigaglia	(SEAL) 
	 	
              
Nicholas
              A. Sinigaglia, Chief Financial Officer	 

    

     

    
      	 	 	 	 
	 	Wachovia
              Bank,
              National Association	 
	 
 	 
 	 
 	 
	 	By:  	/s/
              Kevin
              Harewood	(SEAL) 
	 	
              
Kevin
              Harewood, Vice President	 

    

    

    Tracking
      #: 201318

    CAT
      -
      Deal # 794013 Facility ID 588018

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    SECURITY
      AGREEMENT

    

    January
      24, 2007 

    

    Smart
      Online, Inc. 

    2530
      Meridian Parkway, 2nd Floor 

    Durham,
      North Carolina 27713 

    (Hereinafter
      referred to as “Debtor”)

    

    Wachovia
      Bank, National Association 

    Charlotte,
      North Carolina 28202 

    (Hereinafter
      referred to as “Bank”)

    

    This
      Security Agreement amends and restates that certain Security Agreement dated
      November 16, 2006.

    

    For
      value
      received and to secure payment and performance of any and all obligations of
      Debtor (also referred to herein as “Borrower”) to Bank however created, arising
      or evidenced, whether direct or indirect, absolute or contingent, now existing
      or hereafter arising or acquired, including swap agreements (as defined in
      11
      U.S.C. § 101, as in effect from time to time), future advances, and all costs
      and expenses incurred by Bank to obtain, preserve, perfect and enforce the
      security interest granted herein and to maintain, preserve and collect the
      property subject to the security interest (collectively, “Obligations”), Debtor
      hereby grants to Bank a continuing security interest in and lien upon, and
      for
      security purposes assigns and transfers to Bank until all of the Obligations
      are
      repaid in full, the following described property, whether now owned or hereafter
      acquired, and any additions, replacements, accessions, or substitutions thereof
      and all cash and non-cash proceeds and products thereof (collectively,
“Collateral”):

    

    Debtor’s
      deposit account with Bank and affiliates of Bank, including deposit account
      number 2000033033877 (“Assigned Deposits”).

    

    Irrevocable
      Standby Letter of Credit #G-007125 in the amount of $2,500,000.00 issued by
      HSBC
      Private Bank (Suisse) SA.

    

    Debtor
      hereby represents and agrees that:

    

    OWNERSHIP.
      Debtor
      owns the Collateral. The Collateral is free and clear of all liens, security
      interests, and claims except those previously reported in writing to and
      approved by Bank, and Debtor will keep the Collateral free and clear from all
      liens, security interests and claims, other than those granted to or approved
      by
      Bank. Until all of the Obligations are repaid in full, Bank shall have the
      entire right and interest in and to the Assigned Deposits. By executing this
      Security Agreement, Debtor has divested itself of all control over the Assigned
      Deposits and Bank is entitled to and does possess sole dominion and control
      over
      the Assigned Deposits and is entitled to receive the benefits accruing with
      respect thereto. Debtor surrenders all authority or right to withdraw, collect,
      receive the benefits of, or otherwise assign or encumber the Assigned Deposits,
      and authorizes Bank (and each affiliate and branch office of Bank or such
      affiliate) to treat Bank as the sole and exclusive owner of the Assigned
      Deposits. Upon the maturity of the Assigned Deposits, other than Assigned
      Deposits at Bank that automatically roll over at maturity, Bank shall reinvest
      the Assigned Deposits in an investment of Bank’s choice. Bank shall have no
      liability to Debtor for any loss incurred in connection with or arising out
      of
      any such reinvestment except for loss resulting from Bank’s gross negligence or
      willful misconduct. The assignment evidenced by this Security Agreement is
      a
      continuing one and is irrevocable so long as any of the Obligations are
      outstanding or the Bank shall have any obligations under the Loan Documents
      and
      shall terminate only upon payment or other satisfaction in full of all
      Obligations or Bank’s acknowledgment in writing that this Security Agreement has
      been terminated. Upon termination of this Security Agreement, and to the extent
      the Assigned Deposits have not been applied in satisfaction of the Obligations,
      Bank shall reassign the Assigned
      Deposits to Debtor and return any passbooks, certificates, and other documents
      in Bank’s possession at Debtor’s request.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    NAME
      AND OFFICES; JURISDICTION OF ORGANIZATION.
      The
      name and address of Debtor appearing at the beginning of this Agreement are
      Debtor’s exact legal name and the address of its chief executive office. There
      has been no change in the name of Debtor, or the name under which Debtor
      conducts business, within the five years preceding the date hereof except as
      previously reported in writing to Bank. Debtor has not moved its chief executive
      office within the five years preceding the date hereof except as previously
      reported in writing to Bank. Debtor is organized under the laws of the State
      of
      Delaware and has not changed the jurisdiction of its organization within the
      five years preceding the date hereof except as previously reported in writing
      to
      Bank.

    

    TITLE/TAXES.
      Debtor
      has good and marketable title to the Collateral and will warrant and defend
      same
      against all claims. Debtor will not transfer, sell, or lease Collateral (except
      as permitted herein). Debtor agrees to pay promptly all taxes and assessments
      upon or for the use of Collateral and on this Security Agreement. At its option,
      Bank may discharge taxes, liens, security interests or other encumbrances at
      any
      time levied or placed on Collateral. Debtor agrees to reimburse Bank, on demand,
      for any such payment made by Bank. Any amounts so paid shall be added to the
      Obligations.

    

    WAIVERS.
      Debtor
      agrees not to assert against Bank as a defense (legal or equitable), as a
      set-off, as a counterclaim, or otherwise, any claims Debtor may have against
      any
      seller or lessor that provided personal property or services relating to any
      part of the Collateral or against any other party liable to Bank for all or
      any
      part of the Obligations. Debtor waives all exemptions and homestead rights
      with
      regard to the Collateral. Debtor waives any and all rights to any bond or
      security which might be required by applicable law prior to the exercise of
      any
      of Bank’s remedies against any Collateral. All rights of Bank and security
      interests hereunder, and all obligations of Debtor hereunder, shall be absolute
      and unconditional, not discharged or impaired irrespective of (and regardless
      of
      whether Debtor receives any notice of): (i) any lack of validity or
      enforceability of any Loan Document; (ii) any change in the time, manner or
      place of payment or performance, or in any term, of all or any of the
      Obligations or the Loan Documents or any other amendment or waiver of or any
      consent to any departure from any Loan Document; or (iii) any exchange,
      insufficiency, unenforceability, enforcement, release, impairment or
      non-perfection of any collateral, or any release of or modifications to or
      insufficiency, unenforceability or enforcement of the obligations of any
      guarantor or other obligor. To the extent permitted by law. Debtor hereby waives
      any rights under any valuation, stay, appraisement, extension or redemption
      laws
      now existing or which may hereafter exist and which, but for this provision,
      might be applicable to any sale or disposition of the Collateral by Bank; and
      any other circumstance which might otherwise constitute a defense available
      to,
      or a discharge of any party with respect to the Obligations.

    

    NOTIFICATIONS;
      LOCATION OF COLLATERAL.
      Debtor
      will notify Bank in writing at least 30 days prior to any change in: (i)
      Debtor’s chief place of business and/or residence; (ii) Debtor’s name or
      identity; (iii) Debtor’s corporate/organizational structure; or (iv) the
      jurisdiction in which Debtor is organized. In addition, Debtor shall promptly
      notify Bank of any claims or alleged claims of any other person or entity to
      the
      Collateral or the institution of any litigation, arbitration, governmental
      investigation or administrative proceedings against or affecting the Collateral.
      Debtor will keep Collateral at the location(s) previously provided to Bank
      until
      such time as Bank provides written advance consent to a change of location.
      Debtor will bear the cost of preparing and filing any documents necessary to
      protect Bank’s liens.

    

    COLLATERAL
      CONDITION AND LAWFUL USE.
      Debtor
      represents that the Collateral is in good repair and condition and that Debtor
      shall use reasonable care to prevent Collateral from being damaged or
      depreciating, normal wear and tear excepted. Debtor shall immediately notify
      Bank of any material loss or damage to Collateral. Debtor shall not permit
      any
      item of Collateral to become a fixture to real estate or an accession to other
      personal property unless such property is also Collateral hereunder. Debtor
      represents it is in compliance in all respects with all laws, rules and
      regulations applicable to the Collateral and its properties, operations,
      business, and finances.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    RISK
      OF LOSS AND INSURANCE.
      Debtor
      shall bear all risk of loss with respect to the Collateral. The injury to or
      loss of Collateral, either partial or total, shall not release Debtor from
      payment or other performance hereof. Debtor agrees to obtain and keep in force
      property insurance on the Collateral with a Lender’s Loss Payable Endorsement in
      favor of Bank and commercial general liability insurance naming Bank as
      Additional Insured and such other insurance as Bank may require from time to
      time. Such insurance is to be in form and amounts satisfactory to Bank and
      issued by reputable insurance carriers satisfactory to Bank with a Best
      Insurance Report Key Rating of at least “A-”. All such policies shall provide to
      Bank a minimum of 30 days written notice of cancellation. Debtor shall furnish
      to Bank such policies, or other evidence of such policies satisfactory to Bank.
      If Debtor fails to obtain or maintain in force such insurance or fails to
      furnish such evidence, Bank is authorized, but not obligated, to purchase any
      or
      all insurance or “Single Interest Insurance” protecting such interest as Bank
      deems appropriate against such risks and for such coverage and for such amounts,
      including either the loan amount or value of the Collateral, all at its
      discretion, and at Debtor’s expense. In such event, Debtor agrees to reimburse
      Bank for the cost of such insurance and Bank may add such cost to the
      Obligations. Debtor shall bear the risk of loss to the extent of any deficiency
      in the effective insurance coverage with respect to loss or damage to any of
      the
      Collateral. Debtor hereby assigns to Bank the proceeds of all property insurance
      covering the Collateral up to the amount of the Obligations and directs any
      insurer to make payments directly to Bank. Debtor hereby appoints Bank its
      attorney-in-fact, which appointment shall be irrevocable and coupled with an
      interest for so long as Obligations are unpaid, to file proof of loss and/or
      any
      other forms required to collect from any insurer any amount due from any damage
      or destruction of Collateral, to agree to and bind Debtor as to the amount
      of
      said recovery, to designate payee(s) of such recovery, to grant releases to
      insurer, to grant subrogation rights to any insurer, and to endorse any
      settlement check or draft. Debtor agrees not to exercise any of the foregoing
      powers granted to Bank without Bank’s prior written consent.

    

    FINANCING
      STATEMENTS, CERTIFICATES OF TITLE, POWER OF ATTORNEY.
      No
      financing statement (other than any filed or approved by Bank) covering any
      Collateral is on file in any public filing office. Debtor authorizes the filing
      of one or more financing statements covering the Collateral in form satisfactory
      to Bank, and without Debtor’s signature where authorized by law, agrees to
      deliver certificates of title on which Bank’s lien has been indicated covering
      any Collateral subject to a certificate of title statute, and will pay all
      costs
      and expenses of filing or applying for the same or of filing this Security
      Agreement in all public filing offices, where filing is deemed by Bank to be
      desirable. Debtor hereby constitutes and appoints Bank the true and lawful
      attorney of Debtor with full power of substitution to take any and all
      appropriate action and to execute any and all documents, instruments or
      applications that may be necessary or desirable to accomplish the purpose and
      carry out the terms of this Security Agreement, including, without limitation,
      to ask, demand, collect, receive, receipt for, sue for, compound and give
      acquaintance for any and all amounts which may be or become due and payable
      under the Assigned Deposits; to execute any and all withdrawal requests,
      receipts or other orders for the payment of money drawn on the Assigned Deposits
      and to endorse the name of Bank on all instruments given in payment or in
      partial payment therefor. The foregoing power of attorney is coupled with an
      interest and shall be irrevocable until all of the Obligations have been paid
      in
      full. Neither Bank nor anyone acting on its behalf shall be liable for acts,
      omissions, errors in judgment, or mistakes in fact in such capacity as
      attorney-in-fact. Debtor ratifies all acts of Bank as attorney-in-fact. Debtor
      agrees to take such other actions, at Debtor’s expense, as might be requested
      for the perfection, continuation and assignment, in whole or in part, of the
      security interests granted herein and to assure and preserve Bank’s intended
      priority position. If certificates, passbooks, or other documentation or
      evidence is/are issued or outstanding as to any of the Collateral, Debtor will
      cause the security interests of Bank to be properly protected, including
      perfection by notation thereon or delivery thereof to Bank.

    

    LANDLORD/MORTGAGEE
      WAIVERS.
      Debtor
      shall cause each mortgagee of real property owned by Debtor and each landlord
      of
      real property leased by Debtor to execute and deliver instruments satisfactory
      in form and substance to Bank by which such mortgagee or landlord subordinates
      its rights, if any, in the Collateral.

    

    INSTRUMENTS,
      CHATTEL PAPER, DOCUMENTS.
      Any
      Collateral that is, or is evidenced by, instruments, chattel paper or negotiable
      documents will be properly assigned to and the originals of any such Collateral
      in tangible form deposited with and held by Bank, unless Bank shall hereafter
      otherwise direct or consent in writing. Bank may, without notice, before or
      after maturity of the Obligations, exercise any or all rights of collection,
      conversion, or exchange and other similar rights, privileges and options
      pertaining to such Collateral, but shall have no duty to do so.

    

    WITHDRAWAL
      OF ASSIGNED DEPOSITS.
      Debtor
      shall not be permitted to withdraw funds from or exercise any authority of
      any
      kind with respect to the Assigned Deposits specifically identified above by
      account number. Bank shall have the exclusive authority to withdraw, or direct
      the withdrawal of, funds from said specifically identified Assigned Deposits.
      So
      long as this Agreement remains in effect, the Assigned Deposits will be titled
      as directed by Bank.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    COLLATERAL
      DUTIES.
      Bank
      shall have no custodial or ministerial duties to perform with respect to
      Collateral pledged except as set forth herein; and by way of explanation and
      not
      by way of limitation, Bank shall incur no liability for any of the following:
      (i) loss or depreciation of Collateral (unless caused by its willful misconduct
      or gross negligence), (ii) failure to present any paper for payment or protest,
      to protest or give notice of nonpayment, or any other notice with respect to
      any
      paper or Collateral. Bank’s sole duty with respect to the custody, safekeeping
      and physical preservation of any certificate, passbook, or other documentation
      evidencing the Assigned Deposits in its possession shall be to deal with it
      in
      the same manner as it deals with similar property for its own account. Neither
      Bank, nor any of its employees or agents shall be liable for failure to demand,
      collect, or realize upon any of the Assigned Deposits or for any delay in doing
      so.

    

    TRANSFER
      OF COLLATERAL.
      Bank
      may assign its rights in Collateral or any part thereof to any assignee who
      shall thereupon become vested with all the powers and rights herein given to
      Bank with respect to the property so transferred and delivered, and Bank shall
      thereafter be forever relieved and fully discharged from any liability with
      respect to such property so transferred, but with respect to any property not
      so
      transferred, Bank shall retain all rights and powers hereby given.

    

    INSPECTION,
      BOOKS AND RECORDS.
      Debtor
      will at all times keep accurate and complete records covering each item of
      Collateral, including the proceeds therefrom. Bank, or any of its agents, shall
      have the right, at intervals to be determined by Bank and without hindrance
      or
      delay, at Debtor’s expense, to inspect, audit, and examine the Collateral during
      normal business hours and to make copies of and extracts from the books,
      records, journals, orders, receipts, correspondence and other data relating
      to
      Collateral, Debtor’s business or any other transaction between the parties
      hereto. Debtor will at its expense furnish Bank copies thereof upon request.
      For
      the further security of Bank, it is agreed that Bank has and is hereby granted
      a
      security interest in all books and records of Debtor pertaining to the
      Collateral.

    

    COMPLIANCE
      WITH LAW.
      Debtor
      will comply with all federal, state and local laws and regulations, applicable
      to it, including without limitation, laws and regulations relating to the
      environment, labor or economic sanctions, in the creation, use, operation,
      manufacture and storage of the Collateral and the conduct of its
      business.

    

    REGULATION
      U.
      None of
      the proceeds of the credit secured hereby shall be used directly or indirectly
      for the purpose of purchasing or carrying any margin stock in violation of
      any
      of the provisions of Regulation U of the Board of Governors of the Federal
      Reserve System (“Regulation U”), or for the purpose of reducing or retiring any
      indebtedness which was originally incurred to purchase or carry margin stock
      or
      for any other purchase which might render the Loan a “Purpose Credit” within the
      meaning of Regulation U.

    

    CROSS
      COLLATERALIZATION LIMITATION.
      As to
      any other existing or future consumer purpose loan made by Bank to Debtor,
      within the meaning of the Federal Consumer Credit Protection Act, Bank expressly
      waives any security interest granted herein in Collateral that Debtor uses
      as a
      principal dwelling and household goods.

    

    ATTORNEYS’
      FEES AND OTHER COSTS OF COLLECTION.
      Debtor
      shall pay all of Bank’s reasonable expenses actually incurred in enforcing this
      Security Agreement and in preserving and liquidating Collateral, including
      but
      not limited to, reasonable arbitration, paralegals’, attorneys’ and experts’
fees and expenses, whether incurred with or without the commencement of a suit,
      trial, arbitration, or administrative proceeding, or in any appellate or
      bankruptcy proceeding.

    

    DEFAULT.
      If any
      of the following occurs, a default (“Default”) under this Security Agreement
      shall exist: Loan
      Document Default.
      A
      default under any Loan Document. Collateral
      Loss or Destruction.
      Any
      loss, theft, substantial damage, or destruction of Collateral not fully covered
      by insurance, or as to which insurance proceeds are not remitted to Bank within
      30 days of the loss. Collateral
      Sale, Lease or Encumbrance.
      Any
      sale, lease, or encumbrance of any Collateral not specifically permitted herein
      without prior written consent of Bank. Levy,
      Seizure or Attachment.
      The
      making of any levy, seizure, or attachment on or of Collateral which is not
      removed within 10 days. Unauthorized
      Collection of Collateral.
      Any
      attempt to collect, cash in or otherwise recover deposits that are Collateral.
      Unauthorized
      Termination.
      Any
      attempt to terminate, revoke, rescind, modify, or violate the terms of this
      Security Agreement without the prior written consent of Bank.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    REMEDIES
      ON DEFAULT (INCLUDING POWER OF SALE).
      If a
      Default occurs Bank shall have all the rights and remedies of a secured party
      under the Uniform Commercial Code. Without limitation thereto, Bank shall have
      the following rights and remedies: (i) to take immediate possession of
      Collateral, without notice or resort to legal process, and for such purpose,
      to
      enter upon any premises on which Collateral or any part thereof may be situated
      and to remove the same therefrom, or, at its option, to render Collateral
      unusable or dispose of said Collateral on Debtor’s premises; (ii) to require
      Debtor to assemble the Collateral and make it available to Bank at a place
      to be
      designated by Bank; (iii) to exercise its or its affiliate’s right of set-off or
      Bank lien as to any monies of Debtor deposited in deposit accounts and
      investment accounts of any nature maintained by Debtor with Bank or affiliates
      of Bank, without advance notice, regardless of whether such accounts are general
      or special; (iv) to dispose of Collateral, as a unit or in parcels, separately
      or with any real property interests also securing the Obligations, in any county
      or place to be selected by Bank, at either private or public sale (at which
      public sale Bank may be the purchaser) with or without having the Collateral
      physically present at said sale; (v) to apply toward and set-off against and
      apply to the then unpaid balance of the Obligations the Assigned Deposits
      (accelerated to maturity if necessary), even if effecting such set-off results
      in a loss or reduction of interest or the imposition of a penalty applicable
      to
      the early withdrawal of time deposits; (vi) to receive any interest or payments
      in respect of the Assigned Deposits and apply such amounts and the Assigned
      Deposits to the Obligations in such manner as Bank, in its sole discretion,
      may
      determine.

    

    Any
      notice of sale, disposition or other action by Bank required by law and sent
      to
      Debtor at Debtor’s address shown above, or at such other address of Debtor as
      may from time to time be shown on the records of Bank, at least 5 days prior
      to
      such action, shall constitute reasonable notice to Debtor. Notice shall be
      deemed given or sent when mailed postage prepaid to Debtor’s address as provided
      herein. Bank shall be entitled to apply the proceeds of any sale or other
      disposition of the Collateral, and the payments received by Bank with respect
      to
      any of the Collateral, to Obligations in such order and manner as Bank may
      determine. Collateral that is subject to rapid declines in value and is
      customarily sold in recognized markets may be disposed of by Bank in a
      recognized market for such collateral without providing notice of sale. Debtor
      waives any and all requirements that the Bank sell or dispose of all or any
      part
      of the Collateral at any particular time, regardless of whether Debtor has
      requested such sale or disposition.

    

    REMEDIES
      ARE CUMULATIVE.
      No
      failure on the part of Bank to exercise, and no delay in exercising, any right,
      power or remedy hereunder shall operate as a waiver thereof, nor shall any
      single or partial exercise by Bank or any right, power or remedy hereunder
      preclude any other or further exercise thereof or the exercise of any right,
      power or remedy. The remedies herein provided are cumulative and are not
      exclusive of any remedies provided by law, in equity, or in other Loan
      Documents.

    

    INDEMNIFICATION.
      Debtor
      shall protect, indemnify and save harmless Bank from and against all losses,
      liabilities, obligations, claims, damages, penalties, fines, causes of action,
      costs and expenses (including, without limitation, reasonable attorneys’ fees
      and expenses) (collectively, “Damages”) imposed upon, incurred by or asserted or
      assessed against Bank on account of or in connection with (i) the Loan Documents
      or any failure or alleged failure of Debtor to comply with any of the terms
      of,
      or the inaccuracy or breach of any representation in, the Loan Documents, (ii)
      the Collateral or any claim of loss or damage to the Collateral or any injury
      or
      claim of injury to, or death of, any person or property that may be occasioned
      by any cause whatsoever pertaining to the Collateral or the use, occupancy
      or
      operation thereof, (iii) any failure or alleged failure of Debtor to comply
      with
      any law, rule or regulation applicable to it or to the Collateral or the use,
      occupancy or operation of the Collateral (including, without limitation, the
      failure to pay any taxes, fees or other charges), (iv) any Damages whatsoever
      by
      reason of any alleged action, obligation or undertaking of Bank relating in
      any
      way to or any matter contemplated by the Loan Documents, or (v) any claim for
      brokerage fees or such other commissions relating to the Collateral or any
      other
      Obligations; provided that such indemnity shall be effective only to the extent
      of any Damages that may be sustained by Bank in excess of any net proceeds
      received by it from any insurance of Debtor (other than self-insurance) with
      respect to such Damages. Nothing contained herein shall require Debtor to
      indemnify Bank for any Damages resulting from Bank’s gross negligence or its
      willful misconduct. The indemnity provided for herein shall survive payment
      of
      the Obligations and shall extend to the officers, directors, employees and
      duly
      authorized agents of Bank. In the event Bank incurs any Damages arising out
      of
      or in any way relating to the transaction contemplated by the Loan Documents
      (including any of the matters referred to in this section), the amounts of
      such
      Damages shall be added to the Obligations, shall bear interest, to the extent
      permitted by law, at the interest rate borne by the Obligations from the date
      incurred until paid and shall be payable on demand.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    MISCELLANEOUS.
      (i)
Amendments
      and Waivers.
      No
      waiver, amendment or modification of any provision of this Security Agreement
      shall be valid unless in writing and signed by Debtor and an officer of Bank.
      No
      waiver by Bank of any Default shall operate as a waiver of any other Default
      or
      of the same Default on a future occasion. (ii) Assignment.
      All
      rights of Bank hereunder are freely assignable, in whole or in part, and shall
      inure to the benefit of and be enforceable by Bank, its successors, assigns
      and
      affiliates. Debtor shall not assign its rights and interest hereunder without
      the prior written consent of Bank, and any attempt by Debtor to assign without
      Bank’s prior written consent is null and void. Any assignment shall not release
      Debtor from the Obligations. This Security Agreement shall be binding upon
      Debtor, and the heirs, personal representatives, successors, and assigns of
      Debtor. (iii) Applicable
      Law; Conflict Between Documents.
      This
      Security Agreement shall be governed by and construed under the law of the
      jurisdiction named in the address of the Bank shown on the first page hereof
      without regard to that Jurisdiction’s conflict of laws principles, except to the
      extent that the UCC requires the application of the law of a different
      jurisdiction. If any terms of this Security Agreement conflict with the terms
      of
      any commitment letter or loan proposal, the terms of this Security Agreement
      shall control. (iv) Jurisdiction.
      Debtor
      irrevocably agrees to non-exclusive personal jurisdiction in the state
      identified as the Jurisdiction above. (v) Severability.
      If any
      provision of this Security Agreement shall be prohibited by or invalid under
      applicable law, such provision shall be ineffective but only to the extent
      of
      such prohibition or invalidity, without invalidating the remainder of such
      provision or the remaining provisions of this Security Agreement. (vi)
Notices.
      Any
      notices to Debtor shall be sufficiently given, if in writing and mailed or
      delivered to the address of Debtor shown above or such other address as provided
      hereunder; and to Bank, if in writing and mailed or delivered to Wachovia Bank,
      National Association, Mail Code VA7628, P. O. Box 13327, Roanoke, VA 24040
      or
      Wachovia Bank, National Association, Mail Code VA7628, 10 South Jefferson
      Street, Roanoke, VA 24011 or such other address as Bank may specify in writing
      from time to time. Notices to Bank must include the mail code. In the event
      that
      Debtor changes Debtor’s mailing address at any time prior to the date the
      Obligations are paid in full, Debtor agrees to promptly give written notice
      of
      said change of address by registered or certified mail, return receipt
      requested, all charges prepaid. (vii) Captions.
      The
      captions contained herein are inserted for convenience only and shall not affect
      the meaning or interpretation of this Security Agreement or any provision
      hereof. The use of the plural shall also mean the singular, and vice versa.
      (viii) Joint
      and Several Liability.
      If more
      than one party has signed this Security Agreement, such parties are jointly
      and
      severally obligated hereunder. (ix) Binding
      Contract.
      Debtor
      by execution and Bank by acceptance of this Security Agreement, agree that
      each
      party is bound by all terms and provisions of this Security Agreement. (xii)
      Final
      Agreement.
      This
      Agreement and the other Loan Documents represent the final agreement between
      the
      parties and may not be contradicted by evidence of prior, contemporaneous or
      subsequent oral agreements of the parties. There are no unwritten oral
      agreements between the parties.

    

    DEFINITIONS.
      Loan
      Documents.
      The
      term “Loan Documents” refers to all documents, including this Agreement, whether
      now or hereafter existing, executed in connection with or related to the
      Obligations, and may include, without limitation and whether executed by Debtor
      or others, commitment letters that survive closing, loan agreements, promissory
      notes, guaranty agreements, deposit or other similar agreements, other security
      agreements, letters of credit and applications for letters of credit, security
      instruments, financing statements, mortgage instruments, any renewals or
      modifications, whenever any of the foregoing are executed, but does not include
      swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time).
UCC.
“UCC”
      means the Uniform Commercial Code as presently and hereafter enacted in the
      Jurisdiction. Terms
      defined in the UCC.
      Any
      term used in this Agreement and in any financing statement filed in connection
      herewith which is defined in the UCC and not otherwise defined in this Agreement
      or any other Loan Document has the meaning given to the term in the
      UCC.

    

    IN
      WITNESS WHEREOF,
      Debtor,
      on the day and year first written above, has caused this Security Agreement
      to
      be duly executed under seal.

     

    
      	 	 	 	 
	 	Smart
              Online,
              Inc.	 
	 
 	 
 	 
 	 
	 	By:  	/s/
              Nicholas A.
              Sinigaglia	(SEAL) 
	 	
              
Nicholas
              A. Sinigaglia, Chief Financial Officer	 

    

     

    Tracking:
      201318

    CAT-Deal
      #794013 Facility ID 588018

     

    
      
        
        

      

      
        6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00132-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00132-of-00352.parquet"}]]