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Unassociated Document

    STOCK
OPTION AGREEMENT

     

     

    THIS
STOCK OPTION AGREEMENT (“Agreement”) is made
and entered into by and between China Intelligent Lighting and Electronics, Inc.
(“Company”), a
Delaware corporation, and Kui (Kevin) Jiang (“Optionee”), effective
on June 17, 2010.  (Company and Optionee are sometimes referred to
herein as “party” or
collectively as the “parties.”)

     

     

    RECITALS

     

    WHEREAS, the Company has entered into
an employment agreement dated as of May 5, 2010 for the purpose of retaining the
services of the Optionee in the service of the Company (or any Parent or
Subsidiary) (the “Employment
Agreement”);

     

    WHEREAS, Optionee is to render valuable
services to the Company (or a Parent or Subsidiary), and this Agreement is
executed pursuant to, and is intended to carry out the purposes of, the
Employment Agreement in connection with the Company’s grant of an option to
Optionee.  All capitalized terms in this Agreement shall have the
meaning assigned to them in the attached Appendix.

     

    NOW, THEREFORE, it is hereby agreed as
follows:

     

    1. Grant of
Option.  The Company hereby grants to Optionee, on June 17,
2010 (the “Grant
Date”), an option to purchase up to Twenty-Five Thousand (25,000) shares
of common stock of the Company, par value $0.0001 per share (the “Option
Shares”).  The Option Shares shall be purchasable from time to
time during the option term specified in Paragraph 2 at an exercise price equal
to $3.00 (the “Exercise
Price”).

     

    2. Option
Term.  This option shall have a term of five (5) years measured
from the Grant Date (the “Expiration Date”) and
shall accordingly expire at the close of business on the Expiration Date, unless
sooner terminated in accordance with Paragraph 5.

     

    3. Limited
Transferability.

     

    (a) This
option shall be neither transferable nor assignable by Optionee other than by
will or the laws of inheritance following Optionee’s death and may be exercised,
during Optionee’s lifetime, only by Optionee.  However, Optionee may
designate one or more persons as the beneficiary or beneficiaries of this
option, and this option shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee’s death while holding this option.  Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee’s death.

     

    
      
         

      

      
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    (b) As a
Non-Statutory Option, this option may be assigned in whole or in part during
Optionee’s lifetime to one or more members of Optionee’s family or to a trust
established for the exclusive benefit of one or more such family members or to
Optionee’s former spouse, to the extent such assignment is in connection with
the Optionee’s estate plan or pursuant to a domestic relations
order.  The assigned portion shall be exercisable only by the person
or persons who acquire a proprietary interest in the option pursuant to such
assignment.  The terms applicable to the assigned portion shall be the
same as those in effect for this option immediately prior to such
assignment.

     

    4. Dates of
Exercise.  This option shall vest in equal installments every
three (3) months over a period of twelve (12) months from the Grant Date (the
“Vesting
Schedule”).

     

    5. Cessation
of Service.  The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become
applicable:

     

    (a) Should
Optionee cease to remain in Service for any reason (other than Optionee’s
termination of his employment without Good Reason or the Company’s termination
of Optionee’s employment for Cause) while this option is outstanding, then
Optionee (or any person or persons to whom this option is transferred pursuant
to a permitted transfer under Paragraph 3) shall have a period of thirty
(30) days (commencing with the date of such cessation of Service) during which
to exercise this option, but in no event shall this option be exercisable at any
time after the Expiration Date.

     

    (b) During
the limited period of post-Service exercisability, this option may not be
exercised in the aggregate for more than the number of Option Shares in which
Optionee is, at the time of Optionee’s cessation of Service, vested pursuant to
the Vesting Schedule or the special vesting acceleration provisions of Paragraph
6.  Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not been
exercised.  To the extent Optionee is not vested in one or more Option
Shares at the time of Optionee’s cessation of Service, this option shall
immediately terminate and cease to be outstanding with respect to those
shares.

     

    (c) Should
Optionee’s Service be terminated by Optionee without Good Reason or by the
Company for Cause, then this option shall terminate immediately and cease to
remain outstanding.

     

    6. Accelerated
Vesting.  In the event that Optionee’s Service is terminated by
the Company for Cause or by Optionee for Good Reason, then the Option Shares at
the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall become exercisable for all of the Option
Shares as fully vested shares and may be exercised for any or all of those
Option Shares as vested shares pursuant to the terms of Section 5.

     

    7. Adjustment
in Option Shares.  Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company’s receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

     

    
      
         

      

      
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    8. Stockholder
Rights.  The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.

     

    9. Manner
of Exercising Option.

     

    (a) In order
to exercise this option with respect to all or any part of the Option Shares for
which this option is at the time exercisable, Optionee (or any other person or
persons exercising the option) must take the following actions:

     

    (i) Execute
and deliver to the Company a Purchase Agreement for the Option Shares for which
the option is exercised.

     

    (ii) Pay the
aggregate Exercise Price for the purchased shares in cash or check made payable
to the Company.

     

    Should
the Common Stock be registered under Section 12 of the 1934 Act at the time the
option is exercised, then the Exercise Price may also be paid as
follows:

     

    (A) in shares
of Common Stock held by Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge to the Company’s
earnings for financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or

     

    (B) to the
extent the option is exercised for vested Option Shares, through a special sale
and remittance procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide irrevocable
instructions (a) to a Company-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable income and
employment taxes required to be withheld by the Company by reason of such
exercise and (b) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale.

     

    Except to
the extent the sale and remittance procedure is utilized in connection with the
option exercise, payment of the Exercise Price must accompany the Purchase
Agreement delivered to the Company in connection with the option
exercise.

     

    
      
         

      

      
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    (iii) Furnish
to the Company appropriate documentation that the person or persons exercising
the option (if other than Optionee) have the right to exercise this
option.

     

    (iv) Execute
and deliver to the Company such written representations as may be requested by
the Company in order for it to comply with the applicable requirements of
applicable securities laws.

     

    (v) Make
appropriate arrangements with the Company (or Parent or Subsidiary employing or
retaining Optionee) for the satisfaction of all applicable income and employment
tax withholding requirements applicable to the option exercise.

     

    (b) As soon
as practical after the Exercise Date, the Company shall issue to or on behalf of
Optionee (or any other person or persons exercising this option) a certificate
for the purchased Option Shares, with the applicable appropriate legends affixed
thereto.

     

    (c) In no
event may this option be exercised for any fractional shares.

     

    10. Compliance
with Laws and Regulations.

     

    (a) The
exercise of this option and the issuance of the Option Shares upon such exercise
shall be subject to compliance by the Company and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of any
Stock Exchange on which the Common Stock may be listed for trading at the time
of such exercise and issuance.

     

    (b) The
inability of the Company to obtain approval from any regulatory body having
authority deemed by the Company to be necessary to the lawful issuance and sale
of any Common Stock pursuant to this option shall relieve the Company of any
liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained.  The Company,
however, shall use its best efforts to obtain all such approvals.

     

    (c) The
Company intends that this option not be considered to provide for the deferral
of compensation under Section 409A of the Code and that this Agreement shall be
so administered and construed.  Further, the Company may modify this
award to the extent necessary to fulfill this intent.

     

    11. Successors
and Assigns.  Except to the extent otherwise provided in
Paragraph 3, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the Company and its successors and assigns and Optionee,
Optionee’s assigns and the legal representatives, heirs and legatees of
Optionee’s estate.

     

    12. Notices.  Any
notice required to be given or delivered to the Company under the terms of this
Agreement shall be in writing and addressed to the Company at its principal
corporate offices.  Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address indicated
below Optionee’s signature line on the this Agreement.  All notices
shall be deemed effective upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be
notified.

     

    
      
         

      

      
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    13. Construction.  This
Agreement and the option evidenced hereby are made and granted pursuant to the
Employment Agreement and are in all respects limited by and subject to the terms
of the Employment Agreement.  All decisions of the Board with respect
to any question or issue arising under the Employment Agreement or this
Agreement shall be conclusive and binding on all persons having an interest in
this option.

     

    14. Governing
Law.  The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of Delaware without resort
to that State’s conflict-of-laws rules.

     

    

     

    

    

    

     

    [SIGNATURES
ON FOLLOWING PAGE]

     

    
      
         

      

      
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    WHEREFORE, the parties hereto have
executed this Agreement on the dates indicated below.

     

     

    
      
        	 	CHINA
      INTELLIGENT LIGHTING AND ELECTRONICS, INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name:
      Li Xuemei	 
	 	 	Title:
      Chief Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	KUI
      (KEVIN) JIANG	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	Address
      for Notice:   	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

      

    

     

    
      
         

      

      
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    APPENDIX

     

    The following definitions shall be in
effect under the Agreement:

     

    A. Agreement
shall mean this Stock Option Agreement.

     

    B. Board
shall mean the Company’s Board of Directors or the Compensation Committee or
other similar committee of the Board acting in its capacity.

     

    C. Cause shall mean (i) the
commission of an act or acts of dishonesty, fraud, embezzlement, or
misappropriation of funds or proprietary information by Optionee in connection
with his employment duties or responsibilities; or (ii) Optionee’s conviction
of, or plea of nolo contendere to, a felony or a crime involving moral turpitude
(other than minor traffic violations); or (iii) Optionee materially breaches his
obligations under the Employment Agreement, including failure to perform his job
duties satisfactorily or failure to follow the Company’s policies or any
directive of the Company, if such failure or refusal is not cured by Optionee
within ten (10) days after receiving written notice of such from the Company; or
(iv) Optionee’s willful or gross misconduct in connection with his employment
duties.

     

    D. Code
shall mean the Internal Revenue Code of 1986, as amended.

     

    E. Common
Stock shall mean the Company’s common stock, $0.0001 par value per
share.

     

    F. Company
shall mean China Intelligent Lighting and Electronics, Inc., a Delaware
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of China Intelligent Lighting and Electronics,
Inc.

     

    G. Employee
shall mean an individual who is in the employ of the Company (or any Parent or
Subsidiary), subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of
performance.

     

    H. Employment
Agreement shall mean that certain employment agreement dated May 5, 2010
by and between the Company and Optionee.

     

    I. Exercise
Date shall mean the date on which the option shall have been exercised in
accordance with Paragraph 9 of the Agreement.

     

    J. Exercise
Price shall have the meaning set forth in Paragraph 1 of the
Agreement

     

    K. Expiration
Date shall have the meaning set forth in Paragraph 2 of the Agreement,
unless sooner terminated in accordance with Paragraph 5.

     

    
      
         

      

      
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    L. Fair
Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

     

    (i) If the
Common Stock is at the time listed on any Stock Exchange, then the Fair Market
Value shall be the closing selling price per share of Common Stock on the date
in question on the Stock Exchange determined by the Board to be the primary
market for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange and published in The Wall Street
Journal.  If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.

     

    (ii) If the
Common Stock is at the time not listed on any Stock Exchange, then the Fair
Market Value shall be determined by the Board after taking into account such
factors as the Board shall deem appropriate.

     

    M. Good
Reason shall mean any of the following, without Optionee’s written
consent: (a) upon a material breach or default of any term of the Employment
Agreement by the Company, or (b) any material reduction in the Optionee’s
duties, position, authority or responsibilities with the Company relative to the
duties, position, authority or responsibilities in effect immediately prior to
such reduction; provided that the Company has not cured or remedied such Good
Reason within fifteen (15) days after written notice of the Good Reason from the
Optionee.

     

    N. Grant
Date shall.have the meaning set forth in Paragraph 1 of the
Agreement

     

    O. 1934
Act shall mean the Securities Exchange Act of 1934, as
amended.

     

    P. Non-Statutory
Option shall mean an option not intended to satisfy the requirements of
Code Section 422.

     

    Q. Option
Shares shall have the meaning set forth in Paragraph 1 of the
Agreement.

     

    R. Optionee shall mean Kui
Jiang.

     

    S. Parent
shall mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each corporation in the unbroken
chain (other than the Company) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

     

    T. Purchase
Agreement shall mean the stock purchase agreement in substantially the
form of Exhibit A to this Agreement.

     

    U. Service
shall mean the Optionee’s performance of services for the Company (or any Parent
or Subsidiary) in the capacity of an Employee, a non-employee member of the
board of directors or an independent consultant.

     

    
      
         

      

      
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    V. Stock
Exchange shall mean the NYSE Amex, New York Stock Exchange, Nasdaq Global
Market, Nasdaq Capital Market or the OTC Bulletin Board.

     

    W. Subsidiary
shall mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, provided each corporation (other than
the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

     

    X. Vesting
Schedule shall have the meaning set forth in Paragraph 4 of the
Agreement.

     

    

    
      
         

      

      
        9SETTLEMENT AGREEMENT AND
MUTUAL RELEASE

      

      This
Settlement Agreement and Mutual Release (“Settlement Agreement”), dated the 18st
day of June, 2010, is entered into by and between DENNIS MICHAEL NOURI, REZA
ERIC NOURI, HENRY NOURI, and RONNA LOPRETE NOURI (collectively, the “Nouris”) on
the one hand, and SMART ONLINE, INC. (the “Company”), on the other hand (the
Nouris, together with the Company, the “Parties”).

      

      RECITALS

      

      A.     
     Dennis Michael Nouri and Reza Eric Nouri are
defendants in a criminal action pending in the United States District Court for
the Southern District of New York, captioned United States v. Dennis Michael
Nouri, et al., Case No. 07 Mag 1257 (the “Criminal Action”).

      

      B.     
      The Nouris and the Company are defendants in
that certain class action pending in the United States District Court for the
Middle District of North Carolina (the “District Court”), captioned Goodwin v. Smart Online, Inc., et
al., Civ. No. 07-CIV-00785-WO-PTS (the “Class Action”).

      

      C.     
      Dennis Michael Nouri is a former officer and
Reza Eric Nouri is a former employee of the Company and they have asserted
claims in the Court of Chancery of the State of Delaware for advancement of
expenses incurred by them in connection with their defense of the Criminal
Action and the Class Action, Nouri v. Smart Online, Inc.,
C.A. No. 4632-CC. In that proceeding, the Nouris have obtained a judgment
against the Company in the amount of $826,798.13, plus future incurred expenses,
now certified to be at least an additional $1,384,329 (the “Delaware Judgment”)
and are currently involved in motion practice against the Company in the
Delaware Chancery Court for the purpose of enforcing such judgment (the “Pending
Action”).

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      D.     
      Henry Nouri and Ronna Loprete Nouri are
former employees of the Company and have asserted claims against the Company for
indemnification and reimbursement of expenses incurred in connection with the
defense of the Class Action.

      

      E.       
    The Parties desire to resolve all issues relating to
claims for advancement and indemnification by the Nouris against the Company,
payments by the Company in connection with such claims, and claims by the
Company for reimbursement of advances paid on behalf of the Nouris, and such
other matters as shall be set forth herein (the “Settlement”).

      

      NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties hereto agree as follows:

      

      1.       
    Payment. Subject to
the terms hereof and conditions set forth herein, the Company shall pay to the
Nouris a total of up to ONE MILLION FOUR HUNDRED THOUSAND UNITED STATES OF
AMERICA DOLLARS (US$1,400,000) as set forth below:

      

      a.        
Within ten (10) days of the Effective Date, as defined below, the Company shall
pay to the Nouris FIVE HUNDRED THOUSAND UNITED STATES OF AMERICA DOLLARS
(US$500,000) by wire transfer pursuant to the wire instructions set forth on
Exhibit A for the
trust account of Baker & McKenzie LLP, which shall receive all payments
under this Agreement by agreement of the Nouris.

      

      b.        
Subject to the terms and conditions set forth herein, commencing on the sixtieth
(60th) day following the Effective Date (such 60th
day, referred to as the “Payment Date”), and thereafter, on each
monthly anniversary of the Payment Date for the following eleven (11)
consecutive months, the Company shall make a payment of SEVENTY FIVE THOUSAND
UNITED STATES OF AMERICA DOLLARS

      
        
           

        

        
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      (US$75,000)
(each of such twelve payments, a “Monthly Payment”), as follows:

      

      
        	
                 
      

              	
                i.

              	
                The
      first ten (10) Monthly Payments shall be paid by the Company to the Nouris
      by wire transfer pursuant to the wire instructions set forth on Exhibit
  A.

              

      

      

      
        	
                 
      

              	
                ii.

              	
                The
      last two Monthly Payments (also referred to as the “Escrow Payments”)
      shall be delivered by the Company by wire transfer pursuant to the wire
      instructions set forth on Exhibit A to an escrow account maintained by
      Baker & McKenzie LLP (the “Escrow Agent”) at the time such Escrow
      Payments are due, to be held by the Escrow Agent in trust to be released
      as follows:

              

      

      

      
        	
                 
      

              	
                I.

              	
                to
      the Company, in the event the pending appeal of the conviction of Dennis
      Michael Nouri and Reza Eric Nouri in the Criminal Action (the “Appeal”) is
      discontinued, settled or dismissed;

              

      

      

      
        	
                 
      

              	
                II.

              	
                to
      the Nouris or their designees as they may have agreed, in the event the
      Appeal is finally adjudicated, and the aggregate fees and expenses
      actually incurred by Dennis Michael Nouri and Reza Eric Nouri to pursue
      the Appeal (the “Appeal Expenses”) equal or exceed $300,000;
      or

              

      

      
        
           

        

        
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                III.

              	
                to
      the Company, in the event of a final adjudication of the Appeal, and the
      Appeal Expenses are less than $150,000;
or

              

      

      

      
        	
                 
      

              	
                IV.

              	
                to
      both the Company and to the Nouris or their designees as they may have
      agreed, in the event the Appeal is finally adjudicated and Appeal Expenses
      are between $150,000 and $300,000, in which case the Nouris or their
      designees as they may have agreed shall receive escrow amounts equal to
      the extent to which the Appeal Expenses exceed $150,000 and the Company
      will receive the remainder;

              

      

      

      Example:
If the Appeal is finally adjudicated, and Appeal Expenses are $225,000, then the
amount to be paid to the Nouris or their designees as they may have agreed will
be $75,000 and the amount to be paid to the Company will be
$75,000.

      

      Notwithstanding
the foregoing, in the event the Appeal is discontinued, dismissed or settled
whatsoever prior to the date any Escrow Payment would otherwise be due pursuant
to this Section 1 (b)(ii), the Company shall not be obligated to deliver such
Escrow Payment to the Escrow Agent or pay such amount to the
Nouris.

      
        
           

        

        
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      c.         In
the event the Appeal is discontinued, settled or dismissed, prior to the payment
of the Ninth Monthly Payment, the Company’s obligations to make Monthly Payments
to the Nouris in accordance with Section 1(b) hereof shall equal the sum of (i)
the first eight (8) Monthly Payments (i.e., $600,000), plus (ii) the actual
amount of the Appeal Expenses subject to a cap of $150,000. If those Appeal
Expenses equal or are less than $75,000 they shall all be paid on the date that
the Ninth Monthly Payment would have been due. If those Appeal Expenses are in
excess of $75,000, then $75,000 will be paid on the Ninth Monthly Payment date
and the remainder on the Tenth Monthly Payment date.

      

      d.        In
the event the Appeal is discontinued, settled or dismissed, after payment of the
Ninth Monthly Payment but prior to the Tenth Monthly Payment, and the Appeal
Expenses are less than $75,000 the Nouris will be obligated to repay the Company
the difference between the Appeal Expenses and $75,000. If the Appeal Expenses
are greater than $75,000 then the Company shall pay the Nouris on the Tenth
Monthly Payment date that actual amount of Appeal Expenses, subject to a cap of
$75,000.

      

      e.         In
the event the Company has made the Ninth and Tenth Monthly Payments pursuant to
Section I.b.i at the time that Appeal is discontinued, settled or dismissed, and
the actual Appeal Expenses at that time are less than $150,000, the Nouris shall
promptly repay to the Company the difference between the actual Appeal Expenses
and $150,000.

      

      f.         Notwithstanding
anything contained herein to the contrary, in the event of a final adjudication
of the Appeal, if the Appeal Expenses equal an amount less than $150,000, the
Nouris shall promptly repay to the Company the difference between the actual
Appeal Expenses and $150,000

      
        
           

        

        
          -5-

          
            

          

        

        
           

        

      

      

      g.        The
Nouris shall submit to the Company true and correct copies of all statements
itemizing and describing the Appeal Expenses promptly upon request by the
Company. Appeal Expenses shall include fees of both experts and appellate
counsel which are incurred in preparation of the Appeal although incurred during
the sentencing process prior to the filing of the Appeal

      

      2.            Conditions to
Performance. This Settlement Agreement and the Parties’ obligations
hereunder are contingent upon the occurrence of the two events listed below in
subparagraphs a. and b. The Settlement Agreement shall take effect on the date
(the “Effective Date”) of the later to occur, of the following:

      

      a.         The
date of preliminary judicial approval of a settlement agreement executed by the
Nouris, the Company and the lead plaintiff on behalf of herself and members of
the settlement class in the Class Action (the “Lead Plaintiff”); provided,
however, that such Class Action Settlement agreement shall provide for the
following:

      

      i.            the
contribution by Henry Nouri of twenty five thousand (25,000) registered shares
of the common stock of the Company, par value $.001 per share, to a settlement
fund established pursuant to the Class Action Settlement;

      

      ii.           the
contribution by the Company of ONE HUNDRED THOUSAND UNITED STATES OF AMERICA
DOLLARS (US$100,000) to the settlement fund;

      

      iii.          full
release of the Nouris from claims by the Class Action Plaintiffs in the Class
Action;

      
        
           

        

        
          -6-

          
            

          

        

        
           

        

      

      

      iv.          Shall
be substantially in the form of the Class Action Settlement agreement attached
hereto as Exhibit B.

      

      b.         American
International Group, Inc. (“AIG”)
shall have released any and all claims against either the Company or the Nouris
in connection with payments made under National Union Fire Insurance Co. of
Pittsburgh, Pa. Policy No. 490-62-05.

      

      The
Parties agree that only a non-occurrence of one or both of these events will
prevent this Settlement Agreement, and the promises contained herein, from
becoming a fully binding agreement between the Parties. Additionally, upon
execution of this Agreement. the Nouris agree not to take further steps to
enforce their judgment against the Company for at least 75 days. In the event
the Effective Date does not occur within 75 days of execution because AIG
refuses to release any claims as contemplated above, or the Class Action
Settlement is not preliminarily approved by the District Court, the Nouris agree
not to take further steps to enforce their judgment against the Company for an
additional 30 days during which the Parties shall negotiate in good faith a
revised settlement agreement.

      
        
           

        

        
          -7-

          
            

          

        

        
           

        

      

      

      
        	
                 
      

              	
                3.

              	
                Mutual Releases and
      Extinguishment of Claims.

              

      

      

      a.         Effective
on the Effective Date, except for those obligations, liabilities, covenants,
warranties and representations of the Nouris under this Settlement Agreement,
the Company, for itself and each of its present and past subsidiaries, parents,
affiliates, shareholders, members, partners, officers, directors,
representatives, insurers, agents, attorneys and employees and spouses of any
such persons, and the assigns and successors in interest of any of the foregoing
entities and individuals, including, without limitation, the heirs, executors
and estates of any of the foregoing (together with the Company, collectively,
the “Company Entities”) does hereby remise, release and forever discharge the
Nouris and each of their present and past affiliates, representatives, insurers,
agents, attorneys, insurers and spouses, and the assigns and successors in
interest of any of the foregoing entities and individuals, including, without
limitation, the heirs, executors and estates of any of the foregoing (together
with the Nouris, collectively, the “Nouri
Entities”), from any and all manner of actions, causes of action, suits, debts,
sums of money, contracts, controversies, agreements, promises, damages,
judgments, executions, claims, counterclaims, liabilities, demands and
obligations, in law or in equity, whether asserted now or in the future,
directly or indirectly by way of defense of set-off or recoupment, or whether
based on any theory of indemnification, contribution, equitable apportionment or
reimbursement of any kind, whether known or unknown, foreseen or unforeseen,
fixed or contingent, of any nature whatsoever, against any of the Nouri
Entities, which the Company ever had, now has or hereafter can, shall, mayor
could have for, upon or by reason of any act, omission, matter, cause or thing
whatsoever from the beginning of time to the Effective Date hereof, including,
but not limited to,

      

      i)           any
claims, suits, causes of action or injury in any way whatsoever directly or
indirectly relating to costs, expenses, attorneys’ fees, or settlement amounts
of the Nouris paid by the Company or its insurers related to the Class Action,
the Criminal Action, or any other action,

      

      ii)           any
claims, suits, causes of action or injury in any way whatsoever directly or
indirectly relating to any events which occurred prior to the date hereof or
relating to the Nouris’ employment or relationship with the Company, or
otherwise pursuant to the By-Laws of the Company or any agreement between the
Company and any of the Nouris or the Nouri Entities;

      
        
           

        

        
          -8-

          
            

          

        

        
           

        

      

      

      b.         Effective
on the Effective Date, except for those obligations, liabilities, covenants,
warranties, and representations of the Company under this Settlement Agreement,
each of the Nouris, for himself or herself and on behalf of the Nouri Entities,
does hereby remise, release and forever discharge the Company Entities from any
and all manner of actions, cause of action, suits, debts, sums of money,
contracts, controversies, agreements, promises, damages, judgments, executions,
claims, counterclaims, liabilities, demands and obligations; in law or in
equity, whether asserted now or in the future, directly or indirectly by way of
defense of set-off or recoupment, or whether based on any theory of
indemnification, contribution, equitable apportionment or reimbursement of any
kind, whether known or unknown, foreseen or unforeseen, fixed or contingent, of
any nature whatsoever, against any of the Company Entities, which the Nouris
ever had, now have or hereafter can, shall, mayor could have for, upon or by
reason of any act, omission, matter, cause or thing whatsoever from the
beginning of time to the date of this Settlement Agreement, including, but not
limited to, the Delaware Judgment, the Pending Action, claims for
indemnification or reimbursement for costs and expenses, including without
limitation, attorney’s fees, related to the Class Action, the Criminal Action,
any actions or claims which may arise in the future relating to any events which
occurred prior to the date hereof or relating to their employment or
relationship with the Company, or otherwise pursuant to the By-Laws of the
Company or any agreement between the Company and any of the Nouris or the Nouri
Entities (the “Released Claims”).

      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

      

      c.
           Each of the
Nouris agrees, and confirms on his or her behalf and on behalf of each of the
Nouri Entities, that all rights to advancement, indemnification, or
reimbursement of costs and expenses now existing or hereafter arising, whether
by contract, common law, or pursuant to the Company’s By-Laws, with respect to
the Criminal Action, the Class Action, or any other action or claim which may be
asserted in the future, whether in contract or in tort, known or unknown,
foreseen or unforeseen, relating to any event arising prior to the date hereof,
are waived and forever extinguished. The Company agrees that any and all past,
present or future rights to, claims of, or causes of action for reimbursement,
repayment, or recovery of amounts paid to, or on behalf of, the Nouris, whether
pursuant to contract, common .law, or the Company’s By-Laws, with respect to the
Criminal Action, the Class Action, or any other action or claim are waived and
forever extinguished.

      

      d.     
      Upon execution of this Agreement, all
persons and entities whose claims are being released, shall be deemed to have,
and shall have, expressly waived, and relinquished, to the fullest extent
permitted by law, the provisions, rights and benefits of § 1542 of the
California Civil Code, which provides as follows:

      

      A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS, WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR

      

      In
addition, all other persons and entities whose claims are being released, also
shall be deemed to have, and shall have, waived any and all provisions, rights
and benefits conferred by any law of any state or territory of the United
States, or principle of common laws, or the law of any jurisdiction outside the
United States, which is similar, comparable or equivalent to § 1542 of the
California Civil Code. The Parties acknowledge that they may discover facts in
addition to or different from those that they now know or believe to be true
with respect to the subject matter of this Agreement, but that it is their
intention to fully, finally and forever settle and release all known and unknown
claims, as set forth herein.

      
        
           

        

        
          -10-

          
            

          

        

        
           

        

      

      

      4. 
          Stipulation of
Dismissal. Simultaneously herewith, the attorneys for the Parties are
executing a Stipulation of Dismissal with Prejudice dismissing the Pending
Action, which shall be held by the attorneys for the Company in escrow. Such
Stipulation shall be filed with the court in the Pending Action upon receipt of
the initial $500,000 payment described in paragraph 1.

      

      5.    
        Provisions of General
Application.

      

      a.         The
execution of this Settlement Agreement shall not constitute an admission any
Party hereto of any liability or wrongdoing of any type, kind or
nature.

      

      b.         The
Parties hereby represent and warrant and covenant and agree that, on or before
the Effective Date of this Agreement, he, she, it or they has not and shall
transferred to any third party any claim or any right or obligation any of them
may have under the Agreement. This Agreement and any rights or obligations
hereunder shall not be assignable by any Party without prior written consent of
the other Parties to this Agreement. This Settlement Agreement shall be binding
upon, and shall inure to the benefit of, the respective successors and permitted
assigns of the Parties hereto.

      

      c.         This
Settlement Agreement contains the entire understanding between the Parties and
their counsel, and supersedes and extinguishes any and all prior agreements,
understandings, promises, warranties and representations by any Party to any
other Party with respect to the subject matter set forth herein, except as
otherwise expressly provided in this Settlement Agreement. No covenants,
representations or undertakings with respect to this settlement exist other than
those expressly set forth in this Settlement Agreement.

      
        
           

        

        
          -11-

          
            

          

        

        
           

        

      

      

      d.         This
Settlement Agreement may not be altered, amended, or modified except in a
writing executed by all Parties hereto. No waiver of this Settlement Agreement
or any other promises, obligations, terms or conditions hereof shall be valid
unless it is written and signed by a duly authorized officer of the Party
against whom the waiver is sought to be enforced.

      

      e.         Each
Party acknowledges that it has been represented by counsel of its own choosing
with respect to the drafting and execution of this Settlement Agreement, and
that counsel had an opportunity to review this Settlement Agreement before
execution by the Party. Each Party acknowledges that it fully understands and
has reviewed the terms of this Settlement Agreement, finds the terms
unambiguous, entered into this Settlement Agreement freely and voluntarily, and
acknowledges that this Settlement Agreement affords adequate consideration to
each of them. It is the intent of the Parties that, in the event of a dispute
arising in connection with this Settlement Agreement, the Parties shall be
considered joint authors and no language, wording or provision of this
Settlement Agreement shall be construed against any of the other parties because
of the identity of the drafter.

      

      f.         If
any provision of this Settlement Agreement is deemed by a court of competent
jurisdiction to be invalid, in whole or in part, such determination shall not
affect the validity of the other provisions of this Settlement
Agreement.

      

      g.         This
Settlement Agreement shall be governed by and construed under the laws of the
State of Delaware, without giving effect to conflicts of law principles. The
Parties agree that any action by the either of the Parties arising out of this
Settlement Agreement shall be brought exclusively in the Delaware Court of
Chancery.

      

      h.         Any
notices given in connection with this Settlement Agreement will be deemed given
at the time of receipt if sent by a letter sent by first class mail, or by
nationally recognized overnight mail carrier, postage prepaid to each of the
following addresses:

      
        
           

        

        
          -12-

          
            

          

        

        
           

        

      

      

      If to the
Nouris:

      

      Henry
Nouri

      106
Zapata Way

      Chapel
Hill, North Carolina 27517

      

      With copy
to:

      

      Baker
& McKenzie LLP

      One
Prudential Plaza

      130 East
Randolph Drive

      Chicago,
IL 60601

      Attn:
Matthew Allison

      

      If to the
Company:

      

      Smart
Online, Inc.

      4505
Emperor Blvd., Ste. 320

      Durham,
NC 27703

      Attn:
President

      

      With
copies to:

      

      Cohen
Tauber Spievack & Wagner, P.C.

      420
Lexington Ave., Suite 2400

      New York,
NY 10170

      Attn:
Jerry Cohen

      

      i.      
      This Settlement Agreement may be executed in
counterparts by facsimile or other electronic signature, each of which shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same Settlement Agreement.

      

      J.        
    Each Party hereto and the representative signing on
behalf of each Party, hereby warrants and represents that they are authorized to
enter into this Settlement Agreement and bind the Parties to the terms of this
Settlement Agreement.

      

      [SIGNATURE
PAGE FOLLOWS]

      
        
           

        

        
          -13-

          
            

          

        

        
           

        

      

      

      IN
WITNESS WHEREOF, the Parties have executed this Settlement Agreement and Mutual
Release on the date first written above.

      

      
        
          
            
              
                
                  
                    
                      
                        	
                                SMART
      ONLINE, INC.

                              
	 
      	 
      
	
                                By:

                              	
                                /s/ Dror Zoreff

                              
	
                                Name:

                              	Dror
      Zoreff
	
                                Title:

                              	Interim
      President & CEO
	 
      	 
      
	
                                DENNIS
      MICHAEL NOURI,

                              
	
                                REZA
      ERIC NOURI,

                              
	
                                HENRY
      NOURI,

                              
	
                                RONNA
      LOPRETE NOURI

                              
	 
      	 
      
	
                                By:

                              	
                                /s/
      Henry Nouri

                              
	
                                Name:

                              	
                                Henry
      Nouri

                              
	
                                Title:

                              	
                                Agent
      for the Nouris 

                              
	 
      	 
      
	
                                By:

                              	
                                /s/
      Matthew Allison

                              
	
                                Name:

                              	
                                Matthew
      Allison

                              
	
                                Title:

                              	
                                Attorney

                              

                      

                    

                  

                

              

            

          

        

      

      

      [SIGNATURE
PAGE TO SETTLEMENT AGREEMENT AND MUTUAL RELEASE]

      
        
           

        

        
          -14-

          
            

          

        

        
           

        

      

      

      EXHIBIT
A

      

      Wire
Instructions

      

      SAN
FRANCISCO/PALO ALTO BAKER & MCKENZIE LLP

      GENERAL
TRUST ACCOUNT WIRE TRANSFER INFORMATION

      Citibank
Private Banking

      One
Sansome St., 24th Flr

      San
Francisco, CA 94104

      Acc’t
Number: 200002350

      ABA
Number: 32117118-4

      Ref:
Nouri

      
        
           

        

        
          -15-

          
            

          

        

        
           

        

      

      

      EXHIBITB

      

      STIPULATION AND AGREEMENT OF
PARTIAL CLASS SETTLEMENT

      
        
           

        

        
          -16-

          
            

          

        

        
           

        

      

    

     

    UNITED STATES DISTRICT COURT

     

    MIDDLE
DISTRICT OF NORTH CAROLINA

    

    
      
        
          	
                      

                	 
      	 
      
	
                  MARY
      JANE BEAUREGARD, On Behalf of Herself and All Others Similarly
      Situated

                	 
      	 
      
	 
      	 
      	 
      
	
                  Lead
      Plaintiff,

                	 
      	 
      
	 
      	 
      	 
      
	
                  vs.

                	 
      	
                  Civ.
      No. 07-CV-00785-WO-PTS

                
	 
      	 
      	 
      
	
                  SMART
      ONLINE, INC., et
      al.

                	 
      	 
      
	 
      	 
      	 
      
	
                  Defendants.

                	 
      	 
      
	 
      	 
      	 
      
	
                      

                	 
      	 
      

        

      

    

    

    STIPULATION
AND AGREEMENT OF PARTIAL CLASS SETTLEMENT

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    This Stipulation and Agreement of Settlement, dated as of June
18, 2010, is made and entered into pursuant to Rule 23 of the Federal Rules of
Civil Procedure and contains the terms of a settlement by and among
Lead Plaintiff1on
behalf of herself and Members of the Settlement Class and the Settling
Defendants, through their respective counsel. This Stipulation is intended by
the Settling Parties to fully, finally, and forever resolve, discharge, and
settle the Released Claims against the Released Parties, upon and subject to the
terms and conditions hereof and subject to the approval by the
Court.

     

    
      	
              I.

            	
              THE
      CLASS ACTION

            

    

     

    On or
after September 7, 2007, a class action, Gooden v. Smart Online, Inc., et
al., Civ. No. 07-CV-00785-WO-PTS (the “Action”), was filed in this Court
on October 18, 2007 as a class action alleging on behalf of purchasers of Smart
Online securities during a defined period of time violations of the federal
securities laws. The suit seeks relief on behalf of a class consisting of all
persons who purchased or otherwise acquired the publicly traded securities of
Smart Online, Inc. (“Smart Online” or the “Company”) during the Class Period and
who were damaged thereby. The class action seeks remedies under Section 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. §78j, and Securities &
Exchange Commission Rule 10b-5, 17 C.F.R. §240.10b-5, thereunder arising out of
the Defendants’ alleged misconduct.

     

    By Order
dated June 24, 2008, the Court appointed Mary Jane Beauregard as Lead Plaintiff
and approved her selection of Kahn Swick & Foti LLC2
and Brower Piven, a Professional Corporation as Lead Counsel for the
Class and S. Ranchor Harris, III as Liaison Counsel for the Class.

     

    
      

    
      1
Capitalized terms are defined herein below at § 1. 

    

    
      2 At the
time of the appointment Kahn Swick & Foti LLC was known as Kahn Gauthier
Swick, LLC.

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    The
operative complaint in the Action is the Corrected Class Action Complaint filed
September 18, 2008 and captioned Beauregard v. Smart Online, Inc., et
al.

     

    
      	
              II.

            	
              SETTLING
      DEFENDANTS’ DENIALS OF WRONGDOING AND
LIABILITY

            

    

     

    The
Settling Defendants have denied and continue to deny each and all of the claims
and contentions alleged by Lead Plaintiff. The Settling Defendants expressly
have denied and continue to deny all charges of wrongdoing or liability against
them or any of them arising out of any of the conduct, statements, acts or
omissions alleged, or that could have been alleged, in the Action. The Settling
Defendants also have denied and continue to deny, inter alia, the allegations
that Lead Plaintiff or Settlement Class Members have suffered damage, that the
prices of Smart Online securities were artificially inflated by reason of
alleged manipulation, misrepresentations, non-disclosures or otherwise, or that
Lead Plaintiff or the Settlement Class Members were harmed by any of the conduct
alleged in the Action.

     

    Nonetheless,
the Settling Defendants have concluded that further conduct of the Action would
be protracted, expensive, and distracting and that it is desirable that the
Action be fully and finally settled in the manner and upon the terms and
conditions set forth in this Stipulation. The Settling Defendants also have
taken into account the uncertainty and risks inherent in any litigation,
especially in complex cases like the instant Action. The Settling Defendants
have therefore determined that it is desirable that the Action be settled in the
manner and upon the terms and conditions set forth in this
Stipulation.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Neither
this Stipulation nor any document referred to herein nor any action taken to
carry out this Stipulation is, may be construed as or may be used as an
admission by or against the Settling Defendants, or any of them, of any fault,
wrongdoing or liability whatsoever. Entering into or carrying out this
Stipulation (or the Exhibits hereto) and any negotiations or proceedings related
hereto shall not in any event be construed as, or be deemed to be evidence of,
an admission or concession with regard to Lead Plaintiff’s claims or contrary to
the Settling Defendants’ denials and defenses, and shall not be offered by any
of the Settling Parties or Settlement Class Members or received in evidence in
any action or proceeding in any court, administrative agency, or other tribunal
for any purpose whatsoever other than to enforce the provisions of this
Stipulation (and the Exhibits hereto) or the provisions of any related agreement
or release, or in any subsequent action against or by the Settling Defendants to
support a defense of res
judicata, collateral estoppel, release, or other theory of claim or issue
preclusion or similar defense.

     

    
      	
              III.

            	
              CLAIMS
      OF LEAD PLAINTIFF AND BENEFITS OF
SETTLEMENT

            

    

     

    Lead
Plaintiff believes that the claims asserted in the Action have merit. However,
Lead Plaintiff recognizes and acknowledges the expense and length of continued
proceedings which would be necessary to prosecute the Action against the
Defendants through trial and appeal. Lead Plaintiff has also taken into account
the uncertain outcome and the risk of any litigation, especially in complex
matters such as the Action, as well as the difficulties and delays inherent in
such litigation. Lead Plaintiff is also mindful of the inherent problems of
proof of, and possible defenses to, the violations asserted in the Action. Lead
Plaintiff believes that the Settlement set forth in this Stipulation confers
substantial immediate benefits upon and is in the best interest of the
Settlement Class.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
      	
              IV.

            	
              TERMS
      OF STIPULATION AND AGREEMENT OF
SETTLEMENT

            

    

     

    NOW,
THEREFORE, IT IS HEREBY STIPULATED AND AGREED by Lead Plaintiff (for herself and
Settlement Class Members), and the Settling Defendants, by and through their
respective counsel or attorneys of record, that, subject to the approval of the
Court, the Action, and the Released Claims, shall be finally and fully
compromised, settled and released, and the Action shall be dismissed with
prejudice, upon and subject to the terms and conditions of the Stipulation, as
follows.

     

    
      	
               
      

            	
              1.

            	
              Definitions

            

    

     

    As used
in the Stipulation the following terms have the meanings specified
below:

     

    1.1           “Action”
means Beauregard v. Smart
Online, Inc., et al., Civ. No.
07-00785-WO-PTS, pending in the United States District Court for the Middle
District of North Carolina;

     

    1.2           “Assignment
Agreement” means the Agreement for Assignment of Claims entered between Smart
Online and Lead Plaintiff, pursuant to which Smart Online assigns its claims
against Sherb & Co., Jesup & Lamont, Serrano, Lustig, Martin, and Doolan
to Lead Plaintiff for the benefit of the Settlement Class;

     

    1.3           “Authorized
Claimant” means any Settlement Class Member whose claim for recovery has been
allowed pursuant to the terms of the Stipulation;

     

    1.4           “Bar
Order” means the provisions in the Judgments providing that certain claims, as
provided for in 15 U.S.C. §78u-4(f)(7) and under state and federal law and as
set forth in ¶4.3, are permanently and forever barred;

     

    1.5           “Claimant”
means any Class Member who submits a Proof of Claim and Release in such form and
manner, and within such time, as the Court shall prescribe;

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    1.6           “Claims
Administrator” means a claims administration firm to be selected by Lead
Plaintiffs’ Counsel;

     

    1.7           “Class
Fee and Expense Application” means an application for distributions from the
Class Settlement Fund for: (a) an award of attorneys’ fees; (b) plus
reimbursement of expenses incurred in connection with prosecuting the Class
Action; (c) reimbursement of time and expenses incurred in administering the
Settlement; (d) plus any interest on such attorneys’ fees and expenses at the
same rate and for the same periods as earned by the Settlement Fund (until paid)
as may be awarded by the Court; and (e) reimbursement of the time and expenses
of Lead Plaintiff in prosecuting the Action;

     

    1.8           “Class
Fee and Expense Award” means Lead Plaintiff’s attorneys’ fees and expenses with
interest thereon, if and to the extent allowed by the Court;

     

    1.9           “Class
Notice and Administration Fund,” means the fund established for the payment of
costs and expenses reasonably and actually incurred in connection with providing
notice to the Settlement Class, identifying and locating Settlement Class
Members, assisting with the filing of claims, administering and distributing the
Net Settlement Fund to Authorized Claimants, processing Proof of Claim and
Release forms and paying escrow fees and costs, if any, pursuant to ¶2.16
below.

     

    1.10         “Class
Period” means the period from May 2, 2005 to September 28, 2007,
inclusive;

     

    1.11          “Class
Settlement Fund” means the total settlement consideration, consisting of the
principal amount of $462,500 in cash, plus any interest earned thereon, and the
Smart Online Settlement Stock. The Class Settlement Fund will be paid pursuant
to ¶5.1-5.2 below;

     

    1.12         “Complaint”
means the Corrected Class Action Complaint filed September 18, 2008 and
captioned Beauregard v. Smart
Online, Inc., et al.;

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    1.13         “Court”
means the United States District Court for the Middle District of North
Carolina;

     

    1.14         “Defendants”
means Smart Online and the Individual Defendants;

     

    1.15         “Escrow
Agent” means Brower Piven or its successor in interest;

     

    1.16         “Effective
Date” means the first date by which all of the events and conditions specified
in ¶7.1 of the Stipulation have been met and have occurred;

     

    1.17         “Excluded
Defendants” means Serrano, Martin, Doolan, Lustig, Jesup & Lamont and Sherb
& Co., LLP;

     

    1.18         “Final”
means the date when the last of the following has occurred with respect to the
Judgment: (a) the date of final affirmance on an appeal of the Judgment, the
expiration of the time for a petition for or a denial of a writ of certiorari to
review the Judgment and, if certiorari is granted, the date of final affirmance
of the Judgment following review pursuant to that grant; or (b) the date of
final dismissal of any appeal from the Judgment or the final dismissal of any
proceeding on certiorari to review the Judgment; or (c) if no appeal is filed,
the expiration date of the applicable time for the filing or noticing of any
appeal from the Judgment. Any proceeding or order, or any appeal or petition for
a writ of certiorari, pertaining solely to any Plan of Allocation and/or
application for or award of attorneys’ fees or expenses, shall not in any way
delay or preclude the Judgment from becoming Final;

     

    1.19         “Individual
Defendants” means Nicholas A. Sinigaglia (“Sinigaglia”), Scott Whitaker
(“Whitaker”), David E.Y. Sarna (“Sarna”), Dennis Michael Nouri, Reza Eric Nouri,
Henry Nouri, Ronna Nouri (called “Ronna Loprete” in the Complaint), Frank C.
Coll (“Coll”), C. James Meese, Jr. (“Meese”), Philippe Pouponnot (“Pouponnot”),
Shlomo Elia (“Elia”), Jeffrey W. Lerose (“Lerose”), Thomas P. Furr (“Furr”),
Sherb & Co., LLP (“Sherb & Co.”), Ruben Serrano (“Serrano”), Alan Lustig
(“Lustig”), Anthony Martin (“Martin”), James Doolan (“Doolan”), Maxim Group, LLC
(“Maxim Group”), and Jesup & Lamont Securities Corp.(“Jesup &
Lamont”);

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    1.20         “Judgment”
means the final judgment to be rendered by the Court in the Action,
substantially in the form attached hereto as Exhibit B;

     

    1.21         “Lead
Plaintiff” means Mary Jane Beauregard;

     

    1.22         “Lead
Plaintiff’s Counsel” means David A.P. Brower, Brower Piven, 488 Madison Avenue,
8th
Floor, New York, NY 10022 (“Brower Piven”); Lewis S. Kahn, Kahn Swick &
Foti, LLC, 650 Poydras Street, Suite 2150, New Orleans, LA  70130
(“KSF”);.

     

    1.23         “Net
Settlement Fund” means the balance of the Class Settlement Fund after payment of
the items set forth in ¶5.1(a)-5.1(d).

     

    1.24         “Notice”
means the settlement notice, substantially in the form of Exhibit A-1 attached
hereto.

     

    1.25         “Nouri
Defendants” means Dennis Michael Nouri, Henry Nouri, Ronna Nouri, and Reza Eric
Nouri;

     

    1.26         “Person”
means an individual, corporation, limited liability corporation, professional
corporation, limited liability partnership, partnership, limited partnership,
association, joint stock company, estate, legal representative, trust,
unincorporated association, government or any political subdivision or agency
thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees;

     

    1.27         “Plan
of Allocation” means a plan or formula of allocation (to be described in the
publication for the benefit of Class Members) of the Settlement Fund whereby the
Settlement Fund shall be distributed to Authorized Claimants after payment of
expenses of notice and administration of the Settlement, Taxes and Tax Expenses
and such attorneys’ fees, expenses and interest and amounts to Lead Plaintiff as
may be awarded by the Court. Any Plan of Allocation is not part of the
Stipulation and Defendants shall have no responsibility or liability with
respect thereto;

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    1.28         “Preliminary
Approval Order” means the order, substantially in the form of Exhibit A attached
hereto, requesting, inter
alia, the preliminary approval of the Settlement set forth in the
Stipulation, and approval for the publication of the Notice;

     

    1.29         “Released
Claims” means all claims, including Unknown Claims, demands, rights, liabilities
and causes of action, arising out of, relating to, or in connection with, the
purchase or acquisition of Smart Online securities during the Class Period and
the matters alleged or that could have been alleged in the Action, or which
arise from or relate to the allegations in the Complaint, or that have been or
could have been asserted in the Action against the Released Parties, as well as
any claims in connection with the institution, prosecution or settlement of the
Action. It is the express intent of the parties that claims against the Excluded
Defendants are not being released by this Stipulation;

     

    1.30         “Released
Parties” means the Settling Defendants or their past or present subsidiaries,
parents, successors and predecessors, officers, directors, shareholders, agents,
employees, attorneys, advisors, and investment advisors, auditors, accountants
and any person, firm, trust, corporation, officer, director or other individual
or entity in which any Settling Defendant has a controlling interest or which is
related to or affiliated with any Settling Defendant, and the legal
representatives, heirs, successors in interest or assigns of such Settling
Defendant.  “Released Parties” expressly does not include Sherb &
Co., Jesup & Lamont, Serrano, Lustig, Martin, and/or Doolan.

     

    1.31         “Settlement”
means the settlement between Lead Plaintiff, on behalf of herself and Members of
the Settlement Class, and the Settling Defendants on the terms contained in the
Stipulation and its Exhibits.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    1.32         “Settlement
Class” means all Persons who purchased or otherwise acquired publicly traded
securities of Smart Online between May 2, 2005 through September 28, 2007,
inclusive.  Excluded from the Settlement Class are (a) the Individual
Defendants, officers, directors, and employees during the Class Period of Smart
Online, Maxim Group, Sherb & Co., and Jesup & Lamont; (b) the immediate
family, legal representatives, heirs, and assigns, of any excluded Person; and
(c) any entity in which any excluded Person has or had a controlling
interest.  Also excluded from the Settlement Class are those Persons
who timely and validly request exclusion from the Settlement Class pursuant to
the Notice of Pendency and Settlement of Class Action to be sent to Settlement
Class Members;

     

    1.33         “Settlement
Class Member” or “Member of the Settlement Class” means a Person who falls
within the definition of the Settlement Class set forth above;

     

    1.34         “Settlement
Hearing” means a hearing held by the Court to consider and determine whether an
order approving the Settlement as fair, reasonable and adequate and Final
Judgment should be entered thereon dismissing the Action with
prejudice;

     

    1.35         “Settling
Defendants” means Smart Online and collectively the following
Defendants:  Maxim Group, the Nouri Defendants, Sinigaglia, Whitaker,
Sarna, Coll, Elia, Meese, Pouponnot, Lerose, and Furr;

     

    1.36         “Settling
Parties” means, collectively, each of the Settling Defendants and Lead Plaintiff
on behalf of herself and the Members of the Settlement Class;

     

    1.37         “Smart
Online” means Smart Online, Inc. and/or their past or present subsidiaries,
parents, successors and predecessors, officers, directors, shareholders, agents,
employees, attorneys, advisors, and investment advisors but expressly does not
include the Excluded Defendants;

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    1.38         “Smart
Online Settlement Stock” means the number of shares of Smart Online common stock
that will be issued and delivered in accordance with ¶2.1 hereof;

     

    1.39         “Stipulation”
means this Stipulation and Agreement of Settlement, dated as of June 18,
2010.

     

    1.40          “Supplemental
Agreement” means the separate agreement executed between Lead Plaintiff’s
Counsel and counsel for the Settling Defendants setting forth an option for
Smart Online to terminate the Settlement in the event that Settlement Class
Members who purchased or otherwise acquired more than a certain number of Smart
Online shares during the Class Period choose to exclude themselves from the
Settlement Class and a procedure for Lead Plaintiffs’ Counsel to sell any Smart
Online Settlement Stock pursuant to ¶ 2.7;

     

    1.41         “Taxes”
means taxes arising with respect to the income earned by the cash portion of the
Class Settlement Fund, including any Taxes or tax detriments that may be imposed
upon the Defendants or their respective counsel with respect to any income
earned by the cash portion of the Class Settlement Fund for any period during
which the cash portion of the Class Settlement Fund does not qualify as a
“qualified settlement fund” for federal or state income tax
purposes;

     

    1.42         “Tax
Expenses” means expenses and costs incurred in connection with the operation and
implementation of ¶2.18 of the Stipulation (including, without limitation,
expenses of tax attorneys and/or accountants and mailing and distribution costs
and expenses relating to filing, or failing to file, the returns described in
¶2.18);

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    1.43         “Unknown
Claims” means any Released Claims which Lead Plaintiff and each Settlement Class
Member, respectively, does not know or suspect to exist in his, her or its favor
at the time of the release of the Released Parties, which, if known by him, her
or it, might have affected his, her or its settlement with, and release of, the
Released  Parties, or might have affected his, her or its decision not
to object to this Settlement. With respect to any and all Released Claims, the
Settling Parties stipulate and agree that, upon the Effective Date, Lead
Plaintiff and Settling Defendants, shall be deemed to have, and by operation of
the Judgments shall have, waived the provisions, rights and benefits of
California Civil Code §1542, which provides:

     

    A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

     

    Lead
Plaintiff and Settling Defendants, shall be deemed to have, and by operation of
the Judgments shall have, waived any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or equivalent to
California Civil Code §1542. Lead Plaintiff and Defendants may hereafter
discover facts in addition to or different from those which he, she or it now
knows or believes to be true with respect to the Released  Claims, but
Lead Plaintiff and Settling Defendants, upon the Effective Date, shall be deemed
to have, and by operation of the Judgment shall have, fully, finally, and
forever settled and released any and all Released Claims, respectively, known or
unknown, suspected or unsuspected, contingent or non-contingent, accrued or
unaccrued, whether or not concealed or hidden, which now exist, or heretofore
have existed upon any theory of law or equity now existing or coming into
existence in the future, including, but not limited to, conduct which is
negligent, intentional, with or without malice, or a breach of any duty, law or
rule, without regard to the subsequent discovery or existence of such different
or additional facts. Lead Plaintiff, Settlement Class Members, and Settling
Defendants shall be deemed by operation of the Judgment to have acknowledged
that the foregoing waivers were separately bargained for and are key elements of
the Settlement of which this release is a part.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              2.

            	
              The
      Settlement

            

    

     

    
      
        	 	
                 
      a.

              	
                Smart
      Online Settlement Stock

              

      

    

     

    2.1           The
Smart Online Settlement Stock will consist of one million, five hundred thousand
(1,500,000) freely tradeable shares of Smart Online common stock. The number of
shares constituting the Smart Online Settlement Stock will be adjusted to
account for stock splits, reverse stock splits and other similar action taken by
Smart Online before distribution to the Settlement Class Members. If Smart
Online is sold, is acquired, or merges prior to distribution of the Smart Online
Settlement Stock to the Settlement Class Members, the shares will be treated for
purposes of any corporate transaction as if they had been issued, distributed,
and outstanding, and will receive the same proportionate treatment as other
shares of Smart Online common stock.

     

    2.2           The
Smart Online Settlement Stock shall be contributed to the Settlement Fund as
follows: (1) Smart Online will issue and distribute one million, four hundred,
and seventy-five thousand (1,475,000) shares of Smart Online common stock to
Lead Plaintiff’s Counsel pursuant to instructions provided by Lead Plaintiff’s
Counsel within ten (10) business days after the Court enters the Judgment; (2)
Henry Nouri will transfer twenty-five thousand (25,000) shares of Smart Online
Common stock to Lead Plaintiff’s Counsel pursuant to instructions provided by
Lead Plaintiff’s Counsel within ten (10) business days after the Court enters
the Judgment.

     

    2.3           There
will be two distributions of the Smart Online Settlement Stock from the
Settlement Fund: (1) the distribution made as part of any awards by the Court
pursuant to the Class Fee and Expenses Application to Lead Plaintiff’s Counsel
and (2) the distribution to Authorized Claimants following claims
administration.  Until distribution to Settlement Class Members, Class
Lead Counsel agrees to vote the shares of Smart Online Settlement Stock in the
same proportion as those voted by the shares that are not Smart Online
Settlement Stock and that are eligible to vote on any matter presented to
shareholders for such a vote and, if requested by Smart Online, to enter into a
voting trust agreement so providing. Lead Plaintiff’s Counsel and Smart Online
shall use best efforts to enable the Smart Online Settlement Stock to be issued
by electronic distribution.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    2.4           No
fractional shares of Smart Online Settlement Stock will be issued. The
calculation of the number of shares to be distributed will be rounded up or down
to the nearest whole share.

     

    2.5           The
Smart Online Settlement Stock shall be registered or exempt from the
registration requirements of the Securities Act of 1933 under Section 3(a)(10)
of the Securities Act of 1933. The Smart Online Settlement Stock shall be freely
tradable, shall not constitute “restricted securities” under the Securities Act
of 1933 and may be sold or transferred by recipients thereof who are not
affiliates of Smart Online (as that term is defined in Rule 144 of the
Securities Act of 1933) or recipients deemed to be underwriters under the
Securities Act of 1933 without registration under Section 5 of the Securities
Act of 1933 or compliance with Rule 144.

     

    2.6           Smart
Online agrees to request an exemption for the Smart Online Settlement Stock from
the registration requirements of the securities laws of those states where an
Authorized Claimant resides and that do not have a self-executing exemption for
securities issued with court approval in connection with the compromise of a
claim. In the event that Smart Online’s request is denied by one or more such
states, Lead Plaintiff’s Counsel shall sell, in accordance with ¶ 2.7 of
the Stipulation, the Smart Online Settlement Stock that is allocated to that
Authorized Claimant under the Plan of Allocation and distribute the cash
proceeds instead. Lead Plaintiff’s Counsel shall have no liability for any sale,
liquidation, transfer or other disposition of the Smart Online Settlement Stock
pursuant to this section absent gross negligence or willful
misconduct.

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    2.7           Upon
receipt of the Smart Online Settlement Stock, Lead Plaintiff’s Counsel will have
the right to take any measures they deem appropriate to protect the overall
value of the Smart Online Settlement Stock prior to distribution to Authorized
Claimants including, but not limited to, sales of all or part of the Smart
Online Settlement Stock into the market or in a private sale transaction. Lead
Plaintiff’s Counsel shall also have the right to use the cash component of the
Class Settlement Fund to protect the overall value of the Class Settlement
Fund.

     

    2.8           To
the extent that Lead Plaintiff’s Counsel decides to sell any Smart Online
Settlement Stock pursuant to ¶ 2.7, it shall do so in accordance with the
Supplemental Agreement.  Smart Online agrees to indemnify, up to a
limit of $2500.00, Lead Plaintiffs’ Counsel or the Claims Administrator for
fees, expenses, or costs it may incur, if any, in complying with the reporting
requirements of section 13 of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78m, and Regulation 13D-G thereunder, if any, as a result of the
contribution of the Smart Online Settlement Stock to the Settlement Fund
pursuant to ¶ 2.2.

     

    
      
        	 	
                 
      b.

              	
                Cash
      Contribution

              

      

    

     

    2.9           The
amount of Three Hundred and Fifty Thousand Dollars ($350,000) in cash shall be
paid by Smart Online into an interest bearing account designated by Class Lead
Counsel in installments of Seventy Five Thousand Dollars ($75,000) to be paid
within ten (10) business days of the date of execution of this Stipulation and
additional installments of One Hundred Thousand Dollars ($100,000), One Hundred
Thousand ($100,000) and Seventy Five Thousand Dollars ($75,000) to be paid on
the 90th,
180th, and
270th day
anniversary of the execution of this Stipulation respectively or such sooner
periods at Smart Online’s option until the full amount of Three Hundred and
Fifty Thousand Dollars ($350,000) has been paid.

     

    2.10         The
amount of One Hundred and Twelve Thousand and Five Hundred ($112,500) in cash
shall be paid by Maxim Group into an interest bearing account designated by Lead
Plaintiff’s Counsel within twenty (20) business days of the date of execution of
this Stipulation.

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    2.11         The
Settling Parties agree that the financial institution designated by Lead
Plaintiff’s Counsel is acceptable to them.

     

    
      
        	 	
                 
      c.

              	
                Assignment
      of Claims

              

      

    

     

    2.12         On
and as of March 26, 2010, and subject to the terms and conditions of the
Assignment Agreement, Smart Online hereby irrevocably sells, transfers, conveys
and assigns to the Lead Plaintiff for the benefit of the Settlement Class, all
right, title, and interest in any and all claims Smart Online may have under
federal or state law against Serrano, Lustig, Martin, Doolan, Jesup & Lamont
and/or Sherb & Co.  Smart Online shall receive no payment or
remuneration with respect to any recovery that may result from the assertion,
litigation, arbitration, settlement or trial of the assigned
claims.

     

    
      
        	 	
                 
      d.

              	
                The
      Escrow Agent

              

      

    

     

    2.13         Upon
receipt, the Escrow Agent shall invest any cash portion of the Class Settlement
Fund in instruments backed by the full faith and credit of the United States
Government or insured by the United States Government or an agency thereof and
shall reinvest the proceeds of those instruments as they mature in similar
instruments at their then current market rates.

     

    2.14         The
Escrow Agent shall not disburse the Class Settlement Fund except as provided in
the Stipulation, by an order of the Court, or with the written agreement of
counsel for Lead Plaintiff, Smart Online, and Settling Defendants.

     

    2.15         Subject
to further order and/or direction as may be made by the Court, the Escrow Agent
is authorized to execute such transactions as are consistent with the terms of
the Stipulation.

     

    2.16         All
funds held by the Escrow Agent shall be deemed and considered to be in custodia legis of the Court
and shall remain subject to the jurisdiction of the Court.

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    2.17         The
Escrow Agent shall establish the Class Notice and Administration Fund and
deposit One Hundred and Fifty Thousand Dollars ($150,000) from the cash portion
of the Settlement Fund into it.  The Class Notice and Administration
Fund shall be used to pay costs and expenses reasonably and actually incurred in
connection with providing notice to the Settlement Class, identifying and
locating Settlement Class Members, assisting with the filing of claims,
administering and distributing the Net Settlement Fund to Authorized Claimants,
processing Proof of Claim and Release forms and paying escrow fees and costs, if
any.  The Class Notice and Administration Fund shall also be invested
and earn interest as provided for in ¶2.13 of this Stipulation.  Any
portion of the Class Notice and Administration Fund remaining after payment of
the aforesaid costs and expenses shall revert to the Settlement Fund and become
part of the Net Settlement Fund.

     

    
      
        	 	
                 
      e.

              	
                Taxes,
      Tax Expenses and Related
Matters

              

      

    

     

    2.18         The
Settling Parties and the Escrow Agent agree to treat the cash portion of the
Class Settlement Fund as being at all times a “qualified settlement fund” within
the meaning of Treas. Reg. §§1.468B-1 through 1.468B-5. In addition, the Escrow
Agent shall timely make such elections as are necessary or advisable to carry
out the provisions of this ¶2.18, including the “relation-back election” (as
defined in Treas. Reg. §1.468B-1) back to the earliest permitted
date.  Such elections shall be made in compliance with the procedures
and requirements contained in such regulations. It shall be the responsibility
of the Escrow Agent to timely and properly prepare and deliver the necessary
documentation for signature by all necessary parties, and thereafter to cause
the appropriate filings to occur.

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    2.19         For
the purpose of §468B of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, the “administrator” shall be the Escrow
Agent. The Escrow Agent shall timely and properly file all informational and
other tax returns necessary or advisable with respect to the cash portion of the
Class Settlement Fund (including without limitation the returns described in
Treas. Reg. §1.468B-2(k)(l)). Such returns (as well as the election described in
¶2.18) shall be consistent with this ¶2.19 and in all events shall reflect that
all Taxes (including any estimated Taxes, interest or penalties) on the income
earned by the cash portion of the Class Settlement Fund shall be paid out of the
cash portion of the Class Settlement Fund as provided in ¶2.19(a)
hereof.

     

    (a)           All
(i) Taxes (including any estimated Taxes, interest or penalties), and (ii) Tax
Expenses shall be paid out of the cash portion of the Class Settlement Fund; in
all events the Defendants and their respective counsel shall not have any
liability or responsibility for any Taxes or any Tax Expenses or the filing of
any tax returns or other documents with the Internal Revenue Service or any
other state or local taxing authority. The Escrow Agent shall indemnify and hold
harmless the Defendants, and their respective counsel for Taxes and Tax Expenses
(including, without limitation, Taxes payable by reason of any such
indemnification). Further, Taxes and Tax Expenses shall be treated as, and
considered to be, a cost of administration of the Class Settlement Fund and
shall be timely paid by the Escrow Agent out of the Class Settlement Fund
without prior order from the Court. The Escrow Agent shall be obligated
(notwithstanding anything herein to the contrary) to withhold from distribution
to Authorized Claimants any funds necessary to pay such Taxes and Tax Expenses
including the establishment of adequate reserves for any Taxes and Tax Expenses
(as well as any amounts that may be required to be withheld under Treas. Reg.
§1.468B-2(1)(2)); neither the Defendants nor their respective counsel are
responsible to pay such Taxes and Tax Expenses, nor shall they have any
liability or responsibility therefor. The Settling Parties hereto agree to
cooperate with the Escrow Agent, each other, and their tax attorneys and
accountants to the extent reasonably necessary to carry out the provisions of
this ¶2.19.

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    (b)           For
the purpose of this ¶2.19, references to the Class Settlement Fund shall include
both the cash portion of the Class Settlement Fund, if any, and the Class Notice
and Administration Fund and shall also include any interest
thereon.

     

    
      
        
          	 	
                   
      f.

                	
                  Termination
      of Settlement

                

        

      

    

     

    2.20         In
the event that the Effective Date does not occur or the Settlement is not
approved or is terminated for any reason, the Settlement Fund shall be refunded
as described in ¶7.4 below.

     

    
      	
               
      

            	
              3.

            	
              Preliminary
      Approval, Preliminary Approval Orders and Settlement
    Hearing

            

    

     

    3.1           Promptly
after execution of this Stipulation by all parties hereto, the Settling Parties
shall submit the Stipulation together with its Exhibits to the
Court.  After filing the Stipulation, the Settling Parties shall apply
for entry of the Preliminary Approval Order requesting, inter alia, the preliminary
approval of the Settlement set forth in the Stipulation, and approval for the
publication of the Notice, which shall include the general terms of the
Settlement set forth in the Stipulation, and, as applicable, the Plan of
Allocation, the general terms of the Class Fee and Expense Application as
defined in ¶6.1 below, and the date of the Settlement Hearing as defined
below.  Lead Plaintiff’s Counsel shall be responsible for overseeing
the notice provided to the Settlement Class.

     

    3.2           The
Settling Parties shall request that after the Notice is disseminated, the Court
hold  the Settlement Hearing to consider and determine whether an
order approving the Settlement as fair, reasonable and adequate and Final
Judgment should be entered thereon dismissing the Action with
prejudice.  At or after the Settlement Hearing, Lead Plaintiff’s
Counsel also will request that the Court approve the Plan of Allocation and Lead
Plaintiff’s Counsel will request that the Court approve their proposed
application for an award of attorneys’ fees and expenses.

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              4.

            	
              Releases
      and Bar Orders

            

    

     

    4.1         Upon
the Effective Date, Lead Plaintiff and each of the Settlement Class Members
shall be deemed to have, and by operation of the Judgment entered in the Action
shall have, fully, finally, and forever released, relinquished and discharged
all Released Claims against the Released Parties, whether or not such Settlement
Class Member executes and delivers a proof of claim and release.

     

    4.2         Upon
the Effective Date, each of the Released Parties shall be deemed to have, and by
operation of the Judgment entered in the Action, shall have, fully, finally, and
forever released, relinquished and discharged each and all of the Settlement
Class Members and Lead Plaintiff and their counsel from all claims, including
Unknown Claims, arising out of, relating to, or in connection with the
institution, prosecution, assertion, settlement or resolution of the Action or
the Released Claims.

     

    4.3         The
Judgment in the Action will contain a Bar Order as required by section 21D(f)(7)
of the Securities Exchange Act of 1934, 15 U.S.C. §78u-4(f)(7) and shall be as
broad as permitted by state or federal law, and shall permanently and forever
bar from filing, instituting, prosecuting, or maintaining, directly or
indirectly, in any capacity, any claims for contribution or any other claim
asserted against any Settling Defendant, whether based in tort, contract, or any
other theory, arising from, based upon, or related to any fact or circumstance
involved in the Action or in any pleading or any other paper filed therein, or
the subject matters of the Action, whether such claim be legal or equitable,
known or unknown, foreseen or unforeseen, matured or unmatured, accrued or
unaccrued, or asserted under state, federal, or common law.

     

    4.4         Upon
the Effective Date, in consideration for the sum of ten dollars ($10) and for
other good consideration received, Smart Online shall be deemed to have, and by
operation of the Judgment entered in the Action, shall have, fully, finally, and
forever released, relinquished and discharged Maxim Group and its counsel from
all Released Claims, including Unknown Claims.

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    4.5         Upon
the Effective Date, in consideration for the sum of ten dollars ($10) and for
other good consideration received, Maxim Group shall be deemed to have, and by
operation of the Judgment entered in the Action, shall have, fully, finally, and
forever released, relinquished and discharged Smart Online and its counsel from
all Released Claims, including Unknown Claims.

     

    4.6         Pending
the Court’s determination of whether the Settlement should be approved and
applied in the Action, all proceedings and all further activity between the
Settling Parties regarding or directed towards the Action, and save for those
activities and proceedings relating to this Stipulation and the Settlement and
the continued prosecution of Action against the Excluded Defendants, shall be
stayed.

     

    4.7         Pending
the Court’s determination of whether the Settlement should be approved, neither
Lead Plaintiff, nor any of the Settling Class Members shall commence, maintain
or prosecute against the Settling Defendants, any action or proceeding in any
court or tribunal asserting any of the Released Claims.

     

    
      	
               
      

            	
              5.

            	
              Administration
      and Calculation of Claims, Final Awards and Supervision and Distribution
      of the Class Settlement Fund

            

    

     

    5.1         The
Claims Administrator, subject to such supervision and direction of the Court
and/or Lead Plaintiff’s Counsel as may be necessary or as circumstances may
require, shall administer and calculate the claims submitted by Settlement Class
Members and shall oversee distribution of the Net Settlement Fund (defined
below) to Authorized Claimants.  The Class Settlement Fund shall be
applied as follows:

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    (a)           to
pay all the costs and expenses reasonably and actually incurred in connection
with providing notice, identifying and locating Settlement Class Members,
assisting with the filing of claims, administering and distributing the Class
Settlement Fund to Authorized Claimants, processing Proof of Claim and Release
forms and paying escrow fees and costs, if any, to the extent these costs and
expenses are not paid by the Class Notice and Administration Fund;

     

    (b)           to
pay the Taxes and Tax Expenses described in ¶¶2.18 and 2.19 above;

     

    (c)           to
pay to Lead Plaintiff’s attorneys’ fees and expenses with interest thereon (the
“Class Fee and Expense Award”), if and to the extent allowed by the
Court;

     

    (d)           to
reimburse the time and expenses of Lead Plaintiff in the Action, if and to the
extent allowed by the Court; and

     

    (e)           subject
to the provisions of ¶5.2(c) below, to distribute the Net Settlement Fund to
Authorized Claimants as allowed by the Stipulation, the Plan of Allocation, or
the Court.

     

    5.2         Upon
the Effective Date and thereafter, and in accordance with the terms of the
Stipulation, the Plan of Allocation, or such further approval and further
order(s) of the Court as may be necessary or as circumstances may require, the
Net Settlement Fund shall be distributed to Authorized Claimants, subject to and
in accordance with the following:

     

    (a)           Within
one hundred and twenty (120) days after the dissemination of notice or such
other time as may be set by the Court, each Person claiming to be an Authorized
Claimant shall be required to submit to the Claims Administrator a completed
Proof of Claim and Release, substantially in the form of Exhibit A-2 attached
hereto, signed under penalty of perjury and supported by such documents as
specified in the Proof of Claim and Release and as are reasonably available to
the Authorized Claimant.

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    (b)           Except
as otherwise ordered by the Court, all Settlement Class Members who fail to
timely submit a Proof of Claim and Release within such period, or such other
period as may be ordered by the Court, or otherwise allowed, and all Settlement
Class Members whose claims are not approved by the Court (in the event the same
are rejected in whole or in part by the Claims Administrator and the Court
resolves the dispute involved) shall be forever barred from receiving any
payment pursuant to this Stipulation and the Settlement set forth herein, but
will in all other respects be subject to and bound by the provisions of this
Stipulation, the releases contained herein, and the Judgments and be enjoined
and barred from bringing any action against any of the Settling Defendants
asserting any of the Released Claims.

     

    (c)           The
Net Settlement Fund shall be distributed to the Authorized Claimants
substantially in accordance with a Plan of Allocation to be described in the
Class Notice and approved by the Court.  However, if there is any
balance remaining in the Net Settlement Fund after six (6) months from the date
of distribution of such Net Settlement Fund (whether by reason of tax refunds,
uncashed checks or otherwise), to the extent Lead Plaintiff’s Counsel determines
it is economically feasible such balance shall be reallocated among and
distributed to Authorized Claimants in an equitable and economic
fashion.  Thereafter, any remaining balance should be donated to an
appropriate 501(c)(3) non-profit organization(s) to be selected by Lead
Plaintiff’s Counsel.

     

    5.3         The
Plan of Allocation shall be proposed by Lead Plaintiff’s Counsel, and the
Settling Defendants shall take no position with respect to the proposed Plan of
Allocation or such plan as may be approved by the Court except as provided in
this paragraph.  Lead Plaintiff’s Counsel and the Settling Defendants
agree that in the interests of preserving value for the Settlement Class, the
Plan of Allocation shall provide that, to the extent shares of Smart Online
Settlement Stock are to be distributed to Settlement Class Members, the Smart
Online Settlement Stock shall be distributed to the Authorized Claimants in
amounts and over time periods determined by Lead Plaintiff’s Counsel to be in
the best interests of the Settlement Class as a whole. Lead Plaintiff’s Counsel
agrees to consult in good faith with Smart Online regarding any plan for
distributing shares of Smart Online Settlement Stock to Authorized
Claimants.

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    5.4         No
Person shall have any claim against Lead Plaintiff, Lead Plaintiff’s Counsel,
any claims administrator, any agent designated by Settling Defendants,
Defendants’ Counsel, or their respective counsel, based on the investment or
distributions made substantially in accordance with this Stipulation and the
Settlement contained herein, the Plan of Allocation, or further orders of the
Court.

     

    5.5         It
is understood and agreed by the Settling Parties that the proposed Plan of
Allocation including, but not limited to, any adjustments to an Authorized
Claimant’s claim set forth therein, is not a part of the Stipulation and is to
be considered by the Court separately from the Court’s consideration of the
fairness, reasonableness and adequacy of the Settlement set forth in the
Stipulation, and any order or proceeding relating to the Plan of Allocation
shall not operate to terminate or cancel the Stipulation or affect the finality
of the Court’s Judgment approving the Stipulation and the Settlement set forth
therein, or any other orders entered pursuant to the
Stipulation.

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              6.

            	
              Lead
      Plaintiff’s Counsel’s Attorneys’ Fees and Reimbursement of Expenses and
      Reimbursement of Lead Plaintiffs

            

    

     

    6.1         Lead
Plaintiff’s Counsel may submit one or more Class Fee and Expense Applications
for distributions from the Class Settlement Fund for: (a) an award of attorneys’
fees; (b) plus reimbursement of expenses incurred in connection with prosecuting
the Class Action; (c) plus any interest on such attorneys’ fees and expenses at
the same rate and for the same periods as earned by the Settlement Fund (until
paid) as may be awarded by the Court; (d) reimbursement of the time and expenses
of Lead Plaintiff in prosecuting the Action; and (e) reimbursement of Lead
Plaintiff’s Counsel’d fees and expenses in administering the Settlement. Lead
Plaintiff’s Counsel reserve the right to make additional applications for fees
and expenses incurred.  Settling Defendants will take no position with
respect to the Class Fee and Expense Application and such matters are not the
subject of any agreement between the Settling Parties other than the terms set
forth in the Stipulation.

     

    6.2         The
Class Fee and Expense Award shall be transferred to Lead Plaintiff’s Counsel
from the Class Settlement Fund as Ordered, immediately after the Court executes
a written Order awarding such fees and expenses, notwithstanding the existence
of any timely filed objections thereto, or potential appeal therefrom, subject
to the obligation of each counsel to make appropriate repayments to the Class
Settlement Fund as more particularly set forth below in ¶6.3.  Lead
Plaintiff’s Counsel shall allocate the attorneys’ fees amongst counsel in the
Class Action in a manner in which Lead Plaintiff’s Counsel in good faith believe
reflects the respective contributions of such counsel to the prosecution and
settlement of the Action.

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    6.3         In
the event that the Effective Date does not occur, or the order making the Class
Fee and Expense Award is reversed or modified, or the Stipulation is terminated
for any reason, and in the event that the Class Fee and Expense Award has been
paid to any extent, then any of Lead Plaintiffs’ counsel who have received a
payment shall, within five (5) business days from Lead Plaintiff’s Counsel
receiving notice from Settling Defendants’ Counsel or from a court of
appropriate jurisdiction, refund to the Class Settlement Fund the fees and
expenses previously paid to them from the Class Settlement Fund, plus interest
thereon at the same rate as earned by the Class Settlement Fund, in an amount
consistent with such reversal or modification. In the event shares of Smart
Online Settlement Stock are distributed to Class Lead Counsel as part of any
Class Fee and Expense Award and Class Lead Counsel sells some or all of those
shares before termination of the Settlement, to fulfill their return obligation
herein, Lead Plaintiff’s Counsel shall, at Lead Plaintiff’s Counsel’s option,
return the actual cash amounts they received in exchange for the sale of such
shares sold (less brokerage commissions, taxes or transaction costs actually
paid) irrespective of the then current market price of Smart Online shares and
any shares they still hold as unsold, or return an equal number of shares as
they were awarded by the Court. The return obligation set forth in this
paragraph is the obligation of all Lead Plaintiff’s counsel who receive a
payment in the Action.  Each such Lead Plaintiff’s counsel’s law firm,
as a condition of receiving such fees and expenses, on behalf of itself and each
partner and/or shareholder of it, agrees that the law firm and its partners
and/or shareholders are subject to the jurisdiction of the Court for the purpose
of enforcing the provisions of this subparagraph. Without limitation, each such
law firm and its partners and/or shareholders agree that the Court may, upon
application of Settling Defendants on notice to Lead Plaintiff’s Counsel,
summarily issue orders, including, but not limited to, judgments and attachment
orders, and may make appropriate findings of or sanctions for contempt, against
them or any of them should such law firm fail timely to repay fees, expenses and
interest pursuant to this ¶6.3 of this Stipulation.

     

    6.4         The
procedure for and the allowance or disallowance by the Court of any applications
by Lead Plaintiff’s counsel for attorneys’ fees and expenses to be paid out of
the Class Settlement Fund are not part of the Settlement set forth in the
Stipulation, and are to be considered by the Court separately from the Court’s
consideration of the fairness, reasonableness and adequacy of the Settlement set
forth in the Stipulation, and any order or proceeding relating either to the
Class Fee and Expense Application or the  Fee and Expenses, or any
appeal from any order relating thereto or reversal or modification thereof,
shall not operate to terminate or cancel the Stipulation, or affect or delay the
finality of the Judgment in the Action.

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    6.5         The
Settling Defendants shall have no responsibility for, and no liability
whatsoever with respect to, the allocation among counsel for any Lead Plaintiff
in the Action, and/or any other Person who may assert some claim thereto, of any
fee and expense award that the Court may make in the Action.

     

    
      	
               
      

            	
              7.

            	
              Conditions
      of Settlement, Effect of Disapproval, Cancellation or
      Termination

            

    

     

    7.1         This
Stipulation, the Settlement and the Effective Date shall be conditioned on the
occurrence of all of the following events:

     

    (a)           Smart
Online, Henry Nouri, and Maxim Group shall have paid or caused to be paid the
consideration making up the Class Settlement Fund as required by ¶¶2.1 to 2.10
above;

     

    (b)           Smart
Online shall have signed and delivered to Lead Plaintiff’s Counsel the
Assignment Agreement;

     

    (c)           The
Board of Directors of Smart Online will have reviewed and approved the
Stipulation;

     

    (d)           The
Court has entered the Preliminary Approval Order, as required by ¶3.1,
above;

     

    (e)           Smart
Online has not exercised its option to terminate the Stipulation pursuant to
¶7.2 hereof;

     

    (f)           The
Court has entered the Judgment in the Class Action in substantially the form of
Exhibit B attached hereto, respectively; and

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    (g)           the
Judgment has become Final.

     

    7.2         Smart
Online shall have the option to terminate the Settlement in the event that
Settlement Class Members who purchased or otherwise acquired more than a certain
number of Smart Online shares during the Class Period choose to exclude
themselves from the Settlement Class, as set forth in the Supplemental
Agreement.  The Supplemental Agreement will not be filed with the
Court unless and until a dispute arises between the Class Lead Plaintiffs and
Class Settling Defendants concerning its interpretation or
application.

     

    7.3         Smart
Online and Lead Plaintiff shall each have the right to terminate the settlement
if the Settlement is not approved by the Court within eight (8) months following
the Settlement Hearing.  In the event either Party wishes to terminate
the Settlement on this ground, the terminating Party may do so by providing
written notice of such termination to the other Party and such termination, if
not withdrawn, shall be effective ten (10) business days
thereafter.

     

    7.4         In
the event the Settlement is not approved or the Stipulation shall terminate or
shall not become effective for any reason, within ten (10) business days after
written notification of such event is sent by counsel for the Settling
Defendants or Lead Plaintiff’s Counsel to the Escrow Agent, the Smart Online
Settlement Stock, together with any proceeds from the sale or other disposition
of Smart Online Settlement Stock pursuant to ¶2.7, shall be returned to Smart
Online and Henry Nouri in proportion to their respective contributions to the
Settlement Fund as set forth in ¶¶ 2.2 hereto and the cash component of the
Settlement Fund (including accrued interest), plus any amount then remaining in
the Class Notice and Administration Fund (including accrued interest), less
expenses and costs which have either been disbursed pursuant to ¶¶ 2.17 to
2.19 hereto, or are chargeable to the Class Notice and Administration Fund shall
be refunded by the Escrow Agent to Smart Online and Maxim Group in proportion to
their respective cash contributions to the Settlement Fund as set forth in
¶¶ 2.9 to 2.10 hereto. Under no circumstances shall Lead Plaintiff or Lead
Plaintiff’s Counsel be responsible for, or required to reimburse or return any
amounts disbursed or incurred for notice to Settlement Class Members or
administration of the Settlement whether such amounts are disbursed from the
Class Notice and Administration Fund or the Class Fee and Expenses Award. At the
request of counsel for Settling Defendants, the Escrow Agent or its designee
shall apply for any tax refund owed to the Class Settlement Fund and pay the
proceeds, after deduction of any reasonable fees or expenses incurred in
connection with such application(s) for refund to Smart Online and Maxim Group
in proportion to the respective contributions to the Settlement Fund as set
forth in ¶¶ 2.2 to 2.10 hereto.

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    7.5         In
the event that the Stipulation or Settlement is not approved by the Court or the
Settlement set forth in the Stipulation is terminated for any reason, the
Settling Parties shall be restored to their respective positions in the Action
as the date of this Stipulation, and all negotiations, proceedings, documents
prepared and statements made in connection herewith shall be without prejudice
to the Settling Parties, shall not be deemed or construed to be an admission by
any Settling Party of any act, matter or proposition and shall not be used in
any manner or for any purpose in any subsequent proceeding in the Action or in
any other action or proceeding.  In such event, the terms and
provisions of the Stipulation, with the exception of ¶¶1.1-1.43, 2.11-2.20,
7.1-7.8 and 8.4 herein, shall have no further force and effect with respect to
the Settling Parties and shall not be used in the Action or in any other
proceeding for any purpose, and any Judgments or orders entered by the Court in
accordance with the terms of the Stipulation shall be treated as vacated, nunc
pro tunc.  The Settling
Parties agree that in the event that the Stipulation or Settlement is not
approved by the Court or the Settlement set forth in the Stipulation is
terminated for any reason, neither Lead Plaintiff nor any of the Settling Class
Members shall commence, maintain or prosecute any of the Released Claims against
the Settling Defendants, in any court or tribunal for a period of sixty (60)
days and, during this sixty (60) day period, the Settling Parties shall engage
in good faith negotiations to reach a new resolution of all outstanding issues
between them, including the Released Claims.

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    7.6         If
the Effective Date does not occur, or if the Stipulation is terminated for any
reason, neither Lead Plaintiff nor any of Lead Plaintiff’s Counsel shall have
any obligation to repay any amounts actually and properly disbursed from or
chargeable for notice to Settlement Class Members or administration of the
Settlement. In the event the amounts remaining at the time of such termination
are insufficient to pay the cost of notice to the Settlement Class Members and
administration of the Settlement properly incurred, Lead Plaintiff’s Counsel
shall pay such amounts from the Class Fee and Expense Award prior to the return
of the balance of the Class Fee and Expense Award as provided in paragraph 6.3
above. In addition, any expenses already incurred and properly chargeable to the
Class Notice and Administration Fund pursuant to ¶2.17 hereof at the time of
such termination or cancellation but which have not been paid, shall be paid by
the Escrow Agent in accordance with the terms of the Stipulation prior to the
balance being refunded.

     

    7.7         Maxim
Group shall have the option to exclude itself from the Settlement in the event
that Settlement Class Members who purchased or otherwise acquired more than a
certain number of Smart Online shares during the Class Period choose to exclude
themselves from the Settlement Class, as set forth in the Supplemental
Agreement. Maxim Group shall be entitled to exercise its option to withdraw from
the settlement only if Maxim Group provides lead Plaintiffs’ Counsel and Smart
Online with written notice of its withdrawal from the settlement and files that
notice with the Court within four (4) days prior to the Settlement
Hearing.  In the event that Maxim Group opts to exclude itself from
the Settlement:

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    (a)           Maxim
Group and Lead Plaintiff shall be restored to their respective positions in the
Action as the date of this Stipulation, and all negotiations, proceedings,
documents prepared and statements made in connection herewith shall be without
prejudice to them, shall not be deemed or construed to be an admission by either
Maxim Group or Lead Plaintiff of any act, matter or proposition and shall not be
used in any manner or for any purpose in any subsequent proceeding in the Action
or in any other action or proceeding.

     

    (b)           Any
cash contribution of Maxim Group to the Settlement Fund pursuant to ¶ 2.10
shall be refunded by the Escrow Agent to MaximGroup, less Maxim Group’s
proportionate amount of any administrative costs and expenses already incurred
pursuant to ¶ 5.1(a) at the time that Maxim Group gives notice to exclude
itself from the Settlement pursuant to ¶ 7.7.

     

    (c)           There
shall be no effect on the other Settling Defendants or their respective
obligations under the Stipulation and the releases given and the Judgments
entered in favor of other Settling Defendants shall remain in full force and
effect.

     

    7.8         The
Settling Parties agree that, with respect to any Settling Defendant, in the
event of a final order of a court of competent jurisdiction, not subject to any
further proceedings, determining the transfer of the Class Settlement Fund, or
any portion thereof, by or on behalf of such Settling Defendant to be a
preference, voidable transfer, fraudulent transfer or similar transaction under
Title  11 of the United States Code (Bankruptcy) or applicable state law
and any portion thereof is required to be refunded and such amount is not
promptly deposited in the Class Settlement Fund by any other Defendant, then, at
the election of Lead Plaintiff’s Counsel, as to such Class Settling Defendant,
the releases given and the Judgments entered in favor of such Settling Defendant
pursuant to the Stipulation shall be null and void.  The releases
given and the Judgments entered in favor of other Settling Defendants shall
remain in full force and effect.

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              8.

            	
              Miscellaneous
      Provisions

            

    

     

    8.1         The
Settling Parties:  (a) acknowledge that it is their intent to
consummate the terms and conditions of this Stipulation; and (b) agree to
cooperate to the extent reasonably necessary to effectuate and implement all
terms and conditions of the Stipulation and to exercise their best efforts to
accomplish the foregoing terms and conditions of the Stipulation.

     

    8.2         As more fully set forth in the
Assignment Agreement, Settling Defendants agree to reasonably cooperate with
Lead Plaintiff in the prosecution of her claims (including any assigned claims)
against the Excluded Defendants in the Action or other proceedings relating to
or arising therefrom including in the case of each of the Settling Defendants
except for Maxim Group providing documents and other information reasonably
requested by Lead Plaintiff (which shall be treated as part of a joint
prosecution undertaking with Lead Plaintiff or otherwise as required to permit
Lead Plaintiff access to privileged documents relevant to the assigned claims
without waiving privilege as to any third party).

     

    8.3         Each
Settling Defendant warrants as to himself, herself or itself that, at the time
any of the payments provided for herein are made by or on behalf of himself,
herself or itself, the payment will not render him, her or it insolvent. This
representation is made by each Settling Defendant as to himself, herself or
itself and is not made by any counsel for the Settling Defendants.

     

    8.4         The
Settling Parties intend this Settlement to be a final and complete resolution of
all disputes among them with respect to the Action, provided,
however, that it is the express
intent of the Parties to this Stipulation that Excluded Defendants are not
Settling Defendants for purposes of this Stipulation and that claims of Lead
Plaintiff, Settlement Class Members, and/or Smart Online against the Excluded
Defendants are not being released by this Stipulation.  The Settlement
compromises claims that are contested and shall not be deemed an admission by
any Settling Party as to the merits of any claim or defense.  While
the Settling Defendants deny that any wrongdoing or liability to Settlement
Class Members with respect to the Action, the Settling Parties agree and the
Judgment in the Action will state, that the Action were filed, prosecuted and
defended in good faith and in accordance with the applicable law and Federal
Rules of Civil Procedure, including Rule 11 of the Federal Rules of Civil
Procedure, and are being settled voluntarily after consultation with competent
legal counsel.  Smart Online may issue a press release announcing the
Settlement, but may not contradict the above language.

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

    8.5         Neither
the Stipulation nor the Settlement, nor any act performed or document executed
pursuant to or in furtherance of the Stipulation or the Settlement: (a) is or
may be deemed to be or may be used as an admission of, or evidence of, the
validity of any Released Claims, or of any wrongdoing or liability of the
Settling Defendants; or (b) is or may be deemed to be or may be used as an
admission of, or evidence of, any fault or omission of any of the Settling
Defendants in any civil, criminal or administrative proceeding in any court,
administrative agency or other tribunal.  The Settling Defendants may
file the Stipulation and/or the Judgment in related litigation as evidence of
the Settlement, or in any action that may be brought against them in order to
support a defense or counterclaim based on principles of res judicata, collateral
estoppel, release, good faith settlement, judgment bar or reduction or any other
theory of claim preclusion or issue preclusion or similar defense or
counterclaim.

     

    8.6         All
agreements made and orders entered during the course of the Action relating to
the confidentiality of information shall survive this Stipulation.

     

    8.7         All
of the Exhibits to this Stipulation are material and integral parts hereof and
are fully incorporated herein by this reference.

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

    8.8         This
Stipulation may be amended or modified only by a written instrument signed by or
on behalf of all Settling Parties or their respective
successors-in-interest.

     

    8.9         This
Stipulation and the Exhibits attached hereto, and the Supplemental Agreement
constitute the entire agreement among the Settling Parties and no
representations, warranties or inducements have been made to any party
concerning the Stipulation, its Exhibits, or the Supplemental Agreement other
than the representations, warranties and covenants contained and memorialized in
such documents.  The Stipulation supersedes and replaces any prior or
contemporaneous writing, statement or understanding.  Except as
otherwise provided herein, each Party shall bear its own costs.

     

    8.10       Counsel
for the Settling Parties are expressly authorized by their respective clients to
take all appropriate Action required or permitted to be taken pursuant to the
Stipulation to effectuate its terms and conditions.

     

    8.11       Each
counsel or other Person executing this Stipulation or any of its Exhibits on
behalf of any party hereto hereby warrants that such Person has the full
authority to do so.

     

    8.12       The
Stipulation may be executed in one or more counterparts.  All executed
counterparts including facsimile counterparts and each of them shall be deemed
to be one and the same instrument.  A complete set of original
executed counterparts shall be filed with the Court by Lead Plaintiff’s
Counsel.

     

    8.13       This
Stipulation shall be binding upon, and inure to the benefit of, the Settling
Parties and their respective successors, assigns, heirs, spouses, marital
communities, executors, administrators and legal
representatives.

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    8.14       Without
affecting the finality of the Judgment entered in accordance with this
Stipulation, the Court shall retain jurisdiction with respect to implementation
and enforcement of the terms of the Stipulation and Judgment, and the Settling
Parties hereto submit to the jurisdiction of the Court for purposes of
implementing and enforcing the Settlement embodied in the Stipulation and
Judgment.

     

    8.15       This
Stipulation and the Exhibits hereto shall be considered to have been negotiated,
executed and delivered, entered into, and to be wholly performed, in the State
of North Carolina, and the rights and obligations of the Settling Parties to the
Stipulation shall be construed and enforced in accordance with, and governed by,
the internal, substantive laws of the State of North Carolina without giving
effect to that State’s choice of law principles.

     

    IN
WITNESS WHEREOF, the parties hereto have caused the Stipulation to be executed,
by their duly authorized attorneys, dated as of June 18, 2010.

     

    
      
        
          
            
              
                
                  	
                          AKIN
      GUMP STRAUSS HAUER & FELD LLP

                          NICHOLAS
      I. PORRITT.

                        
	 
	 
      
	
                          NICHOLAS
      I. PORRITT

                        
	 
	
                          1333
      New Hampshire Avenue, NW

                          Washington,
      DC 20036

                          Telephone:  (202)
      887-4000

                          Facsimile:  (202)
      887-4268

                        
	 
	
                          THARRINGTON
      SMITH LLP

                          F.
      HILL ALLEN

                          209
      Fayetteville Street

                          P.O.
      Box 1151

                          Raleigh,
      NC 27602

                          Telephone:  (919)
      821-4711

                          Facsimile:  (919)
      829-1583

                        
	 
	
                          Attorneys
      for Smart Online, Inc., Nicholas A. 

                          Sinigaglia,
      Scott Whitaker, Frank C. Coll, 

                          C. James
      Meese, Jr., Philippe Pouponnot, 

                          Shlomo
      Elia, Jeffrey W. Lerose, and Thomas 

                          P.
      Furr

                        

                

              

            

          

        

      

    

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    

    
      
        
          
            	 
      
	
                    DAVID
      Y. SARNA

                  
	
                    625
      N. Forest Drive

                    Teaneck,
      NJ 07666

                    Telephone:  (201)
      357-2084

                    Facsimile:  (201)
      905-5628

                  
	 
      
	
                    TROUTMAN
      SANDERS LLP

                    GARY
      S. PARSONS

                  
	 
	 
      
	
                    GARY
      S. PARSONS

                  
	
                    434
      Fayetteville Street

                    Two
      Hannover Square, Suite 1900

                    Raleigh,
      NC 27601

                    Telephone:  (919)
      835-4107

                    Facsimile:  (919)
      829-8715

                  
	 
      
	
                    TROUTMAN
      SANDERS LLP

                    ELLIOT
      COHEN

                    405 Lexington
      Avenue

                    New York, NY
      10174-0700

                    Telephone:  (212) 704-6000

                    Facsimile:  (212)
    704-6288

                  
	 
      
	
                    Attorneys
      for Maxim Group,
LLC

                  

          

        

      

    

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    

    
      
        
          
            	
                    BAKER
      & MCKENZIE LLP

                    MATTHEW
      ALLISON

                  
	 
	 
      
	
                    MATTHEW
      ALLISON

                  
	
                    One Prudential
      Plaza

                    130 East Randolph
      Drive

                    Chicago, IL
      60601

                    Telephone:  (312) 861-8000

                    Facsimile:  (312)
    861-2899

                  
	 
      
	
                    Attorneys
      for Dennis Michael Nouri, Reza 

                    Eric
      Nouri, Henry Nouri, and Ronna
Nouri

                  

          

        

      

    

    
      
         

      

      
        36

        
          

        

      

      
         

      

    

    

    
      
        
          
            	
                    BROWER
      PIVEN

                    A
      PROFESSIONAL CORPORATION

                    DAVID
      A. P. BROWER

                  
	 
	 
      
	
                    DAVID
      A.P. BROWER

                  
	
                    488
      Madison Avenue, 8th
      Floor

                    New
      York, New York  10022

                    Telephone:  (212)
      501-9000

                    Facsimile:  (212)
      501-0300

                  
	 
      
	
                    KAHN
      SWICK & FOTI, LLC

                    LEWIS
      S. KAHN

                    650
      Poydras Street, Suite 2150

                    New
      Orleans, Louisiana  70130

                    Telephone:  (504)
      455-1400

                    Facsimile:  (504)
      455-1498

                  
	 
      
	
                    Counsel
      for Lead Plaintiff and the Class

                  
	 
      
	
                    CONNORS
      MORGAN SINOZICH

                    S.
      RANCHOR HARRIS, III

                    (N.C.
      State Bar #21022)

                    609B
      Eugene Court

                    Greensboro,
      NC 27401

                    Telephone:  (336)
      333-7901

                    Facsimile:  (336)
      333-7909

                  
	 
      
	
                    Liaison
      Counsel

                  

          

        

      

    

    
      
         

      

      
        37

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