Document:

Exhibit 10.42

    
      
        

      

    

    Exhibit
      10.42

     

    BUSINESS
      LOAN AGREEMENT

     

    THIS
      BUSINESS LOAN AGREEMENT
      (“Loan
      Agreement” or “Agreement”) is made on October 17, 2006 by and between Smart
      Commerce, Inc. (“Borrower”), a corporation organized under the laws of the State
      of Delaware, whose chief executive office is located at 2530 Meridian Parkway,
      Durham, North Carolina 27773, and Fifth Third Bank, a Michigan banking
      corporation (“Bank”), whose address is 1000 Town Center, Suite 1500, Southfield,
      Michigan 48075.

     

    Section
      1   Loans
      and Financial Accommodations.
      Bank
      has made or shall make in reliance hereon commercial loan(s) and/or other
      financial accommodations to Borrower, including the loans referred to below.
      All
      such loans and/or other financial accommodations to Borrower, whether referred
      to below or previously or hereafter made in reliance on this Loan Agreement,
      are
      herein referred to as the “Loan” or “Loans.” This Loan Agreement amends and
      restates, without satisfaction or novation, all previous loan agreements
      executed by the parties with respect to the Loans described herein. If any
      conflict shall exist between the Loan Documents and this Loan Agreement, the
      provisions contained in this Loan Agreement shall govern and supersede the
      Loan
      Documents.

     

    1.1   Loans.
      The
      following Loan(s) shall be governed by the terms and conditions in this Loan
      Agreement:

     

     

    
      	 	TYPE OF LOAN 	LOAN DESCRIPTION	 
	 	Term Loan 	Referred to in Section 1.2 below	 

    

     

    1.2   Term
      Loan.
      Bank
      hereby extends to Borrower a term loan (the “Term Loan”) in the principal amount
      stated in a Promissory Note (Term Loan) of even date herewith and all renewals
      and amendments thereof (the “Term Loan Note”). The Term Loan herein extended
      shall be subject to the terms and conditions of the Term Loan Note. The Term
      Loan shall be payable and shall bear interest as set forth in the Term Loan
      Note. This Loan Agreement and the Term Loan Note are of equal materiality and
      shall each be construed in such manner as to give full force and effect to
      all
      provisions of both documents.

     

    1.3   General
      Reliance.
      Borrower
      acknowledges and agrees that in making, extending or renewing the Loans, Bank
      is
      relying on the representations, covenants and agreements of Borrower contained
      in this Loan Agreement and the Loans shall be subject to the terms and
      provisions hereof.

     

    Section
      2   Covenants.
      From the
      date hereof until all amounts owing under the Loans are paid in full and all
      obligations under the Loans are fully paid, performed and satisfied, Borrower
      covenants and agrees, unless otherwise consented to in writing by Bank, it
      will:

     

    2.1   Reporting
      Requirements:

     

    2.1.1   CPA
      Financial Statements/Projections.
      Within
      one hundred twenty (120) days after the end of each fiscal year, furnish to
      Bank
      (a) Borrower’s and Guarantor’s (i.e.,
      Smart
      Online, Inc., a Delaware corporation (“Guarantor”)) (consolidated or
      consolidating) audited financial statements for the fiscal period then ended,
      prepared by Borrower’s and Guarantor’s current auditor or such other certified
      public accountant reasonably acceptable to Bank, and (b) Borrower’s Projections,
      in form reasonably acceptable to Bank, for the fiscal year subsequent to the
      audited financial statements then being delivered.

     

    2.1.2   Quarterly
      Compliance Report.
      Except
      with respect to 2.1.2(b) below, within forty-five (45) days after the end of
      each fiscal quarter, furnish to Bank a compliance report, in form reasonably
      acceptable to Bank, certified to by Borrower’s chief executive officer, that
      Borrower was in compliance with the provisions of this Agreement as of the
      end
      of such fiscal quarter, including detailed calculations, substantiation and
      certification (a) that Borrower is in compliance with all applicable financial
      covenants, and (b) commencing June 30, 2007, and as of every December 31 and
      June 30 thereafter (each such date is an “Income Determination Date”) of a
      comparison of results from the prior (i) six (6) month period with respect
      to the June 30, 2007 Income Determination Date, and (ii) twelve (12)
      month period with respect to each Income Determination Date thereafter, of
      operations together with a comparison to the Projections for such period, and
      establishing whether Borrower’s Operating Income (Loss) equals or exceeds
      seventy percent (70%) of the Projected Income for the period.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    2.1.3   Quarterly
      Financial Statements.
      Within
      forty-five (45) days after the end of each fiscal quarter, furnish to Bank
      Borrower’s financial statements for the fiscal period then ended, prepared by
      management.

     

    2.1.4   Field
      Audits.
      Allow
      Bank’s internal auditors or other representatives, at Borrower’s sole expense,
      to conduct a field audit of Borrower’s books, records and properties at such
      times and to such extent as Bank in its sole discretion may determine, during
      normal business hours, and upon reasonable notice Bank agrees that it will
      not
      request such audit more than twice in any fiscal year, provided further that
      the
      foregoing limitations shall not apply if an Event of Default
      exists.

     

    2.1.5   Other.
      Promptly
      furnish to Bank such other information and reports concerning Borrower’s
      business, assets and financial condition as Bank shall reasonably request,
      and
      permit Bank to inspect, confirm and copy Borrower’s books and records at any
      time during Borrower’s normal business hours.

     

    2.2   Financial
      Requirements:

     

    2.2.1   Debt
      Service Coverage Ratio.
      As of
      the end of each fiscal quarter commencing with the fiscal quarter ending
      December 31, 2006, maintain a Debt Service Coverage Ratio of not less than
      1.50
      to 1.00 based upon the quarterly and audited financial statements herein
      required delivered on a timely basis.

     

    2.3   Negative
      Covenants:

     

    2.3.1   Indebtedness.
      Neither
      directly or indirectly, create, assume, incur nor have outstanding any
      indebtedness, obligations or liabilities, secured or unsecured (including
      purchase money indebtedness), nor become liable, whether as endorser, guarantor,
      surety or otherwise, for any debt or obligation of any other person or entity,
      except (a) indebtedness and obligations to Bank, (b) endorsement for
      collection or deposit of any commercial paper secured in the ordinary course
      of
      business, (c) obligations of Borrower for taxes, assessments, municipal or
      other governmental charges, (d) obligations of Borrower for accounts
      payable (other than for money borrowed) and unsecured indebtedness to trade
      creditors incurred in the ordinary course of business, (e) obligations
      existing on the date hereof which are disclosed on the financial statements
      furnished to Bank, (f) indebtedness subordinated to all of Borrower’s now
      or hereafter existing indebtedness to Bank on terms reasonably acceptable to
      Bank, (g) indebtedness secured by Permitted Liens (hereinafter defined),
      and (h) extensions, refinancings, modifications, amendments, and
      restatements of any items of indebtedness (a) through (g) above, provided that
      the principal amount, interest rate or the amortized/payment schedule thereof
      is
      not increased or the terms thereof are not modified to impose materially more
      burdensome terms on Borrower (collectively, “Permitted
      Indebtedness”).

     

    
      
        
        

      

      
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    2.3.2   Encumbrances.
      Neither
      directly or indirectly, create, assume, incur nor suffer nor permit to exist
      any
      mortgage, security interest or other lien or charge of any kind or character
      upon any asset of Borrower, whether owned at the date hereof or hereafter
      acquired except (a)  liens for taxes, assessments or other governmental
      charges not yet due or which are being contested in good faith by appropriate
      proceedings in such a manner as not to make the property forfeitable,
      (b) liens or charges incidental to the conduct of its business or the
      ownership of its property and assets (including, but not limited to, statutory
      liens securing claims or demands of materialmen, mechanics, carriers,
      warehousemen, landlords and other similar persons) which were not incurred
      in
      connection with the borrowing of money or the obtaining of an advance or credit,
      and which do not in the aggregate materially detract from the value of its
      property or assets or materially impair the use thereof in the operation of
      its
      business, (c) liens arising out of judgments or awards against Borrower
      with respect to which it shall concurrently therewith be prosecuting a timely
      appeal or proceeding for review and with respect to which it shall have secured
      a stay of execution pending such appeal or proceedings for review,
      (d) pledges or deposits to secure obligations under worker’s compensation
      laws or similar legislation, (e) liens existing on the date hereof and
      disclosed to Bank in writing, (f) liens granted to Bank, (g) leases or
      subleases of real property and leases, subleases, licenses and sublicenses
      (including licenses of intellectual property granted to third parties) granted
      in the ordinary course of business, (h) purchase money liens on equipment
      acquired or held by Borrower incurred for financing the acquisition of equipment
      or existing on equipment when acquired so long as such lien is confined to
      the
      property and improvements and proceeds of the equipment, and (i) liens
      incurred in the extension, renewal or refinancing of Permitted Indebtedness
      secured by liens described in (a) through (h), provided any extension, renewal
      or replacement lien must be limited to the property encumbered by the existing
      lien and the principal amount, interest rate or amortization/payment schedule
      of
      the Permitted Indebtedness may not increase (collectively, “Permitted
      Liens”).

     

    2.4   General:

     

    2.4.1   Insurance.
      Maintain
      adequate insurance with responsible companies in such amounts and against such
      risks and hazards as are normally insured against by similar businesses. All
      insurance policies shall be in such amounts, upon such terms, in form, and
      carried with such insurers, as are reasonably acceptable to Bank. Borrower
      shall
      provide evidence reasonably satisfactory to Bank of all insurance coverage
      and
      that the policies are in full force and effect. If Borrower fails to maintain
      insurance as provided in this Loan Agreement, in addition to all other remedies,
      Bank may obtain such insurance as Bank deems necessary or prudent, in Bank’s
      sole discretion, without obligation to do so, and all amounts so expended by
      Bank shall be payable on demand, at Bank’s option. Upon Borrower’s failure to
      promptly provide evidence of such insurance as Bank has required, Bank may
      assume Borrower does not have the required coverage. Upon Borrower’s failure to
      obtain or maintain any insurance coverage required under this Loan Agreement,
      Bank may, in addition to its other rights, assess a service charge for obtaining
      and servicing any such insurance coverage(s).

     

    2.4.2   Taxes.
      Pay when
      due all taxes, assessments, fees and similar charges lawfully assessed upon
      Borrower and/or its property, except to the extent being contested in good
      faith.

     

    2.4.3   Existence.
      Preserve
      its existence in good standing and continue to conduct and operate its business
      substantially as presently conducted in accordance with all applicable laws
      and
      regulations.

     

    2.4.4   Indebtedness.
      Pay its
      indebtedness and obligations when due under normal terms.

     

    2.4.5   Notices
      of Adverse Events.
      Promptly
      inform Bank of the occurrence of any Event of Default or of any event (including
      without limitation any pending or threatened litigation or other proceedings
      before any governmental body or agency) which could have a material adverse
      effect upon Borrower’s business, properties, financial condition or ability to
      comply with its obligations under the Loans.

     

    2.4.6   Books
      and Records.
      Maintain
      proper books of record and account.

     

    2.4.7   Employee
      Benefit Plans. At
      all
      times meet the minimum funding requirements of ERISA concerning all of
      Borrower’s employee benefit plans subject to ERISA. At no time shall Borrower
      (a) allow any event to occur or condition concerning any employee benefit plan
      subject to ERISA which might constitute grounds for termination of the plan
      or
      for the appointment of a trustee to administer the plan; or (b) allow any
      employee benefit plan to be the subject of any voluntary or involuntary
      termination proceeding.

     

    
      
        
        

      

      
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    2.4.8   Environmental
      Compliance and Indemnification.
      Strictly
      observe and promptly comply in all material respects with all Environmental
      Laws
      applicable to Borrower’s business. Borrower agrees to notify Bank, not later
      than ten (10) days after Borrower’s receipt, of any letter, notice, summons,
      complaint, citation, investigation, or other communication issued by or on
      behalf of any governmental agency or department, or private person, regarding
      any complaint or alleged violation of any Environmental Law. Borrower agrees
      to
      indemnify and hold Bank harmless from any and all losses, costs, suits, harm,
      liability, and damages of any and every kind, including reasonable attorney
      fees, which result from or are related to any violation(s) by Borrower of any
      Environmental Laws, and agrees that such indemnity shall survive and continue
      whether or not the Loans have been paid at the time Bank incurs any loss, cost,
      suit, harm, liability or damage hereby indemnified against. Borrower agrees
      to
      allow Bank or its agent access to its properties to confirm Borrower’s
      compliance in all material respects with all Environmental Laws and Bank may
      at
      any time, at Borrower’s sole cost and expense, hire, or require Borrower to
      hire, an environmental consultant to inspect, test and audit Borrower’s
      properties and advise Bank concerning Borrower’s compliance with Environmental
      Laws.

     

    2.4.9   General
      Compliance with Law.
      At all
      times operate Borrower’s business in compliance in all material respects with
      all applicable Federal, State, and local laws, ordinances and regulations,
      including, without limitation, the Americans with Disabilities Act of 1990,
      and
      Borrower shall refrain from and prevent Borrower’s partners, owners, directors,
      officers, employees and agents from engaging in any civil or criminal activity
      proscribed by law which would result in a material adverse effect on Borrower’s
      business.

     

    2.4.10  Change
      of Legal Status.
      Not
      change its name, its organizational identification number, if it has one, its
      type of organization, its jurisdiction of organization or other legal
      structure.

     

    2.4.11  Purpose
      Credit.
      Not use
      nor allow any affiliate of Borrower to use any portion of the proceeds of the
      Loans, in violation of any applicable law, rule or regulation, including, but
      not by way of limitation, Regulation U of the Federal Reserve Board (12 CFR
      221)
      nor have any letter of credit issued by Bank, either directly or indirectly,
      for
      the purpose of purchasing any securities underwritten by Fifth Third Bankcorp,
      or any affiliate of Bank.

     

    2.4.12  Transfer;
      Merger.
      Neither
      directly or indirectly, merge, consolidate, sell, transfer, license, lease,
      encumber nor otherwise dispose of all or any substantial part of its assets
      except for Permitted Liens, Permitted Indebtedness, licenses of its software
      in
      the ordinary course of business, sales of goods in the ordinary course of
      business, or the sale of worn-out or obsolete equipment, nor sell or discount
      (with or without recourse) any of its promissory notes, chattel paper, payment
      intangibles or accounts outside the ordinary course of business.

     

    2.4.13  Lock
      Box Provisions.
      Borrower
      shall establish a lock box relationship with Bank (“Lock Box”) and agrees to
      immediately direct all of its account debtors (as defined in the UCC) to mail
      all payments due on Borrower’s accounts (as defined in the UCC) other than
      payments being made by electronic funds transfer) to the post office box
      specified by Bank for the Lock Box. Borrower agrees not to solicit any payments
      from any account debtor other than through the Lock Box and if Borrower, or
      any
      officer, director, employee or agent of Borrower receives any payments from
      any
      account debtor, Borrower shall immediately forward any such payment(s) to the
      Lock Box.

     

    2.4.13.1 Upon
      Bank’s receipt of Lock Box payments by account debtors, Bank shall deposit such
      payments into a depository trust account which Bank shall establish with
      Borrower as beneficial owner (“Cash Collateral Account”). Borrower also agrees
      to direct all account debtors who make payment to Borrower by electronic funds
      transfer to make all such electronic funds transfer directly into the Cash
      Collateral Account. Any other payments made by Borrower on the Loan shall not
      affect Borrower’s continuing Lock Box obligations under this
      section.

     

    
      
        
        

      

      
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    2.4.13.2 Borrower
      agrees to pay all costs, fees and expenses arising under the Lock Box and agrees
      to save and hold harmless, defend and indemnify Bank against all claims,
      actions, proceedings, demands, losses, outlays, damages, or expense, including
      reasonable attorney fees and disbursements, of every kind and nature, as arise
      or are made against Bank resulting from Bank’s performance of these Lock Box
      Provisions, except losses which directly or indirectly result from Bank’s
      negligence or willful misconduct. Borrower further releases and agrees to hold
      Bank harmless from any Borrower loss, damage, claim or expense from any delay
      in
      Bank’s collection or processing of any account payments in Bank’s possession or
      other items collected for Borrower, from whatever cause, including, without
      limitation, loss, damage or delay resulting from the negligence of any third
      party, except Borrower losses which directly or indirectly result from Bank’s
      negligence or willful misconduct. In no event shall Bank have any liability
      of
      incidental or consequential damages.

     

    2.4.13.3. Funds
      in
      the Cash Collateral Account shall be credited weekly to Borrower’s Account No.
      __________, upon receipt, of good collected U.S. funds for each item deposited
      therein. So long as no Event of Default is continuing hereunder, Borrower shall
      be entitled to use, transfer, credit or otherwise dispose of the funds so
      credited for any purpose not inconsistent with the terms of this Agreement.
      Borrower hereby grants to Bank a security interest in, and possession of, the
      Cash Collateral Account and all sums therein at any time, and further grants
      Bank, if any fact, event, act or omission exists which in the sole discretion
      of
      Bank would be an Event of Default if notice and/or the lapse of time, if any
      is
      otherwise applicable, were given and/or expired, the right, exercisable without
      notice, of (x) set-off against funds in the Cash Collateral Account, and/or
      (y)
      a right to restrict the use, transfer, credit, or other disposition of the
      funds
      in the Cash Collateral Account to or for the account or benefit of
      Borrower.

     

    2.4.14  No
      Secured Creditors.
      Borrower
      shall have no other secured creditors, or creditors with claims that by their
      terms are convertible to secured claims.

     

    Section
      3     Representations
      and Warranties.
      Borrower represents and warrants to Bank, all of which representations and
      warranties shall be continuing until all of Borrower’s obligations under the
      Loans are fully performed:

     

    3.1   Existence
      and Authority.
      Borrower
      is duly organized, validly existing and in good standing. Borrower has the
      legal
      power and authority and is duly authorized to: (a) execute and perform the
      Loan
      Documents and such documents constitute Borrower’s valid and binding legal
      obligation enforceable in accordance with their terms, (b) borrow money in
      accordance with the terms of this Loan Agreement, (c) grant to Bank mortgages
      and security interests, if any, as provided in the Loan Documents executed
      in
      conjunction with the Loans, and (d) do any and all other things required of
      it
      hereunder. Borrower has the legal power and authority to carry out its business
      as now being conducted and is qualified to do business in the State of Michigan
      and in every jurisdiction where the nature of its business or the property
      owned
      or operated by it makes such qualification necessary, except for such
      qualifications the failure of which to obtain would not result in a material
      adverse effect on Borrower’s business.

     

    3.2   Financial
      Information.
      All
      financial statements which have been or shall hereafter be furnished to Bank
      pursuant to this Agreement have been and/or shall be prepared in accordance
      with
      GAAP applied on a consistent basis throughout the periods covered thereby,
      except as noted therein, and fairly present the financial condition of Borrower
      and results of operations on the bases therein stated, as of the respective
      dates thereof (any accounting terms used in this Loan Agreement which are not
      specifically defined herein shall have the meanings customarily given them
      in
      accordance with GAAP). There has been no material adverse change in Borrower’s
      business, assets or financial condition since the date of Borrower’s latest
      financial statements provided to Bank.

     

    
      
        
        

      

      
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    3.3   Title
      and Encumbrances.
      Borrower
      owns all of its assets free of liens or encumbrances, subject only to liens
      in
      favor of, or approved in writing by, Bank, liens for taxes not delinquent or
      being contested in good faith and liens created in connection with worker’s
      disability compensation, unemployment insurance and social security, or to
      secure the performance of bids, tenders or contracts, leases, statutory
      obligations, surety and appeal bonds, other obligations of like nature made
      in
      the ordinary course of business, and Permitted Liens.

     

    3.4   No
      Litigation.
      There is
      not pending or, to the best of the knowledge of Borrower, threatened, any
      litigation, proceeding or governmental investigation which could materially
      and
      adversely affect the business, assets or financial conditions of Borrower or
      its
      ability to perform its obligations under the Loans.

     

    3.5   Other
      Defaults.
      Borrower
      is not in default in the repayment of any indebtedness for money borrowed by
      it
      nor has there occurred any event which, with or without notice or the passage
      of
      time or both, would constitute a default by Borrower under any agreement or
      instrument pertaining to any material indebtedness for borrowed
      money.

     

    3.6   Reports
      and Returns.
      Borrower
      has filed all reports and tax returns required by governmental authority to
      be
      filed by it prior to the date hereof and Borrower has received no notice that
      such reports or returns have been rejected, declared insufficient, or otherwise
      challenged by such governmental authority.

     

    3.7   Employee
      Benefit Plans.
      Borrower has not incurred any material accumulated funding deficiency within
      the
      meaning of ERISA, and has not incurred any material liability to the PBGC in
      connection with any employee benefit plan established or maintained by Borrower,
      and no reportable event or prohibited transaction, as defined in ERISA, has
      occurred with respect to such plan(s).

     

    3.8   Environmental
      Compliance.
      Borrower is in full compliance with all Environmental Laws applicable to
      Borrower.

     

    Section
      4     Security.
      Bank may
      have required the execution of mortgage(s), guarant(ies), security agreement(s)
      or other document(s) to secure or relating to the Loans or this Loan Agreement.
      Reference is hereby made to all such document(s), if any, executed in
      conjunction with the Loans for additional terms relating to the Loans, the
      security and any guaranties given for the Loans and additional terms and
      conditions under which the Loans mature, may be accelerated or prepaid. Borrower
      shall execute and deliver to Bank any and all documents (including financing
      statements) as Bank may reasonably require to insure the perfection and priority
      of its liens and security interests in all collateral given for the Loans,
      if
      any.

        

    Section
      5     Events
      of Default.
      Borrower, shall be in default under this Loan Agreement upon the occurrence
      of
      any of the following Events of Default provided Bank has given Borrower written
      notice thereof (by US Mail, expedited mail, or facsimile) (except with respect
      to Section 5.2, 5.5, 5.6, 5.7, 5.8, and 5.10 for which no notice of cure period
      shall be applicable) and the same shall not have been cured within ten (10)
      calendar days from the date of receipt of such notice by Borrower (“Notice of
      Cure”), provided such Notice of Cure, as provided for in this Loan Agreement,
      shall not be cumulative with any other provision regarding time, notice and/or
      cure in any of the other Loan Documents or other agreements:

     

    5.1   Nonpayment
      of Obligations.
      Any
      amount due and owing on the Loans or any fees due Bank hereunder, any expenses
      incurred by Bank hereunder or any and all other liabilities and obligations
      of
      Borrower to Bank, howsoever created, arising or evidenced, and howsoever owned,
      held or acquired, whether now or hereafter existing, whether now due or to
      become due, direct or indirect, absolute or contingent, and whether several,
      joint or joint and several, whether by its terms or as otherwise provided
      herein, is not paid when due.

     

    
      
        
        

      

      
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    5.2   Misrepresentation.
      Any
      written warranty, representation, certificate or statement in this Loan
      Agreement, the Loan Documents or any other agreement with Bank shall be false,
      inaccurate or misleading in any respect (in the case of any warranty,
      representation, certificate or statement containing any materiality
      qualifications) or in any material respect (in the case of any warranty,
      representation, certificate or statement without materiality qualifications)
      when made or at any time, in each case as of the date made, or if any financial
      statements or compliance reports now or hereafter furnished to Bank by or on
      behalf of any Borrower shall prove to be false, inaccurate or misleading in
      any
      material respect.

     

    5.3   Nonperformance.
      Any
      failure to perform or default in the performance of any covenant, condition
      or
      agreement contained in this Loan Agreement, or in the other Loan Documents,
      all
      of which covenants, conditions and agreements contained therein are hereby
      incorporated in this Loan Agreement by express reference.

     

    5.4   Default
      on Other Obligations.
      Any
      default in the payment of principal, interest or any other sum for any other
      material obligation of Borrower (as reasonably determined by Bank and provided
      that the consequences of such default would cause a material adverse change
      in
      the financial condition of Borrower) beyond any period of grace provided with
      respect thereto or in the performance of any other term, condition or covenant
      contained in any material agreement (including, but not limited to, any capital
      or operating lease or any agreement in connection with the deferred purchase
      price of property) under which any such material obligation is created, the
      effect of which default is to cause or permit the holder of such material
      obligation (or the other party to such other agreement) to cause such material
      obligation to become due prior to its stated maturity or terminate such other
      material agreement.

     

    5.5   Assignment
      for Creditors.
      Any
      Borrower makes an assignment for the benefit of creditors, fails to pay, or
      admits in writing its inability to pay its debts as they mature; or if a trustee
      of any substantial part of the assets of any Borrower is applied for or
      appointed, and in the case of such trustee being appointed in a proceeding
      brought against such Borrower, Borrower, by any action or failure to act
      indicates its approval of, consent to, or acquiescence in such appointment
      and
      such appointment is not vacated, stayed on appeal or otherwise shall not have
      ceased to continue in effect within thirty (30) days after the date of such
      appointment.

     

    5.6   Bankruptcy.
      Any
      proceeding involving any Borrower, is commenced by or against such Borrower
      under any bankruptcy, reorganization, arrangement, insolvency, readjustment
      of
      debt, dissolution or liquidation law or statute of the federal government or
      any
      state government, and in the case of any such proceeding being instituted
      against such Borrower, (i) such Borrower, by any action or failure to act,
      indicates its approval of, consent to or acquiescence therein, or (ii) an order
      shall be entered approving the petition in such proceedings and such order
      is
      not vacated, stayed on appeal or otherwise shall not have ceased to continue
      in
      effect within thirty (30) days after the entry thereof.

     

    5.7   Judgments.
      The
      entry of any judgment, decree, levy, attachment, garnishment or other process,
      or the filing of any judgment lien against any Borrower which is not fully
      covered by insurance, and
      such
      judgment or other process shall not have been, within thirty (30) days from
      the
      entry thereof, (i) bonded over to the satisfaction of Bank and appealed, (ii)
      vacated, or (iii) discharged.

     

    5.8   Change
      in Control.
      Any
      sale, conveyance, assignment or other transfer, directly or indirectly, of
      any
      ownership interest of Borrower, which results in any change in the identity
      of
      the individuals or entities previously in Control of Borrower or the grant
      of a
      security interest in any ownership interest of any person or entity, directly
      or
      indirectly Controlling Borrower, which could result in a change in the identity
      of the individuals or entities previously in Control of Borrower.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    5.9   Collateral
      Impairment.
      The
      entry of any judgment, decree, levy, attachment, garnishment or other process,
      or the filing of any lien against, any collateral securing any of the Loans
      and
      such judgment or other process shall not have been, within thirty (30) days
      from
      the entry thereof, (i) bonded over to the satisfaction of Bank and appealed,
      (ii) vacated, or (iii) discharged, or the loss, theft, destruction, seizure
      or
      forfeiture, or the occurrence of any material deterioration or impairment of
      the
      collateral (taken as a whole) securing any of the Loans or any material decline
      or depreciation (other than customary depreciation for such collateral) in
      the
      value or market price thereof (whether actual or reasonably anticipated), which
      causes the collateral (taken as a whole) securing any of the Loans, in the
      sole
      and reasonable opinion of Bank acting in good faith, to become unsatisfactory
      as
      to value or character, or which causes Bank to reasonably believe that it is
      insecure and that the likelihood for repayment of the Loans is or will soon
      be
      impaired, time being of the essence. The cause of such deterioration,
      impairment, decline or depreciation shall include, but is not limited to, the
      failure by Borrower to do any act deemed reasonably necessary by Bank to
      preserve and maintain the value and collectability of any collateral securing
      any of the Loans.

     

    5.10        
      Guaranty.
      Any
      guarantor of the Loans or of any other obligation of Borrower to Bank shall
      contest the validity of the guaranty.

     

    5.11        
      Material
      Adverse Event.
      The
      occurrence of any material adverse event which causes a change in the financial
      condition of any Borrower, or which would have a material adverse effect on
      the
      business of any Borrower.

     

    5.12        
      Material
      Adverse Financial Change.
      The
      determination by Bank that a material adverse change has occurred in the
      financial condition of any Borrower from the condition set forth in the most
      recent financial statement of such Borrower furnished to Bank, or from the
      financial condition of such Borrower most recently disclosed to Bank in any
      manner.

     

    Section
      6     Remedies
      Upon Event of Default.
      Upon
      the occurrence of any Event of Default described above, subject to any cure
      or
      grace period described above, commitment to lend under any of the Loans, if
      any,
      shall terminate and Bank may, without notice, declare the entire unpaid and
      outstanding principal balance of the Loans, or any of them, and all accrued
      interest, together with all other indebtedness of Borrower to Bank, to be due
      and payable in full forthwith, without presentment, demand or notice of any
      kind, all of which are hereby expressly waived by Borrower, and thereupon Bank
      shall have and may exercise any one or more of the rights and remedies provided
      herein or in any promissory note evidencing any Loan or in any mortgage,
      guaranty, security agreement or other document relating thereto or granted
      secured parties under the Michigan Uniform Commercial Code, including the right
      to take possession of and dispose of any collateral, or otherwise provided
      by
      applicable law, and to offset against the Loans any amount owing by Bank to
      Borrower.

     

    Section
      7     Cross-Collateralization/Cross-Default.
      Borrower agrees that any and all collateral securing the Loans shall be
      collateral for and shall secure all other indebtedness of Borrower to Bank,
      whether or not such indebtedness is related by class or kind to the Loans and
      whether or not contemplated by the parties at the time of executing each
      evidence of indebtedness. Any Borrower default under the terms of any
      indebtedness to Bank shall also constitute an Event of Default under this Loan
      Agreement and any Event of Default under this Loan Agreement shall be a default
      under any and all indebtedness of Borrower to Bank.

     

    Section
      8     Miscellaneous.

     

    8.1   No
      default shall be waived by Bank except in writing and a waiver of any default
      shall not be a waiver of any other default or of the same default on a future
      occasion. No single or partial exercise of any right, power or privilege
      hereunder, or any delay in the exercise hereof, shall preclude other or further
      exercise of the rights of the parties to this Loan Agreement. No forbearance
      on
      the part of Bank in enforcing any of its rights under this Loan Agreement,
      nor
      any renewal, extension or rearrangement of any payment or covenant to be made
      or
      performed by Borrower hereunder, shall constitute a waiver of any of the terms
      of this Loan Agreement or of any such right.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    8.2   This
      Loan
      Agreement shall be construed in accordance with the law of the State of
      Michigan. All covenants, agreements, representations and warranties made in
      connection with this Loan Agreement and any document contemplated hereby shall
      survive the borrowing hereunder and shall be deemed to have been relied upon
      by
      Bank. All statements contained in any certificate or other document delivered
      to
      Bank at any time by or on behalf of Borrower pursuant hereto shall constitute
      representations and warranties by Borrower.

     

    8.3   This
      Loan
      Agreement, the Loan Documents, and all other written agreements between Borrower
      and Bank, constitute the entire agreement of the parties and there are no other
      agreements, express or implied. This Loan Agreement supersedes any and all
      commitment letters or term sheets heretofore issued in connection with the
      Loans. None of the parties shall be bound by anything not expressed in writing,
      and neither this Loan Agreement, the Loan Documents, nor any other agreement
      can
      be modified except by a writing executed by Borrower and by Bank. This Loan
      Agreement shall inure to the benefit of and shall be binding upon the parties
      hereto and their respective heirs, personal representatives, successors and
      assigns; provided, however, that Borrower shall not assign or transfer its
      rights or obligations hereunder without the prior written consent of Bank,
      which
      consent shall not be unreasonably withheld.

     

    8.4   Borrower
      agrees that it will pay all costs and expenses in connection with enforcing
      Bank’s rights hereunder, including without limitation any and all reasonable
      fees and disbursements of legal counsel to Bank.

     

    8.5   If
      any
      provision of this Loan Agreement shall be held or deemed to be or shall, in
      fact, be inoperative or unenforceable as applied in any particular case in
      any
      or all jurisdictions, or in all cases because it conflicts with any other
      provision or provisions hereof or any constitution or statute or rule of public
      policy, or for any other reason, such circumstances shall not have the effect
      of
      rendering the provision in question inoperative or unenforceable in any other
      case or circumstance, or of rendering any other provision or provisions herein
      contained invalid, inoperative, or unenforceable to any extent whatever. This
      Loan Agreement may be executed in any number of counterparts, all of which
      taken
      together shall constitute one agreement, and any of the parties hereto may
      execute this Loan Agreement by signing any such counterpart.

     

    Section
      9     Definitions.

     

    9.1   Defined
      Terms.
      The
      following terms, if
      used in this Loan Agreement,
      shall
      have the following meanings:

     

    9.1.1   “Control”
or
      “Controlling”
means
      the possession of the power to direct, or cause the direction of, management
      and
      policies by contract or voting of securities.

     

    9.1.2   “Environmental
      Laws”
means
      all applicable laws, regulations, and rules of the United States of America,
      State of Michigan, local authorities and their respective agencies and
      departments which pertain to the environment, including but without limitation,
      the Clean Air Act (42 USC 7401 et seq.), Clean Water Act (33 USC 1251 et seq.),
      Resource Conservation and Recovery Act of 1976 (42 USC 6901 et seq.),
      Comprehensive Environmental Response, Compensation, and Liability Act of 1980
      (42 USC 9601 et seq.), Hazardous Materials Transportation Act (49 USC 1801
      et
      seq.), Solid Waste Disposal Act (42 USC 6901 et seq.), Toxic Substances Control
      Act (15 USC 2601 et seq.), Michigan Natural Resources and Environmental
      Protection Act (MCL 324.101 et seq.) as each of such laws have been or are
      hereafter amended, together with all rules and regulations promulgated by the
      U.S. Environmental Protection Agency or the Michigan Departments of Natural
      Resources or of Environmental Quality, and all additional environmental laws,
      rules, and regulations in effect on the date of this Loan Agreement and as
      are
      hereafter enacted.

     

    9.1.3   “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as amended, and any
      successor act.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    9.1.4   “Event
      of Default”
means
      any of the events described in Section 5 of this Loan Agreement.

     

    9.1.5   “GAAP”
means
      generally accepted accounting principles, using the accrual basis of accounting
      and consistently applied, subject to fiscal year-end adjustments with respect
      to
      any interim financial statements or reports.

     

    9.1.6   “Loan
      Documents”
means
      this Loan Agreement and all other loan documents executed in conjunction with
      the Loans.

     

    9.1.7   “Obligor”
means
      Borrower and any other party liable with respect to any Loan.

     

    9.1.8   “PBGC”
means
      the Pension Benefit Guaranty Corporation or any entity succeeding to the powers
      and functions thereof.

     

    9.1.9   “UCC”
      means
      the Uniform Commercial Code as in effect in the State of Michigan, as amended
      from time to time.

     

    9.2   Additional
      Defined Terms.
      The
      following additional terms, if used in this Loan Agreement, shall have the
      following meanings:

     

    9.2.1   “Accounts”
means
      accounts, as such term is defined in Article 9 of the Michigan Uniform
      Commercial Code.

     

    9.2.2   “Capital Expenditures”
means
      expenditures (including Capital Lease obligations which should be capitalized
      under GAAP) for the acquisition of fixed assets which are required to be
      capitalized under GAAP.

     

    9.2.3   “Capital Lease”
means
      a
      lease of any interest in any kind of property or asset, whether real, personal
      or mixed, or tangible or intangible, that is, or should be, in accordance with
      Financial Accounting Standards Board Statement No. 13, as amended from time
      to
      time, or, if such Statement is not then in effect, such statement of GAAP as
      may
      be applicable, recorded as a “capital lease” on a balance sheet prepared in
      accordance with GAAP.

     

    9.2.4   “Debt
      Service Coverage Ratio”
means
      the ratio of Net Cash Flow to Debt Service Expense, for the four (4) fiscal
      quarters preceding the end of the current fiscal period.

     

    9.2.5   “Debt Service Expense”
means
      Interest Charges, plus the current portion of any long-term debt, plus the
      portion attributable to principal of all payments on Capital Leases (computed
      at
      the implicit rate, if known, or ten percent (10%) per annum otherwise), computed
      in accordance with GAAP.

     

    9.2.6   “Depreciation”
means
      the total amounts added to depreciation, amortization, obsolescence, valuation
      and other proper reserves, as determined in accordance with GAAP.

     

    9.2.7   “EBITDA”
means,
      for any period, the sum for such period of: (a) Net Income, plus (b) Interest
      Charges, plus (c) federal and state income taxes as determined in accordance
      with GAAP, plus (d) Depreciation, plus (e) all other non-cash charges, minus
      (f)
      any items of gain which are extraordinary items as defined by GAAP, including,
      without limitation, that portion of net income arising out of the sale of assets
      outside of the ordinary course of business, minus (g) income or loss
      attributable to equity in any affiliated corporation or subsidiary, in each
      case
      to the extent included in determining Net Income for such period.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    9.2.8   “Interest Charges”
means,
      for any period, the sum of: (a) all interest, charges and related expenses
      payable with respect to that fiscal period to a lender in connection with
      borrowed money or the deferred purchase price of assets that are treated as
      interest in accordance with GAAP, plus (b) the portion of rent payable with
      respect to that fiscal period under Capital Leases that should be treated as
      interest in accordance with GAAP.

     

    9.2.9   “Liabilities”
means
      at all times all liabilities that would be shown as such on a balance sheet
      prepared in accordance with GAAP.

     

    9.2.10  “Net
      Cash Flow”
means
      EBITDA minus Capital Expenditures which are not financed by long term
      debt.

     

    9.2.11  “Net Income”
means,
      with respect to any period, the amount shown opposite the caption “Net Income”
or a similar caption on financial statements prepared in accordance with
      GAAP.

     

    9.2.12  “Projections”
      means,
      with respect to the operations of Borrower, projected financial statements
      for
      each fiscal year of Borrower, based upon reasonable assumptions and prepared
      in
      accordance with GAAP, and consistent with those previously submitted to Bank,
      all as reasonably approved by Bank, and a copy of which is attached
      hereto.

     

    9.2.13  “Projected
      Income”
      means
      Operating Income (Loss) as set forth in the Projections as of each, and
      corresponding to each, Income Determination Date for the rolling four (4)
      quarter period (except for the first Income Determination Date of June 30,
      2007,
      which shall be for the first two (2) quarter periods then ended).

     

    9.2.14  “Subordinated
      Debt”
means
      that portion of Liabilities, if any, which is subordinated to liabilities and
      obligations owing to Bank in a manner satisfactory to Bank, including, but
      not
      limited to, right and time of payment of principal and interest.

     

    9.2.15  “Tangible
      Assets”
means
      the total of all assets appearing on a balance sheet prepared in accordance
      with
      GAAP (with inventory being valued at the lower of cost or market), after
      deducting all proper reserves (including reserves for Depreciation, obsolescence
      and amortization) less the sum of (i) goodwill, patents, trademarks, prepaid
      expenses, deposits, deferred charges and other personal property which is
      classified as intangible property in accordance with GAAP, and (ii) any amounts
      due from shareholders, affiliates, officers or employees.

     

    9.2.16  “Tangible
      Net Worth”
means
      at any time the total of Tangible Assets less Liabilities plus Subordinated
      Debt.

     

    9.2.17  “Working
      Capital”
means
      the total of cash on hand, cash equivalents, marketable securities, accounts
      less adequate reserves for doubtful accounts, and readily salable inventory
      at
      the lower of cost or market value, with cost being determined on a “first-in,
      first-out” basis, less the total of all liabilities payable within one (1) year,
      all as determined in accordance with GAAP.

     

    Section
      10    Release
      and Waiver of Jury Trial.

     

    10.1       
      Release
      of Claims Against Bank.
      In
      consideration of Bank making the Loans described in this Loan Agreement,
      Borrower and all other Obligors do each hereby release and discharge Bank of
      and
      from any and all claims, harm, injury, and damage of any and every kind, known
      or unknown, legal or equitable, which any Obligor may have against Bank from
      the
      date of their respective first contact with Bank until the date of this Loan
      Agreement including, but not limited to, any claim arising from any reports
      (environmental reports, surveys, appraisals, etc.) prepared by any parties
      hired
      or recommended by Bank. Borrower and all other Obligors confirm to Bank that
      they have reviewed the effect of this release with competent legal counsel
      of
      their choice, or have been afforded the opportunity to do so, prior to execution
      of this Loan Agreement and the Loan Documents and do each acknowledge and agree
      that Bank is relying upon this release in extending the Loans to
      Borrower.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    10.2       
      Waiver
      of Jury Trial. BORROWER
      ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT
      IT MAY BE WAIVED. BORROWER, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY
      TO
      CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY AND FOR ITS
      BENEFIT WAIVES ANY RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY CLAIM, DISPUTE,
      CONFLICT, OR CONTENTION, IF ANY, AS MAY ARISE UNDER THIS LOAN AGREEMENT OR
      THE
      LOANS, AND AGREES THAT ANY LITIGATION BETWEEN THE PARTIES CONCERNING THIS LOAN
      AGREEMENT OR THE LOANS SHALL BE HEARD BY A COURT OF COMPETENT JURISDICTION
      SITTING WITHOUT A JURY.

     

    IN
      WITNESS WHEREOF, this Loan Agreement was executed and delivered by the
      undersigned on the date stated in the first paragraph above.

     

    
      	 	 	 
	 	Borrower:
	 	 
	 	Smart Commerce, Inc., a Delaware
              corporation
	 
 	 
 	 
 
	
            	By:  	/s/ Nicholas
              A. Sinigaglia
	 	
              
                

              

              Nicholas A. Sinigaglia

              Its: Chief Financial
                Officer

            

    

     

    
      	 	 	 
	 	
              Bank:

            
	 	 
	 	Fifth Third Bank, a Michigan
              banking
              corporation
	 
 	 
 	 
 
	
            	By:  	/s/ Tracy
              Beyersdorf
	 	
              
                

              

              Tracy Beyersdorf

              Its: Vice
                President

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 	 	
              Q1
                2007

            	 	
              Q2
                2007

            	 	
              Q3
                2007

            	 	
              Q4
                2007

            	 	
              Q1
                2008

            	 	
              Q2
                2008

            	 	
              Q3
                2008

            	 	
              Q4
                2008

            	 	
              Q1
                2009

            	 	
              Q2
                2009

            	 	
              Q3
                2009

            	 	
              Q4
                2009

            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Sales

            	 	 	 	 	
              $

            	
              904,508

            	 	
              $

            	
              459,072

            	 	
              $

            	
              922,726

            	 	
              $

            	
              964,875

            	 	
              $

            	
              1,008,949

            	 	
              $

            	
              527,518

            	 	
              $

            	
              1,039,444

            	 	
              $

            	
              1,086,924

            	 	
              $

            	
              1,136,573

            	 	
              $

            	
              713,094

            	 	
              $

            	
              1,170,926

            	 	
              $

            	
              1,224,412

            	 
	
              Consulting
                Revenue

            	 	 	 	 	
              $

            	
              452,254

            	 	
              $

            	
              459,072

            	 	
              $

            	
              465,992

            	 	
              $

            	
              473,017

            	 	
              $

            	
              480,148

            	 	
              $

            	
              487,386

            	 	
              $

            	
              494,733

            	 	
              $

            	
              502,192

            	 	
              $

            	
              509,762

            	 	
              $

            	
              517,447

            	 	
              $

            	
              525,248

            	 	
              $

            	
              533,166

            	 
	
              Total
                Revenues 

            	 	 	 	 	
              $

            	
              1,356,761

            	 	
              $

            	
              918,143

            	 	
              $

            	
              1,388,718

            	 	
              $

            	
              1,437,892

            	 	
              $

            	
              1,489,096

            	 	
              $

            	
              1,014,904

            	 	
              $

            	
              1,534,177

            	 	
              $

            	
              1,589,116

            	 	
              $

            	
              1,646,335

            	 	
              $

            	
              1,230,541

            	 	
              $

            	
              1,696,174

            	 	
              $

            	
              1,757,578

            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Total
                COS 

            	 	 	
              0.1

            	 	
              $

            	
              47,867

            	 	
              $

            	
              48,707

            	 	
              $

            	
              49,569

            	 	
              $

            	
              50,452

            	 	
              $

            	
              51,357

            	 	
              $

            	
              52,284

            	 	
              $

            	
              53,236

            	 	
              $

            	
              54,211

            	 	
              $

            	
              55,212

            	 	
              $

            	
              56,238

            	 	
              $

            	
              57,291

            	 	
              $

            	
              58,372

            	 
	
              Total
                G&A Expenses 

            	 	 	
              0.2

            	 	
              $

            	
              95,733

            	 	
              $

            	
              97,415

            	 	
              $

            	
              99,138

            	 	
              $

            	
              100,904

            	 	
              $

            	
              102,713

            	 	
              $

            	
              104,569

            	 	
              $

            	
              106,471

            	 	
              $

            	
              108,422

            	 	
              $

            	
              110,423

            	 	
              $

            	
              112,476

            	 	
              $

            	
              114,583

            	 	
              $

            	
              116,745

            	 
	
              Total
                S&M Expenses 

            	 	 	
              0.3

            	 	
              $

            	
              143,600

            	 	
              $

            	
              146,122

            	 	
              $

            	
              148,707

            	 	
              $

            	
              151,355

            	 	
              $

            	
              154,070

            	 	
              $

            	
              156,853

            	 	
              $

            	
              159,707

            	 	
              $

            	
              162,633

            	 	
              $

            	
              165,635

            	 	
              $

            	
              168,715

            	 	
              $

            	
              171,874

            	 	
              $

            	
              175,117

            	 
	
              Total
                Dev Expenses 

            	 	 	
              0.4

            	 	
              $

            	
              191,466

            	 	
              $

            	
              194,829

            	 	
              $

            	
              198,275

            	 	
              $

            	
              201,807

            	 	
              $

            	
              205,427

            	 	
              $

            	
              209,138

            	 	
              $

            	
              212,943

            	 	
              $

            	
              216,845

            	 	
              $

            	
              220,847

            	 	
              $

            	
              224,953

            	 	
              $

            	
              229,166

            	 	
              $

            	
              233,489

            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Total
                Expenses 

            	 	 	 	 	
              $

            	
              478,665

            	 	
              $

            	
              487,073

            	 	
              $

            	
              495,689

            	 	
              $

            	
              504,518

            	 	
              $

            	
              513,567

            	 	
              $

            	
              522,844

            	 	
              $

            	
              532,357

            	 	
              $

            	
              542,111

            	 	
              $

            	
              552,117

            	 	
              $

            	
              562,382

            	 	
              $

            	
              572,914

            	 	
              $

            	
              583,723

            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Operating
                Income (Loss) 

            	 	 	 	 	
              $

            	
              878,096

            	 	
              $

            	
              431,070

            	 	
              $

            	
              893,029

            	 	
              $

            	
              933,374

            	 	
              $

            	
              975,529

            	 	
              $

            	
              492,060

            	 	
              $

            	
              1,001,821

            	 	
              $

            	
              1,047,004

            	 	
              $

            	
              1,094,218

            	 	
              $

            	
              668,159

            	 	
              $

            	
              1,123,259

            	 	
              $

            	
              1,173,855

            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Total
                Non-Cash Expense 

            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Projected
                Cash Provided / (Burned) 

            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
       

      

      
        	
                Obligor
                  No. 

              	 	 
	
                Obligation
                  No.

              	 	 

      

       

      PROMISSORY
        NOTE

      Term
        Loan

      Prime-Based
        Rate

      Principal
        plus Interest Payments

       

      $1,800,000.00

       

      Due
        Date:
        November
        1, 2008                 Dated:
        October 17, 2006 

       

      FOR
        VALUE RECEIVED,
        the
        undersigned, Smart Commerce, Inc. (“Borrower”), promise(s) to pay to the order
        of Fifth Third Bank, a Michigan banking corporation (“Bank”), at 1000 Town
        Center, Suite 1500, Southfield, Michigan 48075, or at such other place as
        the
        Bank may designate in writing, the principal sum of One Million Eight Hundred
        Thousand Dollars ($1,800,000.00), plus interest as hereinafter provided on
        all
        amounts outstanding hereunder, all in lawful money of the United States of
        America. 

       

      Interest
        Rate.
        The
        principal amount outstanding under this Promissory Note (“Note”) shall bear
        interest on a basis of a year of 360 days for the actual number of days amounts
        are outstanding hereunder at a rate per annum (the “Effective Interest Rate”)
        equal to One and One-Half percentage points (1.5%) in excess of the Bank’s
        Prime Rate.
“Bank’s
        Prime Rate” means that rate of interest established and designated by the Bank,
        in its sole discretion, to be its prime rate as the same may be changed from
        time to time. It is understood and agreed by Borrower that the Effective
        Interest Rate shall be determined by reference to the “prime rate” so
        established and designated by the Bank and not by reference to the actual
        rate
        of interest charged by the Bank to any particular borrower or borrowers and
        shall automatically increase or decrease when and to the extent that the
        Bank’s
        Prime Rate shall have been increased or decreased.

       

      Payment.
        This
        Note shall be paid in consecutive monthly payments of principal in the amount
        of
        $75,000.00 each, plus interest accrued to the due date of each payment, such
        monthly payments beginning on November
        1, 2006
        and a
        final payment, which will be due on the Due Date, in an amount equal to the
        then
        unpaid principal and accrued interest. In
        the
        event that the period from the date of this Note to the first payment due
        date
        (“First Payment Period”) is more than one month, accrued interest for the number
        of days by which the First Payment Period exceeds one month will be, at the
        Bank’s option: (a) collected at closing, (b) payable in the month following the
        month in which this Note is signed, on the day of such month that the regular
        monthly payments provided for in this Note are due, or (c) payable with the
        first payment provided for in this Note.
        All
        payments required to be paid hereunder shall first be applied to costs and
        expenses required to be paid hereunder, then to accrued interest hereunder
        and
        the balance shall be applied against the principal. 

       

      Prepayment.
        Notwithstanding anything to the contrary contained herein, this Note may
        be
        prepaid, in full or in part, without the payment of any prepayment fee or
        penalty. All partial prepayments shall be applied against the principal balance
        outstanding under this Note; and no prepayments shall affect the obligation
        of
        the undersigned to continue the regular installments hereinbefore mentioned,
        until the entire unpaid principal and accrued interest has been paid in
        full.

       

      Interest
        Rate Limited to Maximum Provided by Law.
        Nothing
        herein contained, nor any transaction relating hereto, shall be construed
        or so
        operate as to require the Borrower to pay, or be charged, interest at a greater
        rate than the maximum allowed by the applicable law relating to this Note.
        Should any interest, or other charges, charged, paid or payable by the Borrower
        in connection with this Note, or any other document delivered in connection
        herewith, result in the charging, compensation, payment or earning of interest
        in excess of the maximum allowed by applicable law, then any and all such
        excess
        shall be and the same is hereby waived by the holder, and any and all such
        excess paid shall be automatically credited against and in reduction of the
        principal due under this Note. If the Bank shall reasonably determine that
        the
        interest rate (together with all other charges or payments related hereto
        that
        may be deemed interest) stipulated under this Note is, or may be, usurious
        or
        otherwise limited by law, the unpaid balance of this Note, with accrued interest
        at the highest rate permitted to be charged by stipulation in writing between
        the Bank and Borrower, at the option of the Bank, shall immediately become
        due
        and payable.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      Loan
        Agreement.
        This
        Note is the Term Loan Note referred to in the Business Loan Agreement dated
        ________, 2006 by and between Borrower and Bank, as the same may be amended from
        time to time (the “Loan Agreement”). Terms used herein and not otherwise defined
        shall have the meanings ascribed to such terms in the Loan
        Agreement.

       

      Events
        of Default.
        The
        Borrower, without notice or demand of any kind, shall be in default under
        this
        Note upon the occurrence of any of the following Events of Default: (a) if
        any
        amount due and owing on this Note or any fees due the Bank, any expenses
        incurred by the Bank hereunder or any and all other liabilities and obligations
        of the Borrower to the Bank, is not paid when due and Borrower fails to cure
        such payment default within the cure period provided in the Loan Agreement,
        or
        (b) if any other Event of Default, as defined in the Loan Agreement, shall
        occur.

       

      Remedies.
        Upon the
        occurrence of any Event of Default, the Bank may, without notice, declare
        the
        entire unpaid and outstanding principal balance hereunder and all accrued
        interest, together with all other indebtedness of Borrower to the Bank, to
        be
        due and payable in full forthwith, without presentment, demand or notice
        of any
        kind, all of which are hereby expressly waived by Borrower, and thereupon
        the
        Bank shall have and may exercise any one or more of the rights and remedies
        provided herein or in any loan agreement, mortgage, guaranty, security
        agreement, assignment or other document relating hereto. The remedies provided
        for hereunder are cumulative to the remedies for collection of the amounts
        owing
        hereunder as provided by law or by any loan agreement, mortgage, guaranty,
        security agreement or other document relating hereto. Nothing herein is
        intended, nor should it be construed, to preclude the Bank from pursuing
        any
        other remedy for the recovery of any other sum to which the Bank may be or
        become entitled for breach of the terms of this Note or any loan agreement,
        mortgage, guaranty, security agreement or other instrument relating
        hereto.

       

      Costs
        of Collection.
        Borrower
        agrees, in case of an Event of Default under the terms of this Note or under
        any
        loan agreement, security or other agreement executed in connection herewith,
        to
        pay all costs of the Bank for collection of this Note and all other liabilities
        of Borrower to the Bank and enforcement of its rights hereunder, including
        reasonable attorney fees and legal expenses including participation in
        bankruptcy proceedings.

       

      Default
        Rate of Interest.
        During
        any period(s) an Event of Default has occurred and is continuing, or after
        the
        Due Date, or after acceleration of maturity, the outstanding principal amount
        hereof shall bear interest at a rate equal to four percent (4.0%) per annum
        greater than the interest rate otherwise charged hereunder.

       

      Late
        Charges.
        If any
        required payment is not made within fifteen (15) days after the date it is
        due
        (other than any balloon payment of principal due on the Due Date), then,
        at the
        option of the Bank, a late charge in the amount of five percent (5.0%) of
        the
        payment so overdue may be charged.

       

      No
        Waiver of Default.
        Acceptance by the Bank of any payment in an amount less than the amount then
        due
        shall be deemed an acceptance on account only, and the failure to pay the
        entire
        amount then due shall be and continue to be an Event of Default. Upon any
        Event
        of Default, neither the failure of the Bank promptly to exercise its right
        to
        declare the outstanding principal and accrued unpaid interest hereunder to
        be
        immediately due and payable, nor the failure of the Bank to demand strict
        performance of any other obligation of the Borrower or any other person who
        may
        be liable hereunder shall constitute a waiver of any such rights, nor a waiver
        of such rights in connection with any future default on the part of the Borrower
        or any other person who may be liable hereunder.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      General.
        Borrower
        and all endorsers and guarantors hereof, if any, hereby jointly and severally
        waive presentment for payment, demand, notice of non-payment, notice of protest
        or protest of this Note, diligence in collection or bringing suit, and hereby
        consent to any and all extensions of time, renewals, waivers, or modifications
        that may be granted by the Bank with respect to payment or any other provisions
        of this Note, and to the release of any collateral or any part thereof, with
        or
        without substitution. The liability of the Borrower shall be absolute and
        unconditional, without regard to the liability of any other party hereto.
        This
        Note shall be deemed to have been executed in, and all rights and obligations
        hereunder shall be governed by, the laws of the State of Michigan.

       

      Other
        Documents. 

       

      The
        Borrower, Bank and/or others may also have signed other documents in conjunction
        herewith providing for security for this Note or other matters. Reference
        is
        hereby made to the foregoing documents for additional terms relating to the
        transaction giving rise to this Note, the security or support given for this
        Note and additional terms and conditions under which this Note matures, may
        be
        accelerated or prepaid.

       

      
        	 	 	 
	 	
                Borrower:

              
	 	 
	 	Smart
                Commerce, Inc., a Delaware corporation
	 
 	 
 	 
 
	
              	By:  	/s/ Nicholas
                A. Sinigaglia
	 	
                

              
	 	
                Nicholas
                  A. Sinigaglia

                
                  Its:
                    Chief Financial Officer

                

              

      

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

    

     

     

     

    
      GUARANTY

      All
        Indebtedness

       

      THIS
        GUARANTY
        is made
        on October 17, 2006 by Smart Online, Inc., a Delaware corporation (“Guarantor”),
        to and with Fifth Third Bank, a Michigan banking corporation (the “Bank”), whose
        address is 1000 Town Center, Suite 1500, Southfield, Michigan
        48075.

      

      RECITALS:

      

      A.  Smart
        Commerce, Inc. (“Borrower”), may from time to time request loans, advances or
        other financial accommodations from the Bank and the Bank may, in its
        discretion, honor such requests in whole or part and thereby Borrower may
        from
        time to time be indebted to the Bank.

       

      B.  The
        Bank
        is unwilling to make loans, advances or extend other financial accommodations
        to
        or otherwise do business with Borrower unless Guarantor unconditionally
        guarantees payment of all present and future indebtedness and obligations
        of
        Borrower to the Bank.

       

      C.  Guarantor
        will directly benefit from the Bank’s making of loans, advances or extending
        other financial accommodations to or otherwise doing business with
        Borrower.

       

      NOW,
        THEREFORE, in order to induce the Bank to make loans, advances or extend
        other
        financial accommodations to and otherwise do business with Borrower and for
        other good and valuable consideration, the receipt and sufficiency whereof
        are
        hereby acknowledged, Guarantor hereby covenants and agrees with the Bank
        as
        follows:

      

      1.    Guaranty.
        Guarantor hereby irrevocably and unconditionally guarantees to the Bank and
        its
        successors and assigns: (a) the full and prompt payment and performance when
        due
        of the Indebtedness, as hereinafter defined; and (b) the payment, compliance
        with and performance of all other obligations, covenants, representations
        and
        warranties of every kind, nature and description in accordance with all
        instruments and documents executed by the Borrower in favor of the Bank,
        whether
        now owing or existing or heretofore or hereafter created or arising, regardless
        of whether such obligations, covenants, representations or warranties are
        held
        to be unenforceable, void or of no effect against the Borrower and including
        without limitation, those under any loan agreement and/or promissory note
        executed and delivered by Borrower to the Bank, and any extensions,
        modifications or renewals thereof. The term “Indebtedness” shall mean all
        principal, interest, attorneys’ fees, commitment fees, liabilities for costs and
        expenses and all other indebtedness, obligations and liabilities under and
        in
        accordance with the terms of all instruments and documents executed by Borrower
        in favor of the Bank, whether direct or indirect, absolute or contingent
        and
        whether now owing or existing or heretofore or hereafter created or arising,
        and
        regardless of whether such indebtedness, obligations or liabilities are held
        unenforceable, void or of no effect against Borrower (except as a result
        of
        Borrower’s full and indefeasible payment of the Indebtedness) and all costs,
        expenses and fees, including reasonable attorneys’ fees, arising in connection
        with the collection or enforcement of any or all amounts, indebtedness,
        obligations and liabilities of Borrower to the Bank, as described above,
        regardless of whether the Borrower is held to be liable for such amounts.
        Guarantor acknowledges and agrees that any indebtedness of the Borrower to
        the
        Bank as evidenced by any promissory note may be extended or renewed upon
        maturity at the sole discretion of the Bank and that the Indebtedness as
        defined
        herein, the payment of which is hereby guaranteed, shall include, without
        limitation, all indebtedness and other obligations as extended or renewed
        and as
        may be evidenced by any renewal promissory note.

      

      2.    Guaranty
        Unconditional.
        This is
        an irrevocable, unconditional and absolute guaranty of payment, and not of
        collection, and the undersigned agrees that its liability on this Guaranty
        shall
        be immediate and the Bank may have immediate recourse against the undersigned
        for full and immediate payment of the Indebtedness at any time after the
        Indebtedness or any part thereof, has not been paid when due (whether by
        acceleration or otherwise) or the Borrower has defaulted or otherwise failed
        to
        perform when due any of its obligations, covenants, representations or
        warranties to the Bank.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      3.    Liability
        Not Contingent.
        The
        liability of Guarantor on this Guaranty shall not be contingent upon the
        exercise or enforcement by the Bank of whatever remedies it may have against
        the
        Borrower or others, or the enforcement of any lien or realization upon any
        security or collateral the Bank may at any time possess. Any one or more
        successive and/or concurrent actions may be brought hereon against Guarantor
        either in the same action, if any, brought against Borrower or in separate
        actions, as often as the Bank, in its sole, reasonable discretion, may deem
        advisable. No election to proceed in one form of action or proceeding, or
        against any party, or on any obligation, shall constitute a waiver of the
        Bank’s
        right to proceed in any other form of action or proceeding or against other
        parties unless the Bank has expressly waived such right in writing.
        Specifically, but without limiting the generality of the foregoing, no action
        or
        proceeding by the Bank against Borrower under any document or instrument
        evidencing or securing the Indebtedness shall serve to diminish the liability
        of
        Guarantor, except to the extent the Bank realizes payment by such action
        or
        proceeding, notwithstanding the effect of any such action or proceeding upon
        Guarantor’s right of subrogation against Borrower. Receipt by the Bank of
        payment or payments with knowledge of the breach of any provision with respect
        to any of the Indebtedness shall not, as to Guarantor, be deemed a waiver
        of
        such breach. All rights, powers and remedies of the Bank hereunder and under
        any
        other agreement now or at any time hereafter in force between the Bank and
        Guarantor shall be cumulative and not alternative and shall be in addition
        to
        all rights, powers and remedies given to the Bank by law.

      

      4.    Liability
        Absolute.
        Guarantor agrees that its liability hereunder is absolute and unconditional
        and
        that the Bank shall not be obligated (although it may do so at its sole option)
        before being entitled to direct recourse against Guarantor to take any steps,
        whatsoever to preserve, protect, accept, perfect the Bank’s interest in,
        foreclose upon or realize on collateral security, if any, for the payment
        of the
        Indebtedness or any other guaranty of the Indebtedness or in any other respect
        exercise any diligence whatever in collecting or attempting to collect the
        Indebtedness by any means.

      

      5.    No
        Impairment of Liability.
        The
        liability of Guarantor shall in no way be affected or impaired by: (a) any
        amendment, alteration, extension, renewal, waiver, indulgence or other
        modification of the Indebtedness; (b) any settlement or compromise in connection
        with the Indebtedness; (c) any subordination of payments under the Indebtedness
        to any other debt or claim; (d) any substitution, exchange, release or other
        disposition of all or any part of any collateral for the Indebtedness; (e)
        any
        failure, delay, neglect, act or omission by the Bank to act in connection
        with
        the Indebtedness; (f) any advances for the purpose of performing any covenant
        of
        agreement of the Borrower, or curing any breach; (g) the filing by or against
        Borrower of bankruptcy, insolvency, reorganization or other debtor’s relief
        afforded Borrower pursuant to the present or future provisions of the Bankruptcy
        Code or any other state or federal statute or by the decision of any court;
        or
        (h) any other matter whether similar or dissimilar to the foregoing. The
        obligations of Guarantor are unconditional, notwithstanding any defect in
        the
        genuineness, validity, regularity or enforceability of the Indebtedness or
        any
        other circumstances whether or not referred to herein, which might otherwise
        constitute a legal or equitable discharge or defense of a surety or
        guarantor.

      

      6.    Waivers.
        Guarantor hereby waives each and every defense which, under principles of
        guaranty or suretyship law or otherwise, would otherwise operate to impair
        or
        diminish the liability of Guarantor hereunder, including, without limitation:
        (a) notice of acceptance of this Guaranty and of creations of Indebtedness
        of
        Borrower to the Bank; (b) any subrogation to the rights of the Bank against
        Borrower until the Indebtedness has been paid in full; (c) presentment and
        demand for payment of any Indebtedness of Borrower; (d) protest, notice of
        protest, and notice of dishonor or default to Guarantor or to any other party
        with respect to any of the Indebtedness; (e) all other notices to which
        Guarantor might otherwise be entitled; (f) any demand for payment under this
        Guaranty; (g) any defense arising by reason of any disability or other defense
        of Borrower by reason of the cessation from any cause whatsoever of the
        liability of the Borrower; (h) any rights to extension, composition or otherwise
        under the Bankruptcy Code or any amendments thereof, or under any state or
        other
        federal statute; and (i) any right or claim or claim of right to cause a
        marshalling of Borrower’s assets. No notice to or demand on Guarantor shall be
        deemed to be a waiver of the obligation of Guarantor or of the right of the
        Bank
        to take further action without notice or demand as provided herein; nor in
        any
        event shall any modification or waiver of the provisions of this Guaranty
        be
        effective unless in writing nor shall any such waiver be applicable except
        in
        the specific instance for which given.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

      

      7.    Warranties
        and Representations.
        Guarantor represents, warrants and covenants to the Bank that, as of the
        date of
        this Guaranty: the fair salable value of Guarantor’s assets exceeds its
        liabilities, including the liability undertaken pursuant to this Guaranty;
        Guarantor is meeting its current liabilities as they mature; Guarantor’s
        financial statements, including in each case the notes thereto, contained
        in
        Guarantor’s most recent annual report on Form 10-K have been prepared in
        accordance with GAAP applied on a consistent basis throughout the periods
        covered thereby, except as otherwise noted therein, and fairly present the
        consolidated financial conditions and results of operations of Guarantor
        and its
        consolidated subsidiaries, on the bases therein stated, as of the respective
        dates thereof; since the date of said financial statements there has been
        no
        material adverse change in the financial condition of Guarantor; there are
        not
        now pending any material court or administrative proceedings or undischarged
        judgments against Guarantor in which a likely adverse decision would reasonably
        be expected to have a material adverse effect on Guarantor’s business, and no
        federal or state tax liens have been filed or, to Guarantor’s knowledge,
        threatened against Guarantor, nor is Guarantor in default or claimed default
        under any agreement for borrowed money, except to the extent such default
        would
        not reasonably be expected to cause a material adverse effect on Guarantor’s
        business.

      

      8.    Notices.
        Guarantor agrees to promptly give the Bank written notice of any material
        adverse change in its financial condition, including but not limited to
        litigation commenced in which a likely adverse decision would reasonably
        be
        expected to have a material adverse effect on Guarantor’s business, tax liens
        filed, default claimed under its indebtedness for borrowed money, except
        to the
        extent such default would not reasonably be expected to cause a material
        adverse
        effect on Guarantor’s business, or bankruptcy proceedings commenced by or
        against Guarantor. Guarantor agrees to deliver, timely to the Bank, annual
        financial statements for the preceding fiscal year; and at such reasonable
        times
        as the Bank requests to furnish its current financial statements to the Bank
        and
        permit the Bank or its representatives to inspect at Guarantor’s offices, its
        financial records and properties and make extracts therefrom in order to
        evaluate the financial condition of Guarantor.

      

      9.    No
        Reliance by Guarantor.
        Guarantor is fully aware of the financial condition of the Borrower. Guarantor
        delivers this Guaranty based solely upon its own independent investigation
        and
        in no part upon any representation or statement of the Bank with respect
        thereto. Guarantor is in a position to and hereby assumes full responsibility
        for obtaining any additional information concerning Borrower’s financial
        condition as Guarantor may deem material to its obligations hereunder; and
        Guarantor is not relying upon nor expecting the Bank to furnish it any
        information in the Bank’s possession concerning Borrower’s financial
        condition.

      

      10.         
        Miscellaneous.
        This
        Guaranty shall inure to the benefit of the Bank and its successors and assigns,
        including each and every holder or owner of any of the indebtedness guaranteed
        hereby. In the event that there shall be more than one such holder or owner,
        this Guaranty shall be deemed a separate contract with each such holder and
        owner. In the event that any person other than the Bank shall become a holder
        or
        owner of any of the Indebtedness, each reference to the Bank hereunder shall
        be
        construed as if it referred to each such holder or owner. This Guaranty shall
        be
        binding upon Guarantor and its successors and assigns. Guarantor agrees that
        recourse may be had against its earnings and separate property for all of
        Guarantor’s obligations under this Guaranty. This Guaranty and all rights and
        obligations hereunder, including matters of construction, validity and
        performance, shall be governed by the laws of the State of
        Michigan.

      

      11.           Joint
        and Several Guaranty.
        If more
        than one (1) person and/or entity is executing this Guaranty, the liability
        of
        each Guarantor executing this Guaranty shall be joint and several and the
        term
“Guarantor” shall mean each and all such Guarantors.

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

         

      

      12.         
        Jury
        Waiver.
        GUARANTOR ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL
        ONE,
        BUT THAT IT MAY BE WAIVED. GUARANTOR, AFTER CONSULTING (OR HAVING HAD THE
        OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY,
        AND FOR ITS BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
        REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
        GUARANTY OR THE INDEBTEDNESS.

      

      13.         
        Guaranty
        Freely Given.
        THIS
        GUARANTY IS FREELY AND VOLUNTARILY GIVEN TO THE BANK BY GUARANTOR, JOINTLY
        AND
        SEVERALLY, WITHOUT ANY DURESS OR COERCION, AND AFTER GUARANTOR, JOINTLY AND
        SEVERALLY, HAS EITHER CONSULTED WITH COUNSEL OR BEEN GIVEN AN OPPORTUNITY
        TO DO
        SO, AND GUARANTOR, JOINTLY AND SEVERALLY, HAS CAREFULLY AND COMPLETELY READ
        ALL
        OF THE TERMS AND PROVISIONS OF THIS GUARANTY.

       

      IN
        WITNESS WHEREOF, this Guaranty was executed and delivered by the undersigned
        on
        the date stated in the first paragraph above.

       

      
        	Witnesses:	 	 	Guarantor:
	 	 	 	 
	 	 	 	Smart Online, Inc., a Delaware
                corporation
	 	 	 	 
	/s/ James
                W.
                Gayton	 	 	/s/ Nicholas
                A. Sinigaglia
	
                

              	 	 	
                
                  

                

                Nicholas A. Sinigaglia

                Its: Chief Financial Officer 

              
	
              	 	 	
              
	/s/ Tracy Beyersdorf  	 	 	 
	
                

              	 	 	 

      

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        SECURITY
          AGREEMENT

         

        THIS
          AGREEMENT is made on October 17, 2006 by and between the Grantor, as herein
          defined, and Fifth Third Bank, a Michigan banking corporation (“Bank” or
“Lender”), whose address is 1000 Town Center, Suite 1500, Southfield, Michigan
          48075.

         

        IN
          CONSIDERATION of loans, advances or other financial accommodations from
          Bank to
          the Grantor and/or Borrower, the Grantor agrees as follows:

         

        
          	
                	1.	
                  Definitions.
                    The following terms shall have the following meanings when used
                    in this
                    Agreement:

                

        

         

        
          	 	
                  a.

                	
                  “Borrower
                    and/or Grantor”
                    means Smart Commerce, Inc., a Delaware corporation organized
                    under the
                    laws of the State of Delaware, whose chief executive office is
                    2530
                    Meridian Parkway, Durham, North Carolina
                    27713.

                

        

         

        
          	 	
                  b.

                	
                  “Collateral”
                    means the property and interests in property described in Section
                    3
                    below.

                

        

         

        
          	 	
                  c.

                	
                  “Liabilities”
                    means all loans, advances or other financial accommodations,
                    including any
                    renewals or extensions thereof, from Bank to Borrower and any
                    and all
                    liabilities and obligations of any and every kind and nature
                    heretofore,
                    now or hereafter owing from Borrower to Bank, however incurred
                    or
                    evidenced, whether primary, secondary, contingent or otherwise,
                    whether
                    arising under this Agreement, under any other security agreement(s),
                    promissory note(s), guaranty(s), mortgage(s), lease(s), instrument(s),
                    document(s), contract(s), letter(s) of credit or similar agreement(s)
                    heretofore, now or hereafter executed by Borrower and delivered
                    to Bank,
                    or by oral agreement or by operation of law plus all interest,
                    costs,
                    expenses and reasonable attorney fees which may be made or incurred
                    by
                    Bank in the disbursement, administration or collection of such
                    liabilities
                    and obligations and in the protection, maintenance and liquidation
                    of the
                    Collateral. 

                

        

         

        
          	 	
                  d.

                	
                  “Loan
                    Agreement”
                    means that certain Business Loan Agreement dated ______ by and
                    between
                    Borrower and Bank.

                

        

         

        2.    Grant
          of Security Interest.
          Grantor
          hereby grants to Bank a continuing security interest in the Collateral
          and
          assigns all of Grantor’s right, title and interest therein to secure the payment
          of the Liabilities.

         

        3.    Collateral.
          The
          Collateral covered by this Agreement is all the Grantor’s property described
          below which it now owns or shall hereafter acquire or create immediately
          upon
          the acquisition or creation thereof:

         

        
          	 	
                  a.

                	
                  The
                    following property where an “X” or check mark has been placed in the
                    applicable box (if none of the following boxes is checked, it
                    is
                    understood and agreed that Grantor grants Bank a security interest
                    in all
                    of Grantor’s personal property as if the box adjacent to the paragraph
                    entitled “All Assets” had been
                    checked):

                

        

         

        
          	 	x	
                  All
                    Assets.
                    All personal property of the Grantor, including without limitation,
                    all
                    Accounts, including Health-Care-Insurance Receivables, Inventory,
                    including without limitation raw materials, work in process,
                    materials and
                    finished goods leased by the Grantor as lessor or held for sale
                    or lease
                    or furnished or to be furnished under contracts of service or
                    used or
                    consumed in a business, Goods, Equipment, Securities, Investment
                    Property,
                    Deposit Accounts, Chattel Paper, including without limitation,
                    Electronic
                    Chattel Paper; Documents; Instruments, including without limitation,
                    Promissory Notes; Letter of Credit Rights and proceeds of letters
                    of
                    credit; Supporting Obligations; notes secured by real estate;
                    Commercial
                    Tort Claims and General Intangibles, including without limitation,
                    Payment
                    Intangibles and Software.

                

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          	 	o	
                  Accounts.
                    All
                    Accounts, including Health-Care-Insurance Receivables, and all
                    Goods whose
                    sale, lease or other disposition has given rise to Accounts and
                    have been
                    returned to, or repossessed or stopped in transit by, the Grantor,
                    or
                    rejected or refused by an Account
                    Debtor.

                

        

         

        
          	 	o	
                  Inventory.
                    All Inventory, including without limitation raw materials, work
                    in
                    process, materials and finished goods leased by the Grantor as
                    lessor or
                    held for sale or lease or furnished or to be furnished under
                    contracts of
                    service or used or consumed in a
                    business.

                

        

         

        
          	 	o	
                  Goods.
                    All Goods (other than Inventory), including without limitation,
                    Equipment.

                

        

         

        
          	 	o	
                  Investment
                    Property and Deposit Accounts.
                    All Securities, Investment Property and Deposit
                    Accounts.

                

        

         

        
          	 	o	
                  Documents
                    and Instruments. All
                    Chattel Paper, including without limitation, Electronic Chattel
                    Paper;
                    Documents; Instruments, including without limitation, Promissory
                    Notes;
                    Letter of Credit Rights and proceeds of letters of credit; Supporting
                    Obligations; notes secured by real estate; Commercial Tort Claims
                    and
                    General Intangibles, including without limitation, Payment Intangibles
                    and
                    Software.

                

        

         

        
          	
                	3
                  a.1	
                  Specific
                    Property.
                    The following specifically described property of the
                    Grantor:

                

        

         

        
          	 	
                  ·

                	
                  The
                    Intellectual Property (as hereinafter defined), all now or hereafter
                    existing, and owned by the Grantor and/or to the extent of any
                    interest of
                    Grantor therein.

                

        

         

        For
          the
          purposes hereof, the following terms shall have the following
          meanings:

         

        
          	 	
                  (i)

                	
                  “Confidentiality
                    Agreements” shall mean any contract, letter, document, instrument or
                    similar agreement executed between Grantor and any third party
                    (including,
                    but not by way of limitation, all employee or contractor agreements),
                    now
                    or hereafter existing or by oral agreement or by operation of
                    law which
                    grants, retains or evidences rights in any Intellectual Property
                    or any
                    Product. 

                

        

         

        
          	 	
                  (ii)

                	
                  “Governmental
                    Regulation” shall mean, by way of example, but not by way of limitation,
                    (x) any applicable law, regulation, ordinance or similar requirement
                    of
                    the United States, any foreign country, any state, county, city
                    or other
                    department, agency or subdivision of any of the foregoing, including
                    any
                    governmental body, quasi-governmental body, or other duly constituted
                    authority (judicial, legislative, administrative or otherwise)
                    (sometimes
                    hereinafter referred to as “Governmental Agency”), Person and/or Issuer,
                    having jurisdiction over, or applicable to, or affecting any
                    of the
                    Intellectual Property or Products (as defined herein), and the
                    use
                    thereof, or (y) any requirement, obligation, covenant, condition
                    or
                    undertaking under any purchase order or other similar contractual
                    agreement relating to the manufacturing, purchasing or selling
                    of any of
                    the Products (“Contractual
                    Obligation”).

                

        

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

         

        
          	 	
                  (iii)

                	
                  “Intellectual
                    Property” shall mean the Products, and the following, whether or not in
                    connection with any of the Products: all present and future,
                    information,
                    materials, formulae, processes, “know-how”, inventions (whether or not
                    patentable), copyrights (registered or unregistered) and all
                    receivables
                    and intangibles related thereto, trademarks and logos (registered
                    or
                    unregistered) and their associated goodwill, all rights of whatever
                    form
                    in and to any and all domain names, trade dress rights, trade
                    secrets,
                    Patent Rights (as defined herein) concepts, ideas, techniques,
                    processes,
                    works of authorship (including, but not limited to, sweepstakes,
                    promotions, contests and related documentation), discoveries,
                    enhancements, derivative works, upgrades, compilations, collective
                    works,
                    applications, improvements, adaptations, modifications, changes
                    and
                    variations, including all drawings, engineering drawings, designs,
                    specifications models, mock-ups, prototypes, functional models,
                    development environments, computer software programs including
                    technology
                    platforms, technology interfaces and promotional software modules
                    (and
                    enhancements, upgrades and modifications thereof), user and other
                    manuals,
                    flow charts, source codes and object codes, merchandising procedures,
                    customer and supplier information and lists (past, present and
                    prospective) research, research notes, and memoranda and records,
                    research, business plans, business and operational strategies,
                    pricing
                    policies, financial information, market analyses, market productions,
                    consulting and sales methods and techniques, product costs, profit
                    margins, goodwill, employees and employee compensation, and all
                    copies,
                    summaries, outlines and other representations thereof, and which
                    the
                    Assignor directly or indirectly (by way of Third Party Agreements
                    or
                    otherwise) owns or has any right, title or interest in, specifically
                    including but not by way of limitation, those items of property
                    set forth
                    in Section 5(o), (p),(q) and (r) of this
                    Agreement.

                

        

         

        
          	 	
                  (iv)

                	
                  “License(s)”
                    shall mean any contract, letter, document, instrument or similar
                    agreement
                    whereby Grantor grants, retains or receives legal permission
                    to or from
                    any third party to make use of any of the Intellectual Property
                    or
                    Products, or any portion thereof, in whole or in
                    part.

                

        

         

        
          	 	
                  (v)

                	
                  “Issuer”
                    shall mean any Person, now or hereafter, by way of example, but
                    not by way
                    of limitation, duly authorized, empowered, directed, appointed,
                    constituted, delegated, or otherwise acting, to, by way of example,
                    but
                    not by way limitation, enact, administer, promulgate, issue,
                    direct,
                    enforce, revoke, suspend, terminate or condition any Governmental
                    Regulation, specifically including, but not by way of limitation,
                    any
                    Contractual Obligation.

                

        

         

        
          	 	
                  (vi)

                	
                  “Patent
                    Rights” shall mean, all patents listed in any exhibits and/or Section
                    5 of
                    the Agreement, and all patents which may have or will be obtained
                    in
                    respect of the Products and all corresponding inventions set
                    forth
                    therein; any applications for U.S. and foreign patents which
                    may have been
                    or will be filed in connection therewith; any corresponding applications
                    for patents and patents therefor in all other areas of the world;
                    and any
                    improvements, modifications, reissues, extensions, substitutions,
                    confirmations, divisions, continuations, and continuations-in-part
                    of any
                    of the foregoing, together with the right to bring suit and collect
                    for
                    past, present and future infringements thereof; and all income,
                    royalties,
                    damages and payments now and hereafter due and/or payable under
                    and with
                    respect thereto, including, without limitation, damages and payments
                    for
                    past or future infringements thereof; and all other proceeds
                    and products
                    of the foregoing, including, without limitation, any rights pursuant
                    to
                    Grantor’s agreements (including Third Party Agreements) with any other
                    party relating thereto. 

                

        

         

        
          
            
            

          

          
            3

            
              

            

          

          
            
            

          

        

         

        
          	 	
                  (vii)

                	
                  “Person”
                    shall mean any individual, company, corporation, trust, limited
                    liability
                    company, firm or other entity.

                

        

         

        
          	 	
                  (viii)

                	
                  “Products”
                    shall mean any and all goods and/or services products, programs,
                    promotional campaigns or marketing solutions that at any time
                    are, will be
                    or have been developed, manufactured, marketed, conceived, considered,
                    pursued or sold by the Assignor together with all other Intellectual
                    Property applicable thereto.

                

        

         

        
          	 	
                  (ix)

                	
                  “Third
                    Party Agreements” shall mean all Licenses, Confidentiality Agreements,
                    website host agreements, domain name registration agreements
                    and other
                    agreements of any kind between Assignor and a third party that
                    relate in
                    any way to the Intellectual Property or
                    Products.

                

        

         

        Together
          with:

         

        
          	 	
                  ·

                	
                  All
                    Proceeds (whether Cash Proceeds or Noncash Proceeds) of the foregoing
                    property, including without limitation proceeds of insurance
                    payable by
                    reason of loss or damage to the foregoing property and of eminent
                    domain
                    or condemnation awards.

                

        

         

        
          	 	
                  ·

                	
                  All
                    products of, additions and accessions to, and substitutions,
                    betterments
                    and replacements for the foregoing
                    property.

                

        

         

        
          	 	
                  ·

                	
                  All
                    sums at any time credited by or due from Bank to
                    Grantor.

                

        

         

        
          	 	
                  ·

                	
                  All
                    property in which the Grantor has an interest now or at any time
                    hereafter
                    coming into the possession or under the control of Bank or in
                    transit by
                    mail or carrier to or from Bank or in possession of or under
                    the control
                    of any third party acting on Bank’s behalf without regard to whether Bank
                    received the same in pledge, for safekeeping, as agent for collection
                    or
                    transmission or otherwise or whether Bank has conditionally released
                    the
                    same (excluding, nevertheless, any of the foregoing property
                    of the
                    Grantor which now or any time hereafter is in possession or control
                    of
                    Bank under any written trust agreement wherein Bank is trustee
                    and Grantor
                    is trustor).

                

        

         

        Terms
          used and not otherwise defined in this Agreement shall have the meaning
          given
          such terms in the Michigan Uniform Commercial Code. In the event the meaning
          of
          any term defined in the Michigan Uniform Code is amended after the date
          of this
          Agreement, the meaning of such term as used in this Agreement shall be
          that of
          the more encompassing of: (i) the definition contained in the Michigan
          Uniform
          Commercial Code prior to the amendment, and (ii) the definition contained
          in the
          Michigan Uniform Commercial Code after the amendment.

         

        4.    Perfection
          of Security Interest.
          Grantor
          hereby irrevocably authorizes Bank to file financing statement(s) and other
          instruments of recordation describing the Collateral in all public offices
          deemed necessary by Bank, and to take any and all actions, including, without
          limitation, filing all financing statements, continuation financing statements
          and all other documents that Bank may reasonably determine to be necessary
          to
          perfect and maintain Bank’s security interests in the Collateral. Grantor shall
          have possession of the Collateral, except where expressly otherwise provided
          in
          this Agreement or where Bank chooses to perfect its security interest by
          possession, whether or not in addition to the filing of a financing statement.
          Where Collateral is in the possession of a third party, Grantor will join
          with
          Bank in notifying the third party of Bank’s security interest and obtaining an
          acknowledgement from the third party that it is holding the Collateral
          for the
          benefit of Bank. Grantor will cooperate with Bank in obtaining control
          with
          respect to Collateral consisting of Deposit Accounts, Investment Property,
          Letter-of-Credit Rights and Electronic Chattel Paper. Grantor will not
          create
          any Chattel Paper without placing a legend on the Chattel Paper acceptable
          to
          Bank indicating that Bank has a security interest in the Chattel Paper.
          Grantor
          shall pay the cost of filing or recording all financing statement(s) and
          other
          documents. Grantor agrees to promptly execute and deliver to Bank all financing
          statements, continuation financing statements, assignments, certificates
          of
          title, applications for vehicle titles, affidavits, reports, notices, schedules
          of Accounts, designations of Inventory, letters of authority and all other
          documents that Bank may reasonably request in form satisfactory to Bank
          to
          perfect and maintain Bank’s security interests in the Collateral. In order to
          fully consummate all of the transactions contemplated hereunder, Grantor
          shall
          make appropriate entries on its books and records disclosing Bank’s security
          interests in the Collateral.

         

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

           

        

        5.    Warranties
          and Representations.
          Grantor
          warrants and represents, except as may be otherwise disclosed in an attachment
          to this Agreement: (a) Grantor has rights in or the power to transfer the
          Collateral and its title to the Collateral is free and clear of all liens
          or
          security interests, except Bank’s security interests, except Bank’s security
          interest and Permitted Liens (as defined in the Loan Agreement), (b) all
          Chattel
          Paper constituting Collateral evidences a perfected security interest in
          the
          goods covered by it free from all other liens and security interests, except
          Bank’s security interest and Permitted Liens, (c) no financing statements, other
          than that of Bank or with respect to leases or Permitted Indebtedness,
          are on
          file covering the Collateral or any of it, (d) if Inventory is represented
          or
          covered by documents of title, Grantor is the owner of the documents free
          of all
          liens and security interests other than Bank’s security interest, warehousemen’s
          charges, if any, not delinquent, and Permitted Liens, (e) the Grantor’s exact
          legal name and the address of the Grantor’s chief executive office are as set
          forth in the first paragraph of this Agreement; (f) if the Grantor is a
          registered organization, the form of its organization and the State under
          which
          it is organized are as set forth in the first paragraph of this Agreement;
          (g)
          each Account, Chattel Paper and General Intangible constituting Collateral
          is
          genuine and enforceable against the account debtor according to its terms,
          and
          it, and the transaction out of which it arose, substantially complies with
          all
          applicable laws and regulations, the amount represented by Grantor to Bank
          as
          owing by each account debtor is the amount actually owing and is not subject
          to
          setoff, credit, allowance or adjustment except any discount for prompt
          payment
          or such discounts typical of, or consistent with, Grantor’s past practices, nor
          has any account debtor returned a material amount of goods or disputed
          a
          material liability, there has been no default according to the terms of
          any such
          Collateral, except for such defaults that would not result in a material
          adverse
          effect on Grantor’s business, and no step has been taken to foreclose the
          security interest it evidences or to otherwise enforce its payment; (h)
          the
          execution and delivery of this Agreement and any instruments evidencing
          Liabilities will not violate nor constitute a breach of Grantor’s Articles of
          Incorporation, By-Laws, or any agreement or restriction of any type whatsoever
          to which Grantor is a party or is subject, except for such breaches that
          would
          not result in a material adverse effect on Grantor’s business; (i) all financial
          statements of Grantor delivered or to be delivered by Grantor to the Bank
          have
          been prepared in accordance with generally accepted accounting principles
          applied on a consistent basis throughout the periods covered thereby, except
          as
          otherwise noted therein, and fairly present the financial conditions and
          results
          of operations of Grantor, on the bases therein stated, as of the respective
          dates thereof; since the date of said financial statements there has been
          no
          material adverse change in the financial condition of Grantor; (j) to the
          knowledge of Grantor, there are no actions or proceedings which are threatened
          or pending against Grantor which could reasonably be expected to result
          in any
          material adverse change in Grantor’s financial condition or which could
          reasonably be expected to materially effect the Collateral; (k) Grantor
          has duly
          filed all federal, state, and other governmental tax returns which Grantor
          is
          required by law to file, and will continue to file same during such time
          as any
          of the Liabilities hereunder remain owing to Bank, and all such taxes required
          to be paid have been paid, in full; and (l) Grantor’s Patent Rights, trademark
          rights, and rights in Copyright material to its business, have not been
          adjudged
          invalid or unenforceable in whole or in part, and are not currently being
          challenged in any way; (m) Grantor’s Patent Rights, trademark rights, and rights
          in Copyright material to its business have not lapsed or expired; (n) Grantor’s
          Patent Rights, trademark rights, and rights in Copyright material to its
          business are not the subject of a claim threatened in writing that their
          use
          constitutes an infringement of any senior or dominant United States or
          foreign
          patent or other third party intellectual property right, (o) Borrower has
          an
          ownership interest in the registered trademark ONEDOMAIN (R/N 2866661)
          and IMART
          (R/N 2429214) and an ownership interest in the unregistered trademarks
          IMART
          (word plus design of two interlocking circles), Direct Marketing Architecture,
          Direct Selling Architecture, Direct Architecture and Loyalty Marketplace;
          (p)
          Borrower has an exclusive ownership interest in the domain name www.imart.com,
          and has no other domain names material to its business as of the execution
          date;
          (q) Borrower claims an exclusive proprietary interest in the source code
          known
          as the “One Domain Template Website System,” “iMart Direct Architecture,” “iMart
          Direct Marketing Architecture,” “iMart Direct Selling Architecture,” and
“Loyalty Marketplace” and no other source code and related technology material
          to its business as of the execution date.”; (r) Borrower has a registered
          copyright entitled “website/iDSA/teaminfocus.com” (R/N TX-5-822-684) and a
          registered copyright entitled “Admin/iDSA/teaminfocus.com (R/N TX-5-822-685) and
          a registered copyright entitled “One Domain Template Website System” (R/N
          TX-6-120-614) and no other registered copyrights or material eligible for
          copyright protection material to its business as of the execution
          date.

         

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

           

        

        6.    Covenants.
          Grantor
          covenants and agrees that while any of the Liabilities remain unperformed
          and
          unpaid it will: (a) preserve its legal existence and not, in one transaction
          or
          a series of related transactions, merge into or consolidate with any other
          entity, or sell all or substantially all of its assets; (b) not change
          the state
          where it is organized; (c) neither change its name, form of business entity
          nor
          address of its chief executive office without giving written notice to
          Bank
          thereof at least thirty (30) days prior to the effective date of such change,
          and Grantor agrees that all documents, instruments, and agreements reasonably
          requested by Bank in response to such change shall be prepared, filed,
          and
          recorded at Grantor’s expense prior to the effective date of such change; (d)
          not use the Collateral, nor permit the Collateral to be used, for any unlawful
          purpose, whatever; (e) maintain the Collateral in condition and repair
          consistent with past practices; and (f) indemnify and hold Bank harmless
          against
          claims of any persons or entities not a party to this Agreement concerning
          disputes arising over Grantor’s use, operation or ownership of the
          Collateral.

         

        7.    Insurance,
          Taxes, Etc.
          Grantor
          has the risk of loss of the Collateral. Grantor shall: (a) pay promptly
          all
          taxes, levies, assessments, judgments, and charges of any kind upon or
          relating
          to the Collateral, to Grantor’s business, and to Grantor’s ownership or use of
          any of its assets, income, or gross receipts (except to the extent being
          contested in good faith); (b) at its own expense, keep and maintain all
          of the
          Collateral fully insured against loss or damage by fire, theft, explosion
          and
          other risks in such amounts, with such companies, under such policies and
          in
          such form as shall be reasonably satisfactory to Bank, which policies shall
          expressly provide that loss thereunder shall be payable to Bank as its
          interest
          may appear (and Bank shall have a security interest in the proceeds of
          such
          insurance and may apply any such proceeds which may be received by it toward
          payment of the Liabilities, whether or not due, in such order of application
          as
          Bank may determine); and (c) maintain at its own expense public liability
          and
          property damage insurance in such amounts, with such companies, under such
          policies and in such form as shall be reasonably satisfactory to Bank,
          and, upon
          Bank’s request, shall furnish Bank with such policies and evidence of payment
          of
          premiums thereon. If Grantor at any time hereafter should fail to obtain
          or
          maintain any of the policies required above or pay any premium in whole
          or in
          part relating thereto, or shall fail to pay any such tax, assessment, levy,
          or
          charge or to discharge any such lien, claim, or encumbrance, then Bank,
          without
          waiving or releasing any obligation or default of Grantor hereunder, may
          at any
          time hereafter (but shall be under no obligation to do so) make such payment
          or
          obtain such discharge or obtain and maintain such policies of insurance
          and pay
          such premiums, and take such action with respect thereto as Bank deems
          advisable. All sums so disbursed by Bank, including reasonable attorney
          fees,
          court costs, expenses, and other charges relating thereto, shall be part
          of the
          Liabilities, secured hereby, and payable upon demand together with interest
          at
          the highest rate payable in connection with any of the Liabilities from
          the date
          when advanced until paid.

         

        8.    Collection
          of Accounts.
          Grantor
          covenants and agrees that while any of the Liabilities remain unperformed
          and
          unpaid it will comply with Section 2.4.13, Lock Box Provisions, of the
          Loan
          Agreement.

         

        
          
            
            

          

          
            6

            
              

            

          

          
            
            

          

           

        

        9.    Care,
          Custody, and Dealings with Collateral.
          Bank
          shall have no liability to Grantor with respect to Bank’s care and custody of
          any Collateral in Bank’s possession and shall have no duty to sell, surrender,
          collect or protect the same or to preserve rights against prior parties
          or to
          take any action with respect thereto beyond the custody thereof, exercising
          that
          reasonable custodial care which it would exercise in holding similar interests
          for its own account. Bank shall only be liable for its acts of gross negligence.
          Bank is hereby authorized and empowered to take the following steps after
          an
          Event of Default: (a) to deal directly with issuers, entities, owners,
          transfer
          agents and custodians to effect changes in the registered name of any such
          Collateral, to effect substitutions and replacements thereof necessitated
          by any
          reason (including by reason of recapitalization, merger, acquisition, debt
          restructuring or otherwise), to execute and deliver receipts therefor and
          to
          take possession thereof; (b) to communicate and deal directly with payors
          of
          instruments (including securities, promissory notes, letters of credit,
          certificates of deposits and other instruments), which may be payable to
          or for
          the benefit of Grantor at any time, with respect to the terms of payment
          thereof; (c) in the Grantor’s name, to agree to any extension of payment, any
          substitution of Collateral or any other action or event with respect to
          the
          Collateral; (d) to notify parties who have an obligation to pay or deliver
          anything of value (including money or securities) with respect to the Collateral
          to pay or deliver the same directly to Bank on behalf of Grantor and to
          receive
          and receipt for any such payment or delivery in Grantor’s name as an addition to
          the Collateral; (e) to surrender renewable certificates or any other instruments
          or securities forming a portion of the Collateral which may permit or require
          reissuance, renewal or substitution at any time and to immediately take
          possession of and receive directly from the issuer, maker or other obligor,
          the
          substituted instrument or securities; (f) to exercise any right which Grantor
          may have with respect to any portion of the Collateral, including rights
          to seek
          and receive information with respect thereto; and (g) to do or perform
          any other
          act and to enjoy all other benefits with respect to the Collateral as Grantor
          could in its own name.

         

        10.   Disposition
          of Collateral.
          Bank
          does not authorize, and Grantor agrees not to make any sales or leases
          of any of
          the Collateral, license any of the Collateral, or grant any other security
          interest in any of the Collateral; provided, however, that until such time
          as
          Bank shall notify Grantor of the revocation of such power and authority,
          Grantor
          (a) may only in the ordinary course of its business, at its own expense,
          sell,
          lease or furnish under contracts of service any of the inventory normally
          held
          by Grantor for such purpose; (b) may use and consume any raw materials,
          work in
          process or materials, the use and consumption of which is necessary in
          order to
          carry on Grantor’s business; and (c) will at its own expense, endeavor to
          collect, as and when due, all accounts due with respect to any of the
          Collateral, including the taking of such action with respect to such collection
          as Bank may reasonably request or, in the absence of such request, as Grantor
          may deem advisable. A sale in the ordinary course of business does not
          include a
          transfer in partial or total satisfaction of a debt. To the extent Grantor
          uses
          any proceeds of any of the Liabilities to purchase Collateral, Grantor’s
          repayment of the Liabilities shall apply on a “first-in-first-out” basis so that
          the portion of the Liabilities used to purchase a particular item of Collateral
          shall be deemed paid in the chronological order the Grantor purchased the
          Collateral.

         

        11.   Information.
          Grantor
          shall permit Bank or its agents upon reasonable request to have access
          to, and
          to inspect, all the Collateral (and Grantor’s other assets, if any) and may from
          time to time verify Accounts, inspect, check, make copies of, or extracts
          from
          the books, records, and files of Grantor, and Grantor will make same available
          at any time for such purposes. In addition, Grantor shall promptly supply
          Bank
          with such other financial or other information concerning its affairs and
          assets
          as Bank may request from time to time.

         

        
          
            
            

          

          
            7

            
              

            

          

          
            
            

          

           

        

        12.   Remedies
          Upon Default.
          Immediately upon the occurrence of an Event of Default as defined in the
          Loan
          Agreement, subject to any cure or grace period therein contained (an “Event of
          Default”), Bank may, in addition to and not in lieu of or substitution for, all
          other rights and remedies provided by law, without notice, except as expressly
          required by law, declare the entire unpaid and outstanding principal balance
          of
          the Liabilities, and all accrued interest, together will all other indebtedness
          of the Grantor to Bank, to be due and payable in full forthwith and Bank
          may
          exercise from time to time any rights and remedies including the right
          to
          immediate possession of the Collateral available to it under applicable
          law.
          Bank may directly contact third parties and enforce against them all rights
          which arise with respect to the Collateral and to which Grantor or Bank
          would be
          entitled. Grantor waives any right it may have to require Bank to pursue
          any
          third person for any of the Liabilities. Bank shall have the right to hold
          any
          property then in, upon or in any way affiliated to said Collateral at the
          time
          of repossession even though not covered by this Agreement until return
          is
          demanded in writing by the Grantor. Grantor agrees, upon the occurrence
          of an
          Event of Default, to assemble at its expense all the Collateral and make
          it
          available to Bank at a convenient place acceptable to Bank. Grantor agrees
          to
          pay all costs of Bank of collection of the Liabilities, and enforcement
          of
          rights hereunder, including reasonable attorney fees and legal expenses,
          including participation in Bankruptcy proceedings, and expense of locating
          the
          Collateral and expenses of any repairs to any realty or other property
          to which
          any of the Collateral may be affixed or be a part. If any notification
          of
          intended disposition of any of the Collateral is required by law, such
          notification, if mailed, shall be deemed reasonably and properly given
          if sent
          at least ten (10) days before such disposition, postage pre-paid, addressed
          to
          the Grantor either at the address shown above or at any other address of
          the
          Grantor appearing on the records of Bank and to such other parties as may
          be
          required by the Michigan Uniform Commercial Code. Grantor acknowledges
          that Bank
          may be unable to effect a public sale of all or any portion of the Collateral
          because of certain legal and/or practical restrictions and provisions which
          may
          be applicable to the Collateral and, therefore, may be compelled to resort
          to
          one or more private sales to a restricted group of offerees and purchasers.
          Grantor consents to any such private sale so made even though at places
          and upon
          terms less favorable than if the Collateral were sold at public sale. Bank
          shall
          have no obligation to clean-up or otherwise prepare the Collateral for
          sale.
          Bank may comply with any applicable state or federal law requirements in
          connection with a disposition of the Collateral and compliance will not
          be
          considered to adversely affect the commercial reasonableness of any sale
          of the
          Collateral. Bank may specifically disclaim any warranties as to the Collateral.
          If Bank sells any of the Collateral upon credit, Grantor will be credited
          only
          with payments actually made by the purchaser, received by Bank and applied
          to
          the indebtedness of the purchaser. In the event the purchaser fails to
          pay for
          the Collateral, Bank may resell the Collateral and the Grantor shall be
          credited
          with the proceeds of sale. Bank shall have no obligation to marshal any
          assets
          in favor of the Grantor. Grantor waives the right to jury trial in any
          proceeding instituted with respect to the Collateral. Out of the net proceeds
          from sale or disposition of the Collateral, Bank shall retain all the
          Liabilities then owing to it and the actual cost of collection (including
          reasonable attorney fees) and shall tender any excess to Grantor or its
          successors or assigns. If the Collateral shall be insufficient to pay the
          entire
          Liabilities, Grantor shall pay to Bank the resulting deficiency upon demand.
          Grantor expressly waives any and all claims of any nature, kind or description
          which it has or may hereafter have against Bank or its representatives,
          by
          reason of taking, selling or collecting any portion of the Collateral.
          Grantor
          consents to releases of the Collateral at any time (including prior to
          default)
          and to sales of the Collateral in groups, parcels or portions, or as an
          entirety, as Bank shall deem appropriate. Grantor expressly absolves Bank
          from
          any loss or decline in market value of any Collateral by reason of delay
          in the
          enforcement or assertion or nonenforcement of any rights or remedies under
          this
          Agreement. Grantor agrees that Bank shall, upon the occurrence of an Event
          of
          Default, have the right to peacefully retake any of the Collateral. Grantor
          waives any right it may have in such instance to a judicial hearing prior
          to
          such retaking.

         

        13.   General.
          Time
          shall be deemed of the essence of this Agreement. Bank shall be deemed
          to have
          exercised reasonable care in the custody and preservation of any Collateral
          in
          its possession if it takes such action for that purpose as Grantor requests
          in
          writing, but failure of Bank to comply with any such request shall not
          of itself
          be deemed a failure to exercise reasonable care, and failure of Bank to
          preserve
          or protect any rights with respect to such Collateral against any prior
          parties
          or to do any act with respect to the preservation of such Collateral not
          so
          requested by Grantor shall not be deemed a failure to exercise reasonable
          care
          in the custody and preservation of such Collateral. This Agreement has
          been
          delivered in Michigan and shall be construed in accordance with the laws
          of the
          State of Michigan. Whenever possible, each provision of this Agreement
          shall be
          interpreted in such manner as to be effective and valid under applicable
          law,
          but if any provision of this Agreement shall be prohibited by or invalid
          under
          applicable law, such provision shall be ineffective to the extent of such
          prohibition or invalidity, without invalidating the remainder of such provision
          or the remaining provisions of this Agreement. The rights and privileges
          of Bank
          hereunder shall inure to the benefit of its successors and assigns, and
          this
          Agreement shall be binding on all heirs, personal representatives, assigns
          and
          successors of Grantor and all persons who become bound as a debtor to this
          Agreement. Grantor hereby expressly authorizes and appoints Bank to act
          as its
          attorney-in-fact for the sole purpose of executing any and all financing
          statements or other documents deemed necessary to perfect the security
          interest
          herein contemplated. This
          Agreement shall become null and void at such time as the Liabilities are
          fully
          paid and Bank’s obligation to fund all loans has been terminated by written
          agreement of Bank and Borrower, and Bank shall promptly release, discharge
          and
          terminate any and all security interests, liens and encumbrances granted
          to Bank
          pursuant to this Agreement. 

         

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

           

        

        14.   No
          Waiver.
          Any
          delay on the part of Bank in exercising any power, privilege or right hereunder,
          or under any other instrument executed by Grantor to Bank in connection
          herewith
          shall not operate as a waiver thereof, and no single or partial exercise
          thereof, or the exercise of any other power, privilege or right shall preclude
          other or further exercise thereof, or the exercise of any other power,
          privilege
          or right. The waiver of Bank of any default by Grantor shall not constitute
          a
          waiver of any subsequent defaults, but shall be restricted to the default
          so
          waived. All rights, remedies and powers of Bank hereunder are irrevocable
          and
          cumulative, and not alternative or exclusive, and shall be in addition
          to all
          rights, remedies, and powers given hereunder or in or by any other instruments,
          or by the Michigan Uniform Commercial Code, or any laws now existing or
          hereafter enacted. The Grantor acknowledges that this is the entire agreement
          between the parties except to the extent that writings signed by the party
          to be
          charged are specifically incorporated herein by reference either in this
          Agreement or in such writings, and acknowledges receipt of a true and complete
          copy of this Agreement.

         

         

        15.   Special
          Provisions/Additional Agreements.
          With
          respect to the Collateral described in Section 3 a.1 hereof, and without
          limiting the generality of the other provisions hereof, the Grantor agrees
          as
          follows:

         

        
          	 	
                  (a)

                	
                  Indemnification.

                

        

         

        The
          Grantor agrees to indemnify, defend, and hold harmless Bank and its
          representatives from and against any and all suits, demands, liabilities,
          claims, actions, expenses, losses and damages of any kind or nature whatsoever,
          including costs of litigation and reasonable attorney’s fees, arising from any
          third-party claim that the Intellectual Property violates any third party’s
          trade secrets or infringes upon any third party’s copyright, patent, trademark
          or similar proprietary right anywhere in the world. Grantor shall promptly
          notify Bank in writing of each such claim after Grantor learns of it. Grantor
          shall be allowed to control the defense and settlement of such claim; provided
          that Bank can be represented by counsel of its choice at its own expense;
          and
          provided further, that without Bank’s prior written consent, Grantor shall not
          enter into, and Bank shall not be bound by, any settlement that would involve
          a
          remedy other than money damages payable by Grantor. 

         

        
          	 	
                  (b)

                	
                  Product
                    Liability Insurance. 

                

        

         

        The
          Grantor agrees that it will obtain, at its own expense, product liability
          insurance from a recognized insurance company providing adequate protection
          (in
          an amount determined from time to time by Lender) for the Lender and the
          Grantor, against any claims, suits, losses or damages arising out of any
          alleged
          defects in the Products. Grantor shall be entitled to a copy of then prevailing
          certificate of insurance required by the preceding sentence.

         

        
          	 	
                  (c)

                	
                  Quality
                    Control.
                    

                

        

         

        Grantor
          shall maintain the quality of the Products produced and sold by it at a
          quality
          standard for good and merchantable Products and in compliance with good
          manufacturing practices and in accordance with any Governmental Regulation.
          Lender shall have the right at reasonable times during the term of this
          Agreement, and any extension or renewal thereof, to inspect products produced
          by
          Grantor and should any such Product or Products not meet the standard of
          quality. Should Grantor receive notice from any Issuer that any Product
          is not,
          or may not be, in conformity with any Governmental Regulation, Grantor
          will so
          notify Bank in writing within three days of receipt thereof and Grantor
          shall
          not sell such Product or Products and shall notify Lender of what action
          it
          proposes to take. 

         

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

         

        
          	 	
                  (d)

                	
                  Records.

                

        

         

        Grantor
          shall maintain accurate records and accounts of all transactions sufficient
          for
          verification, which involve Products, and which may be necessary to conduct
          any
          recall. Lender shall have reasonable access at reasonable times to Grantor’s
          books and records to the extent necessary to verify all the foregoing and
          Lender
          shall be entitled to make copies thereof at Grantor’s expense.

         

        
          	
                	(e)	
                  Preservation
                    of Intellectual
                    Property.

                

        

         

        Notwithstanding
          anything contained herein to the contrary, this Section 15(e) shall only
          apply
          to those items of Intellectual Property owned by Grantor that Grantor has
          determined, in the exercise of sound business judgment, are material to
          its
          business.

         

        1.   Grantor
          shall use its
          commercially reasonable efforts to: (a) prosecute any patent application
          included in the Patent Rights; (b) make application on unpatented but patentable
          inventions, as appropriate, giving due consideration to value, importance,
          cost
          and opinion of counsel as to patentability; and (c) preserve and maintain
          all
          Patent Rights. Any expenses incurred in connection with such applications
          shall
          be borne by Grantor. Grantor shall not abandon any patent or patent application
          included in the Patent Rights (other than in favor of a continuing application
          based on such patent application) without the written consent of Bank,
          not to be
          unreasonably withheld. Grantor shall notify Bank in writing within five
          days of
          learning of any potential infringement of the Patent Rights.

         

        2.   Grantor
          shall use its
          commercially reasonable efforts to: (a) register all additions to copyrights,
          including derivative or collective works; (b) employ copyright notices
          in
          compliance with applicable legal requirements or as permitted to maximize
          the
          protection and enforcement of the copyrights; and (c) monitor infringement
          of
          the copyrights and forthwith advise Bank in writing of any such infringement
          so
          discovered within five days of learning of such infringement.

         

        3.      
          Grantor
          shall use its commercially reasonable efforts to: (a) register and maintain
          the
          registration of all trademarks; (b) continue to use all trademarks as legally
          required so as to preserve its exclusive rights therein and employ trademark
          notices in compliance with applicable legal requirements or as permitted
          to
          maximize the protection and enforcement of the trademarks including the
          maintenance of all domain names held exclusively in the name of Borrower
          at any
          time during the term of this Agreement; (c) monitor infringements of the
          trademarks and forthwith advise Bank in writing of any infringement so
          discovered within five days of learning of such infringement; and (d) prosecute
          any infringement of the trademarks forthwith.

         

        4.  Grantor
          shall advise Bank in writing of any new copyrightable material (whether
          registered or not) including any copyrightable material which is not registered
          as of the date hereof but is later registered; new or modified trademarks
          (whether registered or not); all Patent Rights obtained during the term
          hereof;
          all technology platforms or Intellectual Property developed or conceived
          during
          the term hereof; and all domain names exclusively held by Borrower during
          the
          term hereof.

         

        
          
            
            

          

          
            10

            
              

            

          

          
            
            

          

           

        

        5.       Grantor
          shall not enter into any Third Party Agreement or other agreement, either
          oral
          or written, that has not been negotiated on an arm’s length basis and does not
          otherwise contain reasonable and customary business terms and conditions,
          or
          that is otherwise materially inconsistent with Grantor’s obligations under this
          Security Agreement or take any action, or permit any action to be taken
          by
          others subject to its control (including licensees) or fail to take any
          action
          if doing so or not doing so would materially impair the validity or enforcement
          of the Bank’s rights in and to the Intellectual Property. Grantor shall notify
          Bank in writing within 5 days of learning of any action or inaction on
          the part
          of any third party that would materially impair the validity or enforcement
          of
          Bank’s rights in and to the Intellectual Property. ANY AGREEMENT PERTAINING
          TO
          THE INTELLECTUAL PROPERTY ENTERED INTO AFTER THE DATE HEREOF BETWEEN SMARTONLINE
          AND SMART COMMERCE MUST BE TERMINABLE AT WILL BY THE BANK UPON THE OCCURANCE
          OF
          AN EVENT OF DEFAULT UNDER THE LOAN AGREEMENT AFTER NOTICE AND CURE, IF
          AND AS
          APPLICABLE.

         

        6. 
Grantor
          shall not grant to any other Person, by license, sublicense, assignment
          or
          otherwise, any rights in and to any of the Intellectual Property outside
          of the
          ordinary course of business, unless consented thereto in writing by Bank,
          and
          upon such terms and conditions as Bank may reasonably require.

         

        7. 
Grantor
          shall use its commercially reasonable efforts to obtain a Confidentiality
          Agreement from each person or entity, including, without limitation, each
          employee or contractor, who has or may have any access to, or interest
          in, any
          Intellectual Property.

         

        8. 
Grantor
          shall use its commercially reasonable efforts to institute and prosecute
          litigation to enforce the terms and conditions of any Third Party Agreement
          in
          order to prevent use of any Intellectual Property in contravention with
          the
          terms of a Third Party Agreement and shall notify Bank in writing within
          five
          days of learning of such unauthorized use. If Grantor fails to institute
          such
          proceedings or gives Bank notice that Grantor does not intend to act, Bank
          may
          institute such proceedings in Grantor’s name or on its own behalf and, if
          necessary or appropriate, proceed in the name of Grantor, at Grantor’s own cost
          and expense. 

         

        If
          Grantor fails to comply with the foregoing, Bank may do so in Grantor’s name, or
          in Bank’s name but at Grantor’s expense, and Grantor shall reimburse Bank for
          all expenses, including reasonable attorney’s fees, incurred by Bank in
          protecting, defending and maintaining the Intellectual Property. All recoveries
          from such proceedings shall be applied to the Liabilities. In addition,
          Grantor
          hereby authorizes and empowers Bank, in connection with Bank’s exercise of its
          rights under this paragraph, to invoke and claim for any applications or
          patents
          included within the Patent Rights, the benefit of any rights to which Grantor
          might be entitled under international law or under the laws of any particular
          country, such as, without limitation, the right of priority provided under
          the
          International Convention for the Protection of Industrial Property, as
          amended,
          and to invoke and claim such rights without further written or oral
          authorization from Grantor.

         

        9. 
Grantor
          shall make all payments and do all other things necessary or prudent to
          renew
          and maintain its domain name registrations and shall advise Bank in writing
          of
          any change in the domain name registrar or domain name registry
          information.

         

        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

        

         

        
          	 	
                  (f)

                	
                  Additional
                    Remedies in the Event of Default.

                

        

         

        Upon
          an
          Event of Default, Grantor shall deliver, and Bank shall be deemed the sole
          and
          exclusive owner of, the Intellectual Property, and Grantor shall cease
          and
          desist, at the request of Bank, in order to protect the rights of Bank,
          from
          using any Intellectual Property, or deriving any benefit therefrom.

         

        After
          the
          occurrence of an Event of Default and so long as such Event of Default
          has not
          been waived, and after the provision by Bank of written notice to Grantor
          of
          Bank’s intention to enforce its rights and claims in the Intellectual Property,
          Bank shall have the right, but shall in no way be obligated, to:

         

        
          	 	
                  1.

                	
                  Bring
                    suit and take other action in its own name to enforce or otherwise
                    protect, preserve or realize upon the Intellectual Property.
                    If Bank shall
                    commence any such suit or take any such action, Grantor shall
                    at the
                    request of Bank, do any and all lawful acts and execute any and
                    all proper
                    documents required by Bank in aid of such action. Grantor shall,
                    upon
                    demand, reimburse and indemnify Bank for all reasonable costs
                    and expenses
                    incurred by Bank in the exercise of its rights
                    hereunder;

                

        

         

        
          	 	
                  2.

                	
                  Present
                    this document to any third party who shall regard it as a Power
                    of
                    Attorney for purposes of the endorsement or signature of Grantor’s name on
                    all applications, documents, papers, government filings, transfer
                    of
                    ownership documents and instruments necessary or desirable for
                    Bank to
                    give effect to the provisions of this Security Agreement and
                    the intent of
                    the parties hereto;

                

        

         

        
          	 	
                  3.

                	
                  Take
                    any other actions with respect to the Intellectual Property consistent
                    with this Security Agreement that Bank deems in the best interest
                    of
                    Bank;

                

        

         

        
          	 	
                  4.

                	
                  Grant
                    or issue any exclusive or nonexclusive license of the Intellectual
                    Property to anyone; or

                

        

         

        
          	 	
                  5.

                	
                  Assign,
                    pledge, convey or otherwise transfer title in or dispose of the
                    Intellectual Property to anyone.

                

        

         

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        

         

        IN
          WITNESS WHEREOF, this Security Agreement was executed and delivered by
          the
          undersigned on the date stated in the first paragraph above.

         

        
          	 	 	 
	 	Grantor:
	 	 
	 	Smart Commerce, Inc., a Delaware
                  corporation
	 
 	 
 	 
 
	
                	By:  	/s/ Nicholas
                  A. Sinigaglia
	 	
                  
                    

                  

                  Nicholas A. Sinigaglia

                  Its: Chief Financial
                    Officer

                

        

        
        

        Accepted
          and Agreed 

        (with
          respect to the last sentence of Section 15(e) 5 only)

        

        Smart
          Online, Inc., a Delaware Corporation

         

        
          	 	 	 	 	 
	By:  	/s/ Nicholas
                  A. Sinigaglia	 	 	
                
	 	
                  
                    

                  

                  Nicholas A. Sinigaglia

                  Its: Chief Financial Officer

                	 	 	
                

        

         

        
          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

         

        SECURITY
          AGREEMENT

        Deposit
          Account

         

        THIS
          AGREEMENT is made on October 17, 2006, by and between Borrower and/or Grantor,
          as herein defined, and Fifth Third Bank (“Bank”), whose address is 1000 Town
          Center, Suite 1500, Southfield, Michigan 48075.

        

        IN
          CONSIDERATION of loans, advances or other financial accommodations from
          the Bank
          to Borrower, Grantor agrees as follows:

        

        1.     Definitions. The
          following terms shall have the following meanings when used in this
          Agreement:

         

        a.     “Borrower”
          and/or
          “Grantor”
          means
          Smart Commerce, Inc., a Delaware corporation, whose executive office is
          2530
          Meridian Parkway, Durham, North Carolina 27713.

        b.     “Collateral”
          means
          the
          property and interests in property described in Section 3 below.

         

        c.     “Liabilities”
          means
          all
          loans, advances or other financial accommodations, including any renewals
          or
          extensions thereof, from the Bank to Grantor and/or Borrower and any and
          all
          liabilities and obligations of any and every kind and nature heretofore,
          now or
          hereafter owing from Grantor and/or Borrower to the Bank, however incurred
          or
          evidenced, whether primary, secondary, contingent or otherwise, arising
          under
          the Business Loan Agreement between Bank and Borrower dated of even date
          herewith, including any renewals, extensions and amendments thereto (“Loan
          Agreement”) and the promissory note(s) executed pursuant thereto, now or
          hereafter executed by Grantor and/or Borrower and delivered to the Bank,
          plus
          all interest, costs, expenses and reasonable attorney fees which may be
          made or
          incurred by the Bank in the disbursement, administration or collection
          of such
          liabilities and obligations and in the protection, maintenance and liquidation
          of the Collateral.

         

        2.     Grant
          of Security Interest. Grantor
          hereby grants to the Bank a continuing security interest in the Collateral
          to
          secure the payment of the Liabilities.

         

        3.     Collateral. The
          Collateral covered by this Agreement is all of Grantor’s property described
          below, which it now owns or shall hereafter acquire or create immediately
          upon
          the acquisition or creation thereof:

         

        a.     The
          money
          on deposit in the following deposit account(s) and proceeds thereof, together
          with all related rights and interests therein and distributions (in cash
          or
          kind) accruing with respect thereto, including additions thereto or
          substitutions or replacements thereof for any reason (the “Deposit
          Account(s)”):

         

        
          
            	
                    Institution
                      Where Deposit Held  

                  	 	
                    Account/Certificate
                      Number 

                  	 	
                    Amount
                      of Deposit

                  
	Fifth Third Bank 	 	
                     —

                  	 	
                    $250,000.00

                  

          

        

        

        b.     Renewals
          of and interest on the Deposit Account. If no fact, event, act or omission
          exists, which with notice and/or the lapse of time (if either or both are
          applicable) would be an Event of Default (as hereinafter defined), Borrower
          may
          withdraw from the Deposit Account (i) the principal amount of $83,333.00
          plus (ii) all interest on the Deposit Account accrued since the date of
          this
          Agreement not previously withdrawn, in each case as of each Income Determination
          Date (as defined in the Loan Agreement) if Borrower’s Operating Income (Loss) as
          of each Income Determination Date is 70% or more of its Projected Income
          (as
          defined in the Loan Agreement) based upon the reports required by Section
          2.1.2(b) of the Loan Agreement. Any amounts withdrawn from the Deposit
          Account
          in accordance with this subsection (b) shall no longer be deemed to be
          Collateral under this Agreement or proceeds, products, additions or accessions
          to, or substitutions, betterments, or replacements of such
          Collateral.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

           

        

        c.     All
          Proceeds (whether Cash Proceeds or Noncash Proceeds) of the foregoing property,
          including without limitation proceeds of insurance payable by reason of
          loss or
          damage to the foregoing property and of eminent domain or condemnation
          awards.

         

        d.     All
          products of, additions and accessions to, and substitutions, betterments
          and
          replacements for the foregoing property.

         

        e.     All
          sums
          at any time credited by or due from the Bank to Grantor.

         

        f.     All
          property in which Grantor has an interest now or at any time hereafter
          coming
          into the possession or under the control of the Bank pursuant hereto and/or
          the
          Loan Agreement, or in transit by mail or carrier to or from the Bank or
          in
          possession of or under the control of any third party acting on the Bank’s
          behalf without regard to whether the Bank received the same in pledge,
          for
          safekeeping, as agent for collection or transmission or otherwise or whether
          the
          Bank has conditionally released the same (excluding, nevertheless, any
          of the
          foregoing property of Grantor which now or any time hereafter is in possession
          or control of the Bank under any written trust agreement wherein the Bank
          is
          trustee and Grantor is trustor).

         

        Terms
          used and not otherwise defined in this Agreement shall have the meaning
          given
          such terms in the Michigan Uniform Commercial Code. In the event the meaning
          of
          any term defined in the Michigan Uniform Code is amended after the date
          of this
          Agreement, the meaning of such term as used in this Agreement shall be
          that of
          the more encompassing of: (i) the definition contained in the Michigan
          Uniform
          Commercial Code prior to the amendment, and (ii) the definition contained
          in the
          Michigan Uniform Commercial Code after the amendment.

         

        4.    
Perfection
          of Security Interest. Grantor
          hereby irrevocably authorizes the Bank to file financing statement(s) describing
          the Collateral in all public offices deemed necessary by the Bank, and
          to take
          any and all actions, including, without limitation, filing all financing
          statements, continuation financing statements and all other documents that
          the
          Bank may reasonably determine to be necessary to perfect and maintain the
          Bank’s
          security interests in the Collateral. Grantor shall have possession of
          the
          Collateral, except where expressly otherwise provided in this Agreement
          or where
          the Bank chooses to perfect its security interest by possession, whether
          or not
          in addition to the filing of a financing statement. Grantor will cooperate
          with
          the Bank in obtaining control with respect to the Collateral. Grantor shall
          pay
          the cost of filing or recording all financing statement(s) and other documents.
          Grantor agrees to promptly execute and deliver to the Bank all financing
          statements, continuation financing statements, assignments, certificates
          of
          title, applications for vehicle titles, affidavits, reports, notices, schedules
          of Accounts, designations of Inventory, letters of authority and all other
          documents that the Bank may reasonably request in form satisfactory to
          the Bank
          to perfect and maintain the Bank’s security interests in the Collateral. In
          order to fully consummate all of the transactions contemplated hereunder,
          Grantor shall make appropriate entries on its books and records disclosing
          the
          Bank’s security interests in the Collateral.

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

           

        

        5.     Warranties
          and Representations. Grantor
          warrants and represents: (a) except as may be otherwise disclosed in an
          attachment to this Agreement, Grantor has rights in or the power to transfer
          the
          Collateral and its title to the Collateral is free and clear of all liens
          or
          security interests, except the Bank’s security interests and Permitted Liens, as
          defined in the Loan Agreement; (b) no financing statements, other than
          that of
          the Bank, are on file covering the Collateral or any of it; (c) Grantor’s exact
          legal name and the address of Grantor’s chief executive office are as set forth
          in the first paragraph of this Agreement; (d) if Grantor is a registered
          organization, the form of its organization and the State under which it
          is
          organized are as set forth in the first paragraph of this Agreement; (e)
          the
          execution and delivery of this Agreement and any instruments evidencing
          Liabilities will not violate nor constitute a breach of Grantor’s Articles of
          Incorporation, By-Laws, or any agreement or restriction of any type whatsoever
          to which Grantor is a party or is subject, except for such breaches that
          will
          not result in a material adverse effect on Grantor’s business; (f) all financial
          statements relating to Grantor delivered or to be delivered by Grantor
          to the
          Bank are prepared in accordance with generally accepted accounting principles
          applied on a consistent basis throughout the periods covered thereby, except
          as
          noted therein, and fairly present the financial condition and operations
          of
          Grantor, on the bases therein stated, as of the respective dates thereof,
          and
          there has been no material adverse change in the financial condition of
          Grantor
          since the submission of any such financial statements to the Bank; (g)
          there are
          no actions or proceedings which are threatened or pending against Grantor
          which
          might result in any material adverse change in Grantor’s financial condition or
          which might materially affect the Collateral; and (h) Grantor has duly
          filed all
          federal, state, and other governmental tax returns which Grantor is required
          by
          law to file, and will continue to file same during such time as any of
          the
          Liabilities hereunder remain owing to the Bank, and all such taxes required
          to
          be paid have been paid, in full, unless being contested in good faith based
          upon
          a meritorious claim or defense.

         

        6.      Covenants. Grantor
          covenants and agrees that while any of the Liabilities remain unperformed
          and
          unpaid it will: (a) preserve its legal existence and not, in one transaction
          or
          a series of related transactions, merge into or consolidate with any other
          entity, or sell all or substantially all of its assets; (b) not change
          the state
          where it is located; (c) neither change its name, form of business entity
          nor
          address of its chief executive office without giving written notice to
          the Bank
          thereof at least thirty (30) days prior to the effective date of such change,
          and Grantor agrees that all documents, instruments, and agreements reasonably
          requested by the Bank in response to such change shall be prepared, filed,
          and
          recorded at Grantor’s expense prior to the effective date of such change; (d)
          not use the Collateral, nor permit the Collateral to be used, for any unlawful
          purpose, whatever; and (e) indemnify and hold the Bank harmless against
          claims
          of any persons or entities not a party to this Agreement concerning disputes
          arising over the Collateral.

         

        7.      Rights
          and Restrictions as to the Deposit Account(s). If
          the
          passbook, certificate, or other documents, if any, representing the Deposit
          Account(s) have not been delivered to the Bank by Grantor with the execution
          of
          this Agreement, such documents shall be delivered to the Bank immediately
          and in
          no event more than twenty-one (21) days after the date hereof. So long
          as this
          Agreement is in effect, except as provided in Section 3(b) above, Grantor
          will
          not make any withdrawals or transfers from the Deposit Account(s) at any
          time
          that the balance thereof is less than, or would be reduced by such withdrawal
          or
          transfer to an amount which is less than, the amount provided in Section
          3(a)
          above. Grantor grants to the Bank an irrevocable and unconditional power
          of
          attorney (coupled with an interest) to take such action and to execute
          and
          deliver such documents and instruments in Grantor’s name as shall be reasonably
          necessary in order to evidence, perfect, enjoy and enforce the Bank’s rights and
          remedies under this Agreement. Borrower hereby irrevocably (until all
          Liabilities are paid in full and Bank has no obligation to make any other
          advances to Borrower) grants Bank control and possession over the Collateral
          to
          the extent required such that this Agreement constitutes a Control Agreement
          as
          defined in the Michigan Uniform Commercial Code.

         

        8.     Disposition
          of Collateral. The
          Bank
          does not authorize Grantor to, and Grantor agrees not to, (a) make any
          sales or
          leases of any of the Collateral, (b) license any of the Collateral, or
          (c) grant
          any other security interest in any of the Collateral.

         

        9.      Information. Grantor
          shall permit the Bank or its agents upon reasonable request to have access
          to,
          and to inspect, all the Collateral (and Grantor’s other assets, if any) and may
          from time to time verify Accounts, inspect, check, make copies of, or extract
          from the books, records, and files of Grantor, and Grantor will make same
          available at any time for such purposes, after reasonable notice from Bank.
          In
          addition, Grantor shall promptly supply the Bank with such other financial
          or
          other information concerning its affairs and assets as the Bank may reasonably
          request from time to time.

        

        
          
            
            

          

          
            3

            
              

            

          

          
            
            

          

           

        

        10.     Remedies
          Upon Default. Immediately
          upon the occurrence of an Event of Default as defined in the Loan Agreement,
          subject to any grace or cure period therein contained (an “Event of Default”),
          the Bank may, in addition to and not in lieu of or substitution for, all
          other
          rights and remedies provided by law, without notice, except as expressly
          required by law, declare the entire unpaid and outstanding principal balance
          of
          the Liabilities, and all accrued interest to be due and payable in full
          forthwith and the Bank may exercise from time to time any rights and remedies
          including the right to immediate possession of the Collateral available
          to it
          under applicable law. The Bank may directly contact third parties and enforce
          against them all rights which arise with respect to the Collateral and
          to which
          Grantor or the Bank would be entitled. Grantor waives any right it may
          have to
          require the Bank to pursue any third person for any of the Liabilities.
          Grantor
          agrees to pay all costs of the Bank of collection of the Liabilities, and
          enforcement of rights hereunder, including reasonable attorney fees and
          legal
          expenses, including participation in bankruptcy proceedings. If any notification
          of intended disposition of any of the Collateral is required by law, such
          notification, if mailed, shall be deemed reasonably and properly given
          if sent
          at least ten (10) days before such disposition, postage pre-paid, addressed
          to
          Grantor either at the address shown above or at any other address of Grantor
          appearing on the records of the Bank and to such other parties as may be
          required by the Michigan Uniform Commercial Code. The Bank may comply with
          any
          applicable state or federal law requirements in connection with a disposition
          of
          the Collateral and compliance will not be considered to adversely affect
          the
          commercial reasonableness of any disposition of the Collateral. The Bank
          shall
          have no obligation to marshal any assets in favor of Grantor. Grantor waives
          the
          right to jury trial in any proceeding instituted with respect to the Collateral.
          Out of the net proceeds from sale or disposition of the Collateral, the
          Bank
          shall retain all the Liabilities then owing to it and the actual cost of
          collection (including reasonable attorney fees) and shall tender any excess
          to
          Grantor or its successors or assigns. If the Collateral shall be insufficient
          to
          pay the entire Liabilities, Grantor shall pay to the Bank the resulting
          deficiency upon demand. Grantor expressly waives any and all claims of
          any
          nature, kind or description which it has or may hereafter have against
          the Bank
          or its representatives, by reason of taking, selling or collecting any
          portion
          of the Collateral. Grantor consents to releases of the Collateral at any
          time
          (including prior to default) and to sales of the Collateral in groups,
          parcels
          or portions, or as an entirety, as the Bank shall deem appropriate. Grantor
          expressly absolves the Bank from any loss or decline in market value of
          any
          Collateral by reason of delay in the enforcement or assertion or nonenforcement
          of any rights or remedies under this Agreement. Grantor agrees that the
          Bank
          shall, upon the occurrence of an Event of Default, have the right to peacefully
          retake any of the collateral. Grantor waives any right it may have in such
          instance to a judicial hearing prior to such retaking.

         

        11.     General. Time
          shall be deemed of the essence of this Agreement. The Bank shall be deemed
          to
          have exercised reasonable care in the custody and preservation of any Collateral
          in its possession if it takes such action for that purpose as Grantor requests
          in writing, but failure of the Bank to comply with any such request shall
          not of
          itself be deemed a failure to exercise reasonable care, and failure of
          the Bank
          to preserve or protect any rights with respect to such Collateral against
          any
          prior parties or to do any act with respect to the preservation of such
          Collateral not so requested by Grantor shall not be deemed a failure to
          exercise
          reasonable care in the custody and preservation of such Collateral. This
          Agreement has been delivered in Michigan and shall be construed in accordance
          with the laws of the State of Michigan. Whenever possible, each provision
          of
          this Agreement shall be interpreted in such manner as to be effective and
          valid
          under applicable law, but if any provision of this Agreement shall be prohibited
          by or invalid under applicable law, such provision shall be ineffective
          to the
          extent of such prohibition or invalidity, without invalidating the remainder
          of
          such provision or the remaining provisions of this Agreement. The rights
          and
          privileges of the Bank hereunder shall inure to the benefit of its successors
          and assigns, and this Agreement shall be binding on all heirs, personal
          representatives, assigns and successors of Grantor and all persons who
          become
          bound as a debtor to this Agreement. Grantor hereby expressly authorizes
          and
          appoints the Bank to act as its attorney-in-fact for the sole purpose of
          executing any and all financing statements or other documents deemed necessary
          to perfect the security interest herein contemplated.

         

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

           

        

        12.     No
          Waiver. Any
          delay
          on the part of the Bank in exercising any power, privilege or right hereunder,
          or under any other instrument executed by Grantor to the Bank in connection
          herewith, shall not operate as a waiver thereof, and no single or partial
          exercise thereof, or the exercise of any other power, privilege or right,
          shall
          preclude other or further exercise thereof, or the exercise of any other
          power,
          privilege or right. The waiver of the Bank of any default by Grantor shall
          not
          constitute a waiver of any subsequent defaults, but shall be restricted
          to the
          default so waived. All rights, remedies and powers of the Bank hereunder
          are
          irrevocable and cumulative, and not alternative or exclusive, and shall
          be in
          addition to all rights, remedies, and powers given hereunder or in or by
          any
          other instruments, or by the Michigan Uniform Commercial Code, or any laws
          now
          existing or hereafter enacted. Grantor acknowledges that this is the entire
          agreement between the parties except to the extent that writings signed
          by the
          party to be charged are specifically incorporated herein by reference either
          in
          this Agreement or in such writings, and acknowledges receipt of a true
          and
          complete copy of this Agreement.

        

        IN
          WITNESS WHEREOF, this Security Agreement was executed and delivered by
          the
          undersigned on the date stated in the first paragraph above.

         

        
          	 	 	 
	 	Grantor/Borrower:
	 	 
	 	Smart Commerce, Inc., a Delaware
                  corporation
	 
 	 
 	 
 
	
                	By:  	/s/ Nicholas
                  A. Sinigagilia
	 	
                  
                    

                  

                  Nicholas A. Sinigagilia

                  Its: Chief Financial
                    Officer

                

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

        

      

       

    

     

    COLLATERAL
      ASSIGNMENT

    OF

    TRADEMARKS

    

    WHEREAS,
      Smart Commerce, Inc., a Delaware corporation (“Assignor”) is the owner of the
      entire right, title and interest in the following Trademarks:

    

    
      	
              1.
                ONEDOMAIN

            	
              Registration
                Number 2866661

            
	 	 
	
              2.
                IMART

            	
              Registration
                Number 2429214

            

    

    

    And
      all
      associated goodwill, together with the right to bring suit and collect for
      past
      and future infringements thereof; and all income, royalties, damages and
      payments now and hereafter due and/or payable under and with respect thereto;
      and all other proceeds and products of the foregoing, including, without
      limitation, any rights pursuant to Assignor’s agreements with any other party
      relating thereto (collectively, the “Trademark Rights”); and

    

    WHEREAS,
      Assignor and Fifth Third Bank, a Michigan Banking Corporation (“Assignee), are
      parties to a certain Security Agreement dated October 17, 2006 (together with
      any and all amendments now or hereafter made thereto, hereafter known as the
      “Security Agreement”) which provides for the grant by Assignor to Assignee of a
      continuing security interest in certain of Assignor’s assets, including without
      limitation the Trademark Rights; and

    

    WHEREAS,
      Assignee has required, as a condition to the loans, advances or other financial
      accommodations to Assignor under the Security Agreement, that Assignor execute
      and deliver to Assignee this Collateral Assignment of Trademarks.

    

    NOW
      THEREFORE, in view of the payment of One Dollar and 00/100 ($1.00) and other
      legally sufficient and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged by Assignor, Assignor DOES HEREBY assign and
      transfer to Assignee all right, title and interest in and to the Trademark
      Rights to secure the complete and timely satisfaction of all of the Liabilities
      (as defined in the Security Agreement and hereafter referred to as the
“Liabilities”).

    

    
      	 	
              1.

            	
              Covenants
                and Warranties. Assignor represents, warrants and covenants
                that:

            

    

    

    
      	 	
              a.

            	
              Assignor
                owns the entire right, title and interest in and to each of the Trademarks
                named above free and clear of any liens and encumbrances of every
                kind and
                nature and that no assignment, sale, agreement or encumbrance has
                been
                made or entered into which would conflict with this
                Assignment.

            

    

    
      	 	 	 

      	 	
              b.

            	
              The
                Trademarks named above are subsisting, have not been adjudged invalid
                or
                unenforceable in whole or in part, and are not currently being challenged
                in any way;

            

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          
 

      

    

    
      	 	
              c.

            	
              None
                of the Trademarks named above have lapsed or
                expired;

            

    

       

    
      	 	
              d.

            	
              No
                claim has been made that the use of any of the Trademarks named above
                in
                the conduct of Assignor’s business constitutes an infringement of any
                senior or dominant United States Trademark right or other intellectual
                property right; and

            

    

    
      	 	 	 

      	 	
              e.

            	
              Assignor
                shall provide Assignee, upon request by the same, with all pertinent
                facts
                and documents relating to the Trademark Rights as may be known and
                accessible to Assignor, shall testify as to the same in any interference,
                litigation or proceeding relating thereto, and shall promptly execute
                and
                deliver to Assignee or its legal representatives any and all papers,
                instruments or affidavits required to apply for, obtain, maintain,
                issue
                and enforce the Trademark Rights.

            

    

    

    
      	 	
              2.

            	
              Assignor
                hereby authorizes and empowers Assignee to invoke and claim for any
                Trademarks included within the Trademark Rights, the benefit of any
                rights
                to which Assignor might be entitled under applicable law and to invoke
                and
                claim such rights without further written or oral authorization from
                Assignor.

            

    

    

    
      	 	
              3.

            	
              This
                Assignment and all terms hereof shall be binding upon and inure to
                the
                benefit of the parties and their successors and
                assigns.

            

    

    

    IN
      WITNESS WHEREOF, Assignor has executed this Assignment this 17th
      day of
      October, 2006.

     

    
      	 	 	 
	Date: 10/17/06	  	/s/ Nicholas
              A. Sinigaglia
	 	
              

            
	 	
              ASSIGNOR

            

    

    
      	 	 	 
	
            	  	CFO
	 	
              

            
	 	
              CORPORATE
                CAPACITY

            

    

     

    STATE
      OF
North
      Carolina           
)

     

                          
      ________________)ss.

     

    COUNTY
      OF
Durham                  
      )

    

    Subscribed
      and sworn to before me this 17th day
      of  October,
      2006.

     

    
      	 	 	 
	
            	  	/s/ Darby
              A.
              Dietrich
	 	
              

            
	 	
              Notary
                Public

            

    

    
      
        
        

      

       

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      COLLATERAL
        ASSIGNMENT

      OF

      COPYRIGHTS

      

      WHEREAS,
        Smart Commerce, Inc., a Delaware corporation (“Assignor”) is the owner of the
        entire right, title and interest in the following Copyrights:

       

      
        
          	
                  1.
                    website/iDSA/teaminfocus.com 

                	
                  TX-5-822-684

                
	 	 
	
                  2.
                    Admin/iDSA/teaminfocus.com

                	
                  TX-5-822-685

                
	 	 
	
                  3.
                    One Domain Template Website System

                	
                  TX-6-120-614

                

        

      

       

      And
        all
        receivables and intangibles related thereto, together with the right to bring
        suit and collect for past and future infringements thereof; and all income,
        royalties, damages and payments now and hereafter due and/or payable under
        and
        with respect thereto; and all other proceeds and products of the foregoing,
        including, without limitation, any rights pursuant to Assignor’s agreements with
        any other party relating thereto (collectively, the “Copyright Rights”);
        and

      

      WHEREAS,
        Assignor and Fifth Third Bank, a Michigan Banking Corporation (“Assignee), are
        parties to a certain Security Agreement dated October 17, 2006 (together
        with
        any and all amendments now or hereafter made thereto, hereafter known as
        the
“Security Agreement”) which provides for the grant by Assignor to Assignee of a
        continuing security interest in certain of Assignor’s assets, including without
        limitation the Copyright Rights; and

      

      WHEREAS,
        Assignee has required, as a condition to the loans, advances or other financial
        accommodations to Assignor under the Security Agreement, that Assignor execute
        and deliver to Assignee this Collateral Assignment of Copyrights.

      

      NOW
        THEREFORE, in view of the payment of One Dollar and 00/100($1.00) and other
        legally sufficient and valuable consideration, the receipt and sufficiency
        of
        which are hereby acknowledged by Assignor, Assignor DOES HEREBY assign and
        transfer to Assignee all right, title and interest in and to the Copyright
        Rights to secure the complete and timely satisfaction of all of the Liabilities
        (as defined in the Security Agreement and hereafter referred to as the
“Liabilities”).

      

      
        	 	
                1.

              	
                Covenants
                  and Warranties. Assignor represents, warrants and covenants
                  that:

              

      

      

      
        	 	
                a.

              	
                Assignor
                  owns the entire right, title and interest in and to each of the
                  Copyrights
                  named above free and clear of any liens and encumbrances of every
                  kind and
                  nature and that no assignment, sale, agreement or encumbrance has
                  been
                  made or entered into which would conflict with this
                  Assignment.

              

      

      
      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	 	
                b.

              	
                The
                  Copyrights named above are subsisting, have not been adjudged invalid
                  or
                  unenforceable in whole or in part, and are not currently being
                  challenged
                  in any way;

              

      

      
        	 	 	 

        	 	
                c.

              	
                None
                  of the copyrights named above have lapsed or
                  expired;

              

      

      
        	 	 	 

        	 	
                d.

              	
                No
                  claim has been made that the use of any of the Copyrights named
                  above in
                  the conduct of Assignor’s business constitutes an infringement of any
                  senior or dominant United States copyright or other intellectual
                  property
                  right; and

              

      

      
        	 	 	 

        	 	
                e.

              	
                Assignor
                  shall provide Assignee, upon request by the same, with all pertinent
                  facts
                  and documents relating to the Copyright Rights as may be known
                  and
                  accessible to Assignor, shall testify as to the same in any interference,
                  litigation or proceeding relating thereto, and shall promptly execute
                  and
                  deliver to Assignee or its legal representatives any and all papers,
                  instruments or affidavits required to apply for, obtain, maintain,
                  issue
                  and enforce the Copyright Rights.

              

      

      

      
        	 	
                2.

              	
                Assignor
                  hereby authorizes and empowers Assignee to invoke and claim for
                  any
                  copyrights included within the Copyright Rights, the benefit of
                  any rights
                  to which Assignor might be entitled under applicable law and to
                  invoke and
                  claim such rights without further written or oral authorization
                  from
                  Assignor.

              

      

      

      
        	 	
                3.

              	
                This
                  Assignment and all terms hereof shall be binding upon and inure
                  to the
                  benefit of the parties and their successors and
                  assigns.

              

      

      

      IN
        WITNESS WHEREOF, Assignor has executed this Assignment this 17th
        day of
        October, 2006.

       

      
        	 	 	 
	Dated: 10/17/06	 	/s/ Nicholas
                A. Sinigaglia
	 	
                

              
	 	
                ASSIGNOR

              

      

      
      

       

      
        	 	 	 
	
              	
              	CFO
	 	
                

              
	 	
                CORPORATE
                  CAPACITY

              

      

       

      STATE
        OF  North
        Carolina         )

       

                           
        ________________)ss.

       

      COUNTY
        OF     Durham             )

      

      Subscribed
        and sworn to before me this 17th
        day
        of  October,
        2006.

       

      
        	 	 	 
	
              	 	/s/ Darby
                A.
                Dietrich
	 	
                

              
	 	
                Notary
                  Public

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

     

    SECURITY
      AGREEMENT

    (Stock)

    (Collateral
      Owned By Surety)

    

    THIS
      AGREEMENT is
      made
      on October 17, 2006, by and between Smart Online, Inc. (“Pledgor”), whose
      address is located at 2530 Meridian Parkway, Durham, North Carolina 27713,
      and
      Fifth Third Bank, a Michigan banking corporation (“Bank”), whose address is 1000
      Town Center, Suite 1500, Southfield, Michigan 48075.

     

    RECITALS:

     

    A.    
      Smart
      Commerce, Inc., a Delaware corporation (the “Borrower”), may from time to time
      request loans, advances or other financial accommodations from Bank to be
      secured as herein provided.

     

    B.     
      Bank
      may,
      in its discretion, honor such requests in whole or part.

     

    C.      
      It
      is of
      a business benefit to Pledgor for Bank to make the loans, advances or other
      financial accommodations requested by Borrower, and this Agreement is a material
      inducement thereto.

     

    NOW,
      THEREFORE,
      in
      consideration of the Recitals and the mutual promises herein contained, Pledgor
      hereby agrees as follows:

     

    1.      
      Grant
      of Security Interest.
      Pledgor
      hereby assigns to Bank and grants to Bank a continuing security interest in
      the
      property and interests in property described below (hereinafter referred to
      as
      the “Collateral”) to secure (a) Pledgor’s Guaranty date of even date herewith
      (executed in favor of Bank with respect to the Indebtedness as therein defined
      of the Borrower), and (b) the payment of all loans and advances including any
      renewals or extensions thereof from Bank to Borrower and all obligations of
      any
      and every kind and nature heretofore, now or hereafter owing from Borrower
      to
      Bank, however incurred or evidenced, whether primary, secondary, contingent
      or
      otherwise, whether arising under any security agreement(s), promissory note(s),
      guarantee(s), mortgage(s), lease(s), instrument(s), document(s), contract(s),
      letter(s) of credit or similar agreement(s) heretofore, now or hereafter
      executed by Borrower and delivered to Bank, or by oral agreement or by operation
      of law plus all interest, costs, expenses and reasonable attorney fees which
      may
      be made or incurred by Bank in the disbursement, administration or collection
      of
      such obligations and in the protection, maintenance and liquidation of the
      Collateral (hereinafter collectively called “Liabilities”).

     

    2.      
      Collateral.
      The
      Collateral covered by this Agreement is all of Pledgor’s property described
      below, which it now owns or shall hereafter acquire or create immediately upon
      the acquisition or creation thereof, together with all Proceeds (whether Cash
      Proceeds or Noncash Proceeds) of the Collateral:

     

    ANY
      AND ALL RIGHT, TITLE AND INTEREST OF PLEDGOR IN AND TO 100 SHARES OF THE CAPITAL
      STOCK OF SMART COMMERCE, INC., A DELAWARE CORPORATION, ISSUED TO PLEDGOR, AND
      RESPECTIVELY EVIDENCED BY STOCK CERTIFICATE NO. 1 AND
      ALL RIGHTS INCIDENT THERETO, AND IN AND TO ANY ADDITIONAL INTEREST IN THE
      BORROWER HEREAFTER ACQUIRED BY PLEDGOR INCLUDING ALL PLEDGOR’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 THE BORROWER 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,
      PLEDGOR’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 THE
      BORROWER MADE IN CONNECTION WITH, AS A RESULT OF, OR PURSUANT TO, A DISSOLUTION
      OF THE BORROWER), AND (Y) THE ASSETS OF THE BORROWER.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.     
      Perfection
      of Security Interest.
      Pledgor
      shall execute and deliver to Bank concurrently with Pledgor’s execution of this
      Agreement and at any time or times hereafter at the request of Bank and pay
      the
      cost of filing or recording same in all public offices deemed necessary by
      Bank,
      all financing statements, continuation financing statements, assignments,
      affidavits, reports, notices, letters of authority and all other documents
      that
      Bank may reasonably request in form satisfactory to Bank to perfect and maintain
      Bank’s security interests in the Collateral. In order to fully consummate all of
      the transactions contemplated hereunder, Pledgor shall make appropriate entries
      on its books and records disclosing Bank’s security interests in the
      Collateral.

     

    4.     
      General
      Warranties and Representations.
      Pledgor
      warrants and agrees that while any of the Liabilities remain unperformed and
      unpaid: (a) except as may be otherwise disclosed in this Agreement, Pledgor
      is
      the owner of the Collateral free and clear of all liens or security interests,
      except Bank’s security interest, and no financing statements, other than that of
      Bank, are on file covering the Collateral or any of it; (b) the address of
      Pledgor’s principal office is as set forth above; (c) the Collateral will not be
      used, nor will Pledgor permit the Collateral to be used, for any unlawful
      purpose, whatever; (d) the execution and delivery of this Agreement and any
      instruments evidencing Liabilities will not violate nor constitute a breach
      of
      Pledgor’s Articles of Incorporation, By-Laws, or any agreement or restriction of
      any type whatsoever to which Pledgor is a party or is subject, except for such
      breaches that could not reasonably be expected to have a material adverse effect
      in Pledgor’s business; (e) all financial statements relating to Pledgor
      delivered or to be delivered by Pledgor to Bank have been prepared in accordance
      with generally accepted accounting principles applied on a consistent basis
      throughout the periods covered thereby, except as otherwise noted therein,
      and
      fairly present the financial conditions and results of operations of Pledgor,
      on
      the bases therein stated, as of the respective dates thereof, and there has
      been
      no material adverse change in the financial condition of Pledgor since the
      dates
      of such financial statements; (f) there are no actions or proceedings which
      are
      threatened or pending against Pledgor which might result in any material adverse
      change in Pledgor’s financial condition or which might materially affect the
      Collateral; (g) Pledgor has duly filed all federal, state, and other
      governmental tax returns which Pledgor is required by law to file, and will
      continue to file same during such time as any of the Liabilities hereunder
      remain owing to Bank, and all such taxes required to be paid have been paid,
      in
      full (unless being contested in good faith); (h) Pledgor will indemnify and
      hold
      Bank harmless against claims of any persons or entities not a party to this
      Agreement concerning disputes arising over Pledgor’s use, operation or ownership
      of the Collateral; and (i) Pledgor shall at all times own and have pledged
      to
      Bank hereunder one hundred percent (100%) of all issued and outstanding equity
      interests of Borrower, including interests convertible to equity.

     

    5.     
      Warranties
      and Representations Concerning Borrower.
      Pledgor
      warrants and represents to Bank that Pledgor is not in default under any
      agreement(s) which create, govern or otherwise affect the Borrower
      (collectively, the “Borrower Agreement”) and that Pledgor will pay, when due,
      all amounts required to be paid and perform, in a timely fashion, all
      obligations required to be performed by Pledgor under the Borrower Agreement.
      In
      the event that Pledgor shall default in the payment of any amount that Pledgor
      is obligated to pay or in the performance of any obligation that Pledgor is
      obligated to perform under the Borrower Agreement and fail to pay such amount
      or
      perform such obligation within sixty (60) days after Pledgor’s failure to pay or
      perform, (i) such uncured default shall constitute an Event of Default under
      this Agreement and shall entitle Bank to exercise its rights and remedies
      hereunder or otherwise provided by law or in equity, and (ii) Pledgor shall
      forthwith give notice of such default to Bank, and Bank shall have the right,
      but not the obligation, to cure such default; provided, however, that all sums
      expended by Bank, including attorneys’ fees, in curing any such default,
      together with interest thereon at the rate provided in the Note, shall be added
      to the Liabilities, be secured by this Agreement (and the other Loan Documents
      which evidence and/or secure the Liabilities) and be payable on demand. Pledgor
      further warrants and represents that Pledgor owns and shall keep Pledgor’s
      interest in the Collateral free and clear of all liens, encumbrances, security
      interests and claims other than the security interests of Bank hereunder, and
      that Pledgor has absolute and good title thereto and legal and proper authority
      to pledge and grant security interests in such interest. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    6.     
      Agreement
      in Effect.
      This
      Agreement shall be and become effective when, and continue in effect as long
      as,
      any of the Liabilities are outstanding and unpaid. Pledgor will not sell,
      assign, transfer, pledge, alienate or otherwise dispose of or encumber any
      Collateral to any third party while this Agreement is in effect without the
      written consent of Bank.

     

    7.     
      Insurance,
      Taxes, Etc.
      Pledgor
      shall pay all taxes, levies, assessments, judgments, and charges of any kind
      upon or relating to the Collateral, to Pledgor’s business, and to Pledgor’s
      ownership or use of any of its assets, income, or gross receipts (unless being
      contested in good faith). If Pledgor at any time hereafter should fail to pay
      any such tax, assessment, levy, or charge, then Bank, without waiving or
      releasing any obligation or default of Pledgor hereunder, may at any time
      hereafter (but shall be under no obligation to do so) make such payment and
      take
      such action with respect thereto as Bank deems advisable. All sums so disbursed
      by Bank, including reasonable attorney fees, court costs, expenses, and other
      charges relating thereto, shall be part of the Liabilities, secured hereby,
      and
      payable upon demand together with interest at the highest rate payable in
      connection with any of the Liabilities from the date when advanced until
      paid.

     

    8.     
      Information.
      Pledgor
      shall permit Bank or its agents, upon reasonable request and notice, to have
      access to, and to inspect, all the Collateral and may from time to time inspect,
      check, make copies of, or extracts from the books, records, and files of Pledgor
      related to the Collateral, and Pledgor will make same available at any time
      for
      such purposes. 

     

    9.     
      Voting
      Rights.
      So long
      as no Event of Default, as defined in Section 10 hereof, shall have occurred
      and
      be continuing, Pledgor shall be entitled to exercise any and all voting and
      consensual rights and powers relating or pertaining to the Collateral or any
      part thereof for any purpose not inconsistent with the terms of this
      Agreement.

     

    10.     Events
      of Default.
      Pledgor,
      without notice or demand of any kind, shall be in default under this Agreement
      upon the occurrence of any of the following events (each an “Event of
      Default”):

     

    a.     
      Misrepresentation.
      Any
      written warranty, representation, certificate or statement in this Agreement
      made by Pledgor shall be false, inaccurate or misleading in any respect (in
      the
      case of any warranty, representation, certificate or statement containing
      materiality qualifications) or in any material respect (in the case of any
      warranty, representation, certificate or statement without materiality
      qualifications) when made or at any time, in each case as of the date made,
      or
      if any financial statements hereafter furnished to Bank by or on behalf of
      Pledgor shall prove to be false, inaccurate or misleading in any material
      respect.

     

    b.     
      Nonperformance.
      Pledgor’s failure to perform or default in the performance of any covenant,
      condition or agreement contained in this Agreement, or in any loan document
      executed in conjunction with the Liabilities (the “Loan Documents”) or any other
      agreement with Bank, which is not cured within ten (10) calendar days of
      Pledgor’s receipt of written notice thereof from Bank (provided, such cure
      period shall be inapplicable to the extent Pledgor is otherwise entitled to
      a
      cure period hereunder).

     

    c.     
      Default
      under Other Agreements.
      Any
      default in the payment of principal, interest or any other sum for any other
      material obligation of Pledgor (as reasonably determined by Bank and provided
      that the consequences of such default would cause a material adverse change
      in
      the financial condition of Pledgor) beyond any period of grace provided with
      respect thereto or in the performance of any other term, condition or covenant
      contained in any material agreement (including, but not limited to, any capital
      or operating lease or any agreement in connection with the deferred purchase
      price of property) under which any such material obligation is created, the
      effect of which default is to cause or permit the holder of such material
      obligation (or the other party to such other agreement) to cause such material
      obligation to become due prior to its stated maturity or terminate such other
      material agreement.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    d.     
      Assignment
      for Creditors.
      Pledgor
      makes an assignment for the benefit of creditors, fails to pay, or admits in
      writing its inability to pay its debts as they mature; or if a trustee of any
      substantial part of the assets of Pledgor is applied for or appointed, and
      in
      the case of such trustee being appointed in a proceeding brought against such
      Pledgor, Pledgor, by any action or failure to act indicates its approval of,
      consent to, or acquiescence in such appointment and such appointment is not
      vacated, stayed on appeal or otherwise shall not have ceased to continue in
      effect within sixty (60) days after the date of such appointment.

     

    e.     
      Bankruptcy.
      Any
      proceeding involving Pledgor is commenced by or against such Pledgor under
      any
      bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
      dissolution or liquidation law or statute of the federal government or any
      state
      government, and in the case of any such proceeding being instituted against
      Pledgor, (i) Pledgor, by any action or failure to act indicates its approval
      of,
      consent to or acquiescence therein, or (ii) an order shall be entered approving
      the petition in such proceedings and such order is not vacated, stayed on appeal
      or otherwise shall not have ceased to continue in effect within sixty (60)
      days
      after the entry thereof.

     

    f.     
      Judgments.
      The
      entry of any judgment, decree, levy, attachment, garnishment or other process,
      or the filing of any judgment lien against Pledgor which is not fully covered
      by
      insurance, and
      such
      judgment or other process shall not have been, within thirty (30) days from
      the
      entry thereof, (i) bonded over to the satisfaction of Bank and appealed, (ii)
      vacated, or (iii) discharged.

     

    g.     
      Material
      Adverse Event.
      The
      occurrence of any material adverse event which causes a change in the financial
      condition of Pledgor or which would have a material adverse effect on the
      business of Pledgor.

     

    h.     
      Material
      Adverse Financial Change.
      The
      reasonable determination by Bank that a material adverse change has occurred
      in
      the financial condition of Pledgor from the condition set forth in the most
      recent financial statement of Pledgor furnished to Bank, or from the financial
      condition of Pledgor most recently disclosed to Bank in any manner.

     

    11.     Remedies.
      Upon
      the occurrence of any Event of Default as defined in Section 10 hereof or an
      Event of Default (as defined in the Loan Agreement or in any of the Loan
      Documents) (subject to applicable grace and cure periods), any and all of the
      Liabilities may (notwithstanding any provisions thereof and unless otherwise
      provided in any loan agreement executed in conjunction therewith), at the option
      of Bank, and without demand or notice of any kind, be declared and thereupon
      shall immediately become due and payable and Bank may exercise from time to
      time
      any rights and remedies including the right to immediate possession of the
      Collateral available to it under applicable law. Bank may directly contact
      third
      parties and enforce against them all rights which arise with respect to the
      Collateral and to which Pledgor or Bank would be entitled. Subject to any
      agreement limiting Pledgor’s obligations to pay the Liabilities, Pledgor agrees,
      upon the occurrence of an Event of Default, to pay all costs of Bank of
      collection of the Liabilities, and enforcement of rights hereunder, including
      reasonable attorney fees and legal expenses, including participation in
      bankruptcy proceedings. If any notification of intended disposition of any
      of
      the Collateral is required by law, such notification, if mailed, shall be deemed
      reasonably and properly given if sent at least ten (10) days before such
      disposition, postage pre-paid, addressed to Pledgor either at the address shown
      above or at any other address of Pledgor appearing on the records of Bank.
      Pledgor acknowledges that Bank may be unable to effect a public sale of all
      or
      any portion of the Collateral because of certain legal and/or practical
      restrictions and provisions which may be applicable to the Collateral and,
      therefore, may be compelled to resort to one or more private sales to a
      restricted group of offerees and purchasers. Pledgor consents to any such
      private sale so made even though at places and upon terms less favorable than
      if
      the Collateral were sold at public sale. Pledgor waives the right to jury trial
      in any proceeding instituted with respect to the Collateral. Out of the net
      proceeds from sale or disposition of the Collateral, Bank shall retain all
      the
      Liabilities then owing to it and the actual cost of collection (including
      reasonable attorney fees) and shall tender any excess to Pledgor or its
      successors or assigns. If the Collateral shall be insufficient to pay the entire
      Liabilities, Borrower shall pay to Bank the resulting deficiency upon demand.
      Pledgor expressly waives any and all claims of any nature, kind or description
      which it has or may hereafter have against Bank or its representatives, by
      reason of taking, selling or collecting any portion of the Collateral. Pledgor
      consents to releases of the Collateral at any time (including prior to default)
      and to sales of the Collateral in groups, parcels or portions, or as an
      entirety, as Bank shall deem appropriate. Pledgor expressly absolves Bank from
      any loss or decline in market value of any Collateral by reason of delay in
      the
      enforcement or assertion or nonenforcement of any rights or remedies under
      this
      Agreement. Pledgor agrees that Bank shall, upon the occurrence of an Event
      of
      Default, have the right to peacefully retake any of the collateral. Pledgor
      waives any right it may have in such instance to a judicial hearing prior to
      such retaking. Pledgor agrees that Bank may enforce its rights with respect
      to
      the Collateral or any part thereof without being obligated first to enforce
      its
      rights with respect to any other security for the Liabilities. Pledgor
      specifically waives any right that it may have to (i) require Bank to marshal
      assets, (ii) require an appraisal, or (iii) seek or require an upset price
      at
      any sale.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    12.     Remedies
      Concerning Organization Interest.
      Pledgor
      agrees that from and after the occurrence of an Event of Default any and all
      (i)
      distributions, in cash or in kind, of the Borrower that would otherwise be
      made
      to Pledgor (including, but not limited to, any and all such distributions that
      would otherwise be made to Pledgor out of (a) the operating revenues of the
      Borrower, (b) the proceeds of the sale of, or the refinancing of any mortgage
      loan on any property owned by the Borrower, and/or (c) the proceeds of the
      liquidation of the assets [or the assets themselves, in the case of a
      distribution of kind] of the Borrower made in connection with, as a result
      of or
      pursuant to the dissolution of the Borrower), and (ii) other payments by the
      Borrower of every kind or nature that would otherwise be made to Pledgor, shall
      be paid to Bank instead. Bank may, at its option, (i) apply such amounts to
      the
      Liabilities, whether matured or unmatured, (ii) hold such amounts as part of
      the
      Collateral, or (iii) invest such amounts in any obligations of the United States
      government or any instrumentality thereof or in certificates of deposit issued
      by, or interest bearing accounts with, any national or state chartered bank
      or
      savings and loan association, hereinafter collectively referred to as “Permitted
      Investments,” and hold such Permitted Investments as part of the Collateral, in
      which event all payments on such Permitted Investments, including, but not
      limited to, principal and interest payments, shall be held by Bank as part
      of
      the Collateral or Bank may apply such payments to the Liabilities, or may
      reinvest such payments in a Permitted Investment, in which event the provisions
      contained in this Section 12 relating to Permitted Investments and the
      disposition of payment thereon shall apply with respect to such reinvestments.
      The risk of loss with respect to such Permitted Investments shall be on Pledgor,
      and Pledgor shall have the liability for any income or other taxes payable
      in
      respect of any payments on such Permitted Investments. Notwithstanding the
      foregoing, Bank may, at its option, deliver any such distributions or payments
      to Pledgor.

     

    13.     General.
      Time
      shall be deemed of the essence of this Agreement. Except as otherwise defined
      in
      this Agreement, all terms in this Agreement shall have the meanings provided
      by
      the Michigan Uniform Commercial Code. Bank shall be deemed to have exercised
      reasonable care in the custody and preservation of any Collateral in its
      possession if it takes such action for that purpose as Pledgor requests in
      writing, but failure of Bank to comply with any such request shall not of itself
      be deemed a failure to exercise reasonable care, and failure of Bank to preserve
      or protect any rights with respect to such Collateral against any prior parties
      or to do any act with respect to the preservation of such Collateral not so
      requested by Pledgor shall not be deemed a failure to exercise reasonable care
      in the custody and preservation of such Collateral. This Agreement has been
      delivered in Michigan and shall be construed in accordance with the laws of
      the
      State of Michigan. Whenever possible, each provision of this Agreement shall
      be
      interpreted in such manner as to be effective and valid under applicable law,
      but if any provision of this Agreement shall be prohibited by or invalid under
      applicable law, such provision shall be ineffective to the extent of such
      prohibition or invalidity, without invalidating the remainder of such provision
      or the remaining provisions of this Agreement. The rights and privileges of
      Bank
      hereunder shall inure to the benefit of its successors and assigns, and this
      Agreement shall be binding on all heirs, personal representatives, assigns
      and
      successors of Pledgor. Pledgor hereby expressly authorizes and appoints Bank
      to
      act as its attorney-in-fact for the sole purpose of executing any and all
      financing statements or other documents deemed necessary to perfect the security
      interest herein contemplated.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    14.     No
      Waiver.
      Any
      delay on the part of Bank in exercising any power, privilege or right hereunder,
      or under any other instrument executed by Pledgor to Bank in connection
      herewith, shall not operate as a waiver thereof, and no single or partial
      exercise thereof, or the exercise of any other power, privilege or right shall
      preclude other or further exercise thereof, or the exercise of any other power,
      privilege or right. The waiver of Bank of any default by Pledgor shall not
      constitute a waiver of any subsequent defaults but shall be restricted to the
      default so waived. All rights, remedies and powers of Bank hereunder are
      irrevocable and cumulative, and not alternative or exclusive, and shall be
      in
      addition to all rights, remedies, and powers given hereunder or in or by any
      other instruments, or by the Michigan Uniform Commercial Code, or any laws
      now
      existing or hereafter enacted. Pledgor acknowledges that this is the entire
      agreement between the parties except to the extent that writings signed by
      the
      party to be charged are specifically incorporated herein by reference either
      in
      this Agreement or in such writings, and acknowledges receipt of a true and
      complete copy of this Agreement.

     

    IN
      WITNESS WHEREOF, this Security Agreement was executed and delivered by the
      undersigned on the date stated in the first paragraph above.

     

    
      
        	 Witnesses:  	 	Pledgor:
	 	 	 
	 	 	Smart Online,
                Inc., a
                Delaware corporation
	 	 	 	 
	/s/ Tracy
                Beyersdorf 	 	 By:	/s/ Nicholas
                A. Sinigaglia
	
                

              	 	 	
                

                Nicholas
                  A. Sinigaglia
Its:
                  Chief Financial Officer

              

      

    

     

    
      
        
        

      

      
        6PROMISSORY
      NOTE

    $1,30,000.00

    
November
      14, 2006

     

    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 One Million, Three Hundred Thousand and No/100 Dollars ($1,300,000.00)
      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”).

     

    LOAN
      AGREEMENT.  This Note is subject to the provisions of that certain
      Loan Agreement between Bank and Borrower of even date herewith, as modified
      from
      time to time.

     

    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,
      2007 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.

     

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

     

    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
        AMD 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 December 1, 2006, 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, 2007.

       

      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.

       

      
        
          
          

        

        
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            2

          
            

          

        

        
          
          

        

      

    

     

    
      ATTORNEYS’
        FEES AND 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 fess 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.

       

      
        
          
          

        

        
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            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 nameo 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. 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 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.

      

      

      
        
          
          

        

        
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            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 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.

       

      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

              
	 	
                 

              

      

       

      
        
          
            
            

          

          
            Page
              5

            
              

            

          

          
            
            

          

        

         

        
          LOAN
            AGREEMENT

           

          Wachovia
            Bank, National Association

          Charlotte,
            North Carolina 28202

          (Hereinafter
            referred to as the “Bank”)

           

          Smart
            Online, Inc.

          2530
            Meridian Parkway, 2nd Floor

          Durham,
            North Carolina 27713

          (Hereinafter
            referred to as “Borrower”)

           

          This
            Loan
            Agreement (“Agreement”) is entered into November 14, 2006, by and between Bank
            and Borrower.

           

          This
            Agreement applies to the loan or loans (individually and collectively,
            the
“Loan”) evidenced by one or more promissory notes dated November 14, 2006 or
            other notes subject hereto, as modified from time to time (whether one
            or more,
            the “Note”) and all Loan Documents. The terms “Loan Documents” and
“Obligations,” as used in this Agreement, are defined in the Note.

           

          Relying
            upon the covenants, agreements, representations and warranties contained
            in this
            Agreement, Bank is willing to extend credit to Borrower upon the terms
            and
            subject to the conditions set forth herein, and Bank and Borrower agree
            as
            follows:

           

          AVAILABILITY.
            With
            respect to the line of credit Promissory Note in the amount of $1,300,000.00,
            dated November 14, 2006, 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
            $1,300,000.00.

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

    

     

    
      
        REPRESENTATIONS.
          Borrower
          represents that from the date of this Agreement and until final payment
          in full
          of the Obligations: Accurate Information. All information now and hereafter
          furnished to Bank is and will be true, correct and complete in all material
          respects. Any such information relating to Borrower’s financial condition will
          accurately reflect Borrower’s financial condition as of the date(s) thereof,
          (including all contingent liabilities of every type), and Borrower further
          represents that its financial condition has not changed materially or adversely
          since the date(s) of such documents. Authorization; Non-Contravention.
          The
          execution, delivery and performance by Borrower and any guarantor, as
          applicable, of this Agreement and other Loan Documents to which it is a
          party
          are within its power, have been duly authorized as may be required and,
          if
          necessary, by making appropriate filings with any governmental agency or
          unit
          and are the legal, binding, valid and enforceable obligations of Borrower
          and
          any guarantors, and do not (i) contravene, or constitute (with or without
          the
          giving of notice or lapse of time or both) a violation of any provision
          of
          applicable law, a violation of the organizational documents of Borrower
          or any
          guarantor, or a default under any agreement, judgment, injunction, order,
          decree
          or other instrument binding upon or affecting Borrower or any guarantor,
          (ii)
          result in the creation or imposition of any lien (other than the lien(s)
          created
          by the Loan Documents) on any of Borrower’s or any guarantor’s assets, or (iii)
          give cause for the acceleration of any obligations of Borrower or any guarantor
          to any other creditor. Asset Ownership. Borrower has good and marketable
          title
          to all of the properties and assets reflected on the balance sheets and
          financial statements supplied Bank by Borrower, and all such properties
          and
          assets are free and clear of mortgages, security deeds, pledges, liens,
          charges,
          and all other encumbrances, except as otherwise disclosed to Bank by Borrower
          in
          writing and approved by Bank (“Permitted Liens”). To Borrower’s knowledge, no
          default has occurred under any Permitted Liens and no claims or interests
          adverse to Borrower’s present rights in its properties and assets have arisen.
          Discharge of Liens and Taxes. Borrower has duly filed, paid and/or discharged
          all taxes or other claims that may become a lien on any of its property
          or
          assets, except to the extent that such items are being appropriately
          contested in good faith and an adequate reserve for the payment thereof
          is being
          maintained. Sufficiency of Capital. Borrower is not, and after consummation
          of
          this Agreement and after giving effect to all indebtedness incurred and
          liens
          created by Borrower in connection with the Note and any other Loan Documents,
          will not be, insolvent within the meaning of 11 U.S.C. § 101, as in effect from
          time to time. Compliance with Laws. Borrower and any subsidiary and affiliate
          of
          Borrower and any guarantor are in compliance in all material respects with
          all
          federal, state and local laws, rules and regulations applicable to its
          properties, operations, business, and finances, including, without limitation,
          any federal or state laws relating to liquor (including 18 U.S.C. § 3617, et
          seq.) or narcotics (including 21 U.S.C. § 801, et seq.) and/or any commercial
          crimes; all applicable federal, state and local laws and regulations intended
          to
          protect the environment, and the Employee Retirement Income Security Act
          of
          1974, as amended (“ERISA”), if applicable. None of Borrower, or any subsidiary
          or affiliate of Borrower or any guarantor is a Sanctioned Person or has
          any of
          its assets in a Sanctioned Country or does business in or with, or derives
          any
          of its operating income from investments in or transactions with, Sanctioned
          Persons or Sanctioned Countries in violation of economic sanctions administered
          by OFAC. The proceeds from the Loan will not be used to fund any operations
          in,
          finance any investments or activities in, or make any payments to, a Sanctioned
          Person or a Sanctioned Country. “OFAC” means the U.S. Department of the
          Treasury’s Office of Foreign Assets Control. “Sanctioned Country” means a
          country subject to a sanctions program identified on the list maintained
          by OFAC
          and available at http://www.treas.gov/offices/enforcemen/ofac/sanctions/,
          or as
          otherwise published from time to time. “Sanctioned Person” means (i) a person
          named on the list of Specially Designated Nationals or Blocked Persons
          maintained by OFAC available at
          http:/www.treas.gov/offices/enforcement/ofac/sdn/, or as otherwise published
          from time to time, or (ii) (A) an agency of the government of a Sanctioned
          Country, (B) an organization controlled by a Sanctioned Country, or (C)
          a person
          resident in a Sanctioned Country to the extent subject to a sanctions program
          administered by OFAC. Organization and Authority. Each corporation, partnership
          or limited liability company Borrower and/or guarantor, as applicable,
          is duly
          created, validly existing and in good standing under the laws of the state
          of
          its organization, and has all powers, governmental licenses, authorizations,
          consents and approvals required to operate its business as now conducted.
          Each
          corporation, partnership or limited liability company Borrower and/or guarantor,
          as applicable, is duly qualified, licensed and in good standing in each
          jurisdiction where qualification or licensing is required by the nature
          of its
          business or the character and location of its property, business or customers,
          and in which the failure to so qualify or be licensed, as the case may
          be, in
          the aggregate, could have a material adverse effect on the business, financial
          position, results of operations, properties or prospects of Borrower or
          any such
          guarantor. No Litigation. There are no pending or threatened suits, claims
          or
          demands against Borrower or any guarantor that have not been disclosed
          to Bank
          by Borrower in writing, and approved by Bank. Indemnity. Borrower will
          indemnify
          Bank and its affiliates from and against any losses, liabilities, claims,
          damages, penalties or fines imposed upon, asserted or assessed against
          or
          incurred by Bank arising out of the inaccuracy or breach of any of the
          representations contained in this Agreement or any other Loan
          Documents.

      

       

      AFFIRMATIVE
        COVENANTS.
        Borrower
        agrees that from the date hereof and until final payment in full of the
        Obligations, unless Bank shall otherwise consent in writing, Borrower will:
        Access to Books and Records. Allow Bank, or its agents, during normal business
        hours, access to the books, records and such other documents of Borrower
        as Bank
        shall reasonably require, and allow Bank, at Borrower’s expense, to inspect,
        audit and examine the same and to make extracts therefrom and to make copies
        thereof. Business Continuity. Conduct its business in substantially the same
        manner and locations as such business is now and has previously been conducted.
        Certificate of Full Compliance From Accountant. Deliver to Bank, with the
        financial statements required herein, a certification by Borrower’s independent
        certified public accountant that Borrower is in full compliance with the
        Loan
        Documents. Compliance with Other Agreements. Comply with all terms and
        conditions contained in this Agreement, and any other Loan Documents, and
        swap
        agreements, if applicable, as defined in 11 U.S.C. § 101, as in effect from time
        to time. Estoppel Certificate. Furnish, within 15 days after request by Bank,
        a
        written statement duly acknowledged of the amount due under the Loan and
        whether
        offsets or defenses exist against the Obligations. Insurance. Maintain adequate
        insurance coverage with respect to its properties and business against loss
        or
        damage of the kinds and in the amounts customarily insured against by companies
        of established reputation engaged in the same or similar businesses including,
        without limitation, commercial general liability insurance, workers compensation
        insurance, and business interruption insurance; all acquired in such amount
        and
        from such companies as Bank may reasonably require. Maintain Properties.
        Maintain, preserve and keep its property in good repair, working order and
        condition, making all replacements, additions and improvements thereto necessary
        for the proper conduct of its business, unless prohibited by the Loan Documents.
        Collateral. Borrower shall at all times maintain as Collateral a Irrevocable
        Standby Letter of Credit acceptable to the Bank naming the Bank as the
        beneficiary.

       

      
        
          
            
              
              

            

            
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            Notice
              of Default and Other Notices.
              (a)
              Notice of Default.
              Furnish
              to Bank immediately upon becoming aware of the existence of any condition
              or
              event which constitutes a Default (as defined in the Loan Documents)
              or any
              event which, upon the giving of notice or lapse of time or both, may
              become a
              Default, written notice specifying the nature and period of existence
              thereof
              and the action which Borrower is taking or proposes to take with respect
              thereto, (b) Other
              Notices. Promptly notify Bank in writing of (i) any material adverse
              change in
              its financial condition or its business; (ii) any default under any
              material
              agreement, contract or other instrument to which it is a party or by
              which any
              of its properties are bound, or any acceleration of the maturity of
              any
              indebtedness owing by Borrower; (iii) any material adverse claim against
              or
              affecting Borrower or any part of its properties; (iv) the commencement
              of, and
              any material determination in, any litigation with any third party
              or any
              proceeding before any governmental agency or unit affecting Borrower,
              (v) at
              least 30 days prior thereto, any change in Borrower’s name or address as shown
              above, and/or any change in Borrower’s structure; and (vi) receipt of a notice
              of non-renewal or final expiration, cancellation, or any other indication
              that
              the Standby Letter of Credit provided as Collateral for the Note will
              not be
              renewed or extended beyond the current stated expiration date. Other
              Financial
              Information. Deliver promptly such other information regarding the
              operation,
              business affairs, and financial condition of Borrower which Bank may
              reasonably
              request. Payment of Debts. Pay and discharge when due, and before subject
              to
              penalty or further charge, and otherwise satisfy before maturity or
              delinquency,
              all obligations, debts, taxes, and liabilities of whatever nature or
              amount,
              except those which Borrower in good faith disputes. Reports and Proxies.
              Deliver
              to Bank, promptly, a copy of all financial statements, reports, notices,
              and
              proxy statements, sent by Borrower to stockholders, and all regular
              or periodic
              reports required to be filed by Borrower with any governmental agency
              or
              authority.

             

            NEGATIVE
              COVENANTS.
              Borrower
              agrees that from the date hereof and until final payment in full of
              the
              Obligations, unless Bank shall otherwise consent in writing, Borrower
              will not:
              Default on Other Contracts or Obligations. Default on any material
              contract with
              or obligation when due to a third party or default in the performance
              of any
              obligation to a third party incurred for money borrowed. Government
              Intervention. Permit the assertion or making of any seizure, vesting
              or
              intervention by or under authority of any governmental entity, as a
              result of
              which the management of Borrower or any guarantor is displaced of its
              authority
              in the conduct of its respective business or such business is curtailed
              or
              materially impaired. Judgment Entered. Permit the entry of any monetary
              judgment
              or the assessment against, the filing of any tax lien against, or the
              issuance
              of any writ of garnishment or attachment against any property of or
              debts due
              Borrower in an amount in excess of $100,000.00 which is not discharged
              or
              execution is not stayed within 30 days of entry. Retire or Repurchase
              Capital
              Stock. Retire or otherwise acquire any of its capital stock.

             

            ANNUAL
              FINANCIAL STATEMENTS.
              Borrower
              shall deliver to Bank, within 120 days after the close of each fiscal
              year,
              audited financial statements reflecting its operations during such
              fiscal year,
              including, without limitation, a balance sheet, profit and loss statement
              and
              statement of cash flows, with supporting schedules and in reasonable
              detail,
              prepared in conformity with generally accepted accounting principles,
              applied on
              a basis consistent with that of the preceding year. If audited statements
              are
              required, all such statements shall be examined by an independent certified
              public accountant acceptable to Bank. The opinion of such independent
              certified
              public accountant shall not be acceptable to Bank if qualified due
              to any
              limitations in scope imposed by Borrower or any other person or entity.
              Any
              other qualification of the opinion by the accountant shall render the
              acceptability of the financial statements subject to Bank’s
              approval.

             

            
              
                
                  
                    
                      
                      

                    

                    
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                        3

                      
                        

                      

                    

                    
                      
                      

                    

                  

                   

                  
                    PERIODIC
                      FINANCIAL STATEMENTS. Borrower
                      shall deliver to Bank, within 45 days after the end of each
                      fiscal quarter,
                      unaudited management-prepared quarterly financial statements
                      including, without
                      limitation, a balance sheet, profit and loss statement and
                      statement of cash
                      flows, with supporting schedules; all in reasonable detail
                      and prepared in
                      conformity with generally accepted accounting principles, applied
                      on a basis
                      consistent with that of the preceding year. Such statements
                      shall be certified
                      as to their correctness by a principal financial officer of
                      Borrower and in each
                      case, if audited statements are required, subject to audit
                      and year-end
                      adjustments

                     

                    CONDITIONS
                      PRECEDENT.
                      The
                      obligations of Bank to make the loan and any advances pursuant
                      to this Agreement
                      are subject to the following conditions precedent. Additional
                      Documents.
                      Receipt
                      by Bank of such additional supporting documents as Bank or
                      its counsel may
                      reasonably request.

                     

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

                     

                     

                     

                    
                      	 	 	 
	 	
                              Smart
                                Online, Inc.

                            
	 
 	 
 	 
 
	 	By:  	/s/ Nicholas
                              A.
                              Sinigaglia                                               
                              (SEAL)
	 	
                              

                              Nicholas
                                A. Sinigaglia, Chief Financial Officer

                            
	 	
                               

                            

                    

                  

                

              

            

          

        

      

    

     

    
      	 	 	 
	 	
              Wachovia
                Bank National Association

            
	 
 	 
 	 
 
	Date: 	By:  	/s/ Kevin
              Harewood                                                        
              (SEAL)
	 	
              

              Kevin
                Harewood, Vice President

            
	 	
               

            

    

     

    
      
        
          
            
              
                
                

              

              
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              SECURITY
                AGREEMENT

               

              November
                14, 2006 

               

              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”)

               

              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, deposit account
                number
                2000033033877 (“Assigned Deposits”).

               

              Irrevocable
                Standby Letter of Credit #G-007125 in the amount of $1,300,000.00
                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.

       

      
        
          
            
              
                
                  
                    
                    

                  

                  
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                    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 of
                      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 property 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 property 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.

                  
                     

                    
                      
                        
                          
                            
                              
                                
                                  
                                  

                                

                                
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                                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.

                                 

                                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) less 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

                                 

                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                

                                              

                                              
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                                              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.

                                               

                                              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.

                                               

                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                

                                                              

                                                              
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                                                              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.

                                                               

                                                              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
                                                                (the “Jurisdiction”) 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 of
                                                                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.

                                                               

                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                  

                                                                                

                                                                                
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                                                                                    6

                                                                                  
                                                                                    

                                                                                  

                                                                                

                                                                                
                                                                                  
                                                                                  

                                                                                

                                                                              

                                                                              
                                                                                 

                                                                                
                                                                                  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

                                                                                          
	 	
                                                                                             

                                                                                          

                                                                                  

                                                                                   

                                                                                  
                                                                                    
                                                                                      
                                                                                        
                                                                                          
                                                                                            
                                                                                              
                                                                                                
                                                                                                  
                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                        

                                                                                                      

                                                                                                      
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