Document:

EX-10.3

Exhibit 10.3

RESTRICTED STOCK AGREEMENT

THIS RESTRICTED STOCK AGREEMENT, made and entered into as of the       day of
     , 2007, by and between Smart Online, Inc., a Delaware corporation (the “Company), and
     (the “Director”).

WHEREAS, in consideration of the services of the Director, the Company is desirous of giving
the Director shares of common stock of the Company under the Company’s 2004 Equity Compensation
Plan (the “Plan”) (all capitalized terms not otherwise defined herein shall have the meaning set
forth in the Plan), subject to the restrictions set forth below.

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises set forth below and
of other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Restricted Stock Award. The Company shall issue      (     ) shares of
the common stock of the Company (the “Securities”) to the Director, as part of the Director’s
compensation. The Securities are subject to the restrictions set forth in Section 4 below.

2. Director Representations. The Director hereby acknowledges and represents the
following:

(a) Compensation. The Director acknowledges that the Securities are part of his or
her compensation from the Company.

(b) Taxes. The Director has not relied upon the Company with respect to any tax
consequences related to the acquisition or disposition of the Securities. The Director
acknowledges that the Director may incur a substantial tax liability. The Director assumes full
responsibility for all such consequences and the filing of all tax returns and elections the
Director may be required or find desirable to file in connection therewith. In the event any
valuation of the Securities purchased pursuant to its exercise must be made under federal or state
tax laws and such valuation affects any return or election of the Company, the Director agrees that
the Company may determine such value and that the Director will observe any determination so made
by the Company in all returns and elections filed by the Director. In the event the Company is
required by applicable law to collect any withholding, payroll or similar taxes by reason of the
grant of the Securities, the Director agrees that the Company may withhold such taxes from any
monetary amounts otherwise payable by the Company to the Director and that, if such amounts are
insufficient to cover the taxes required to be collected by the Company, the Director will pay to
the Company such additional amounts as are required.

(c) Compliance with Securities Laws. The Director hereby agrees to comply with any
plan, policy or other document of the Company approved by the Board of Directors of the Company to
ensure compliance with securities laws, rules and regulations both prior to the Termination of
Service of the Director and for one (1) year thereafter. The Company may impose stop transfer
restrictions with respect to the Securities to enforce this provision.

(d) Legends. Each certificate representing Securities shall also bear any legend
required by any applicable state securities law or by any other agreement to which the holder
thereof is a party or by which the holder thereof is bound, including the provisions of any
existing “lock-up” or similar agreements between the Director and the Company, and including the
following legend as required in Section 4, below:

THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ASSIGNED, CONVEYED OR
PLEDGED ONLY UPON COMPLIANCE WITH THE TERMS AND CONDITIONS OF A RESTRICTED STOCK
AGREEMENT, AS THE SAME MAY BE AMENDED OR REPLACED FROM TIME TO TIME, A COPY OF WHICH
IS ON FILE WITH, AND AVAILABLE FOR INSPECTION AT THE OFFICES OF THE SECRETARY OF THE
CORPORATION.

3. Condition to Issuance. The representations, warranties, understandings,
acknowledgments and agreements in this Agreement are true and accurate as of the date hereof, shall
be true and accurate as of the date of the issuance of the Securities by the Company and shall
survive thereafter.

4. Restrictions. The Securities described above shall be subject to the following
restrictions:

(a) Restriction Period; Lapse of Restriction. The Director agrees not to transfer,
assign or sell the Securities, without the express written consent of the Company, which may be
granted or withheld in the sole discretion of the Company. This restriction shall expire and cease
to be of any effect with respect to the number of shares equal to      
     
     ; provided that this restriction
shall lapse with respect to an increment as specified only if there has been no Termination of
Service prior to the specified date for such increment. Shares representing the Securities shall
bear a legend to such effect.

The schedule set forth above is cumulative, so that the Securities as to which the restriction has
lapsed on and after a date indicated by the schedule may be transferred, assigned, or sold at any
subsequent date.

(b) Acceleration of Lapse of Restriction. Upon a Change of Control or Corporate
Organization, as defined below, the restriction set forth in Section 5(a) shall accelerate so as to
lapse as to all of the Securities to which the restriction applies on the date of such event.

(i) A “Change in Control” shall be deemed to have occurred if, after the class of stock then
subject to this Agreement becomes publicly traded, (1) the direct or indirect beneficial ownership
(within the meaning of Section 13(d) of the Act and Regulation 13D thereunder) of fifty percent
(50%) or more of the class of securities then subject to this Agreement is acquired or becomes held
by any person or group of persons (within the meaning of Section 13(d)(3) of the Act), but
excluding the Company and any employee benefit plan sponsored or maintained by the Company, or (2)
assets or earning power constituting more than fifty percent (50%) of the assets or earning power
of the Company and its subsidiaries (taken as a whole) is sold, mortgaged, leased or otherwise
transferred, in one or more transactions not in the ordinary course of the Company’s business, to
any such person or group of persons; provided, however, that a Change in Control shall not be
deemed to have occurred upon an investment by one or more venture capital funds, Small Business
Investment Companies (as defined in the Small Business Investment Act of 1958, as amended) or
similar financial investors. For the purposes of this Agreement, the class of stock then subject
to this Agreement shall be deemed to be “publicly traded” if such stock is listed or admitted to
unlisted trading privileges on a national securities exchange or as to which sales or bid and offer
quotations are reported in the automated system operated by the National Association of Securities
Dealers, Inc.

(ii) A “Corporate Reorganization” means the happening of any one (1) of the following events:
(1) the dissolution or liquidation of the Company; (2) a capital reorganization, merger or
consolidation involving the Company, unless (A) the transaction involves only the Company and one
or more of the Company’s parent corporation and wholly-owned (excluding interests held by
employees, officers and directors) subsidiaries; or (B) the shareholders who had the power to elect
a majority of the board of directors of the Company immediately prior to the transaction have the
power to elect a majority of the board of directors of the surviving entity immediately following
the transaction; (3) the sale of all or substantially all of the assets of the Company to another
corporation, person or business entity; or (4) an acquisition of Company stock, unless the
shareholders who had the power to elect a majority of the board of directors of the Company
immediately prior to the acquisition have the power to elect a majority of the board of directors
of the Company immediately following the transaction; provided, however, that a Corporate
Reorganization shall not be deemed to have occurred upon an investment by one or more venture
capital funds, Small Business Investment Companies (as defined in the Small Business Investment Act
of 1958, as amended) or similar financial investors.

5. Effect of Termination of Service. The restriction on the Securities shall lapse as
specified in Section 4 above until the Termination of Service of the Director for reasons other
than death, Disability or Retirement. Pursuant to Section 7.6 of the Plan, where the Termination
of Service is for death, Disability or Retirement, than the Committee shall determine, in its sole
discretion, whether to waive any remaining restriction.

All shares of the Securities still subject to the restriction set forth in Section 5 shall be
forfeited by the Director and reacquired by the Company on such date. Upon such date, the Director
shall have no further rights to any Securities to which the restriction has not lapsed.

6. Rights as Stockholder. The Director shall have all rights as a stockholder with
respect to the Securities; provided, however, any dividends or distributions on the
Securities shall be automatically deferred and reinvested as restricted Securities subject to the
same restrictions set forth in this Agreement.

7. Incorporation of the Plan. The terms and conditions included in the Plan, the
receipt of a copy of which Participant hereby acknowledges by execution of this Agreement, are
incorporated by reference herein, and to the extent that any conflict may exist between any term or
provision of this Agreement and any term or provision of the Plan, such term or provision of the
Plan shall control.

8. Governing Law. This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of Delaware, as such laws are applied by Delaware
courts to agreements entered into and to be performed in Delaware, and shall be binding upon the
Director, the Director’s heirs, estate, legal representatives, successors and assigns and shall
inure to the benefit of the Company and its successors and assigns.

9. Miscellaneous. This Agreement and the Plan constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and supersedes any and all prior or
contemporaneous representations, warranties, agreements and understandings in connection therewith,
other than any existing “lock-up” or similar agreements between the parties which by their terms
would apply to the Securities. This Agreement may be amended only by a writing executed by all
parties hereto. This Agreement may be executed in one or more counterparts.

1

IN WITNESS WHEREOF, Director has executed this Restricted Stock Agreement effective as of the date
first written above.

	 	 	 
	EMPLOYEE:

	 	SMART ONLINE, INC.
	By:     

	 	By:     

Name:      

Title:      

Print Name:     

Address:     

     

     

2EX-10.4

Exhibit 10.4

SMART ONLINE, INC.

Cash Bonus Program

(Approved, November 2007)

The Cash Bonus Program of Smart Online, Inc. (the “Company”) is designed to award and motivate
employees for acting as partners with the Company to achieve financial success during a fiscal
year. All employees of the Company, including named executive officers, would be eligible to
receive annual cash bonus awards.

Pursuant to the program, each fiscal year commencing with fiscal 2008, a cash bonus pool for awards
shall be established based upon the Company’s net profit as of the fiscal year end once a threshold
net profit number of $300,000 is met by the Company. If the threshold net profit number is met as
of December 31 of the fiscal year, a cash bonus pool of 10% of the actual net profit as of that
date shall be allocated for distribution to employees based on the recommendations of management
and approval of the Compensation Committee of the Board. The bonuses would be awarded after the
fiscal year audit is complete, and each intended bonus recipient must be an employee at the time
the bonus awards are paid out in order to be eligible to receive an award.

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