EX-10.2






Exhibit 10.2




EMPLOYMENT AGREEMENT




THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into by and between Smart Online,
Inc., a Delaware corporation (the “Company”), and David E. Colburn (the “Employee”) to be effective
December 12, 2007 (the “Effective Date”).



The Company desires to employ the Employee and the Employee desires to accept such employment
on the terms set forth below.



In consideration of the mutual promises set forth below and other good and valuable
consideration, the receipt and sufficiency of which the parties hereby acknowledge, the Company and
the Employee agree as follows:



1. EMPLOYMENT, POSITION AND DUTIES. The Company shall employ the Employee and
the Employee shall serve the Company on the terms and conditions set forth in this Agreement.




(a) The Employee shall serve as a full-time employee of the Company as President and Chief
Executive Officer, with such duties and responsibilities as are customarily assigned to such
position and such other duties and responsibilities not inconsistent therewith as may from time to
time be assigned to him by the Board of Directors of the Company (the “Board”).



(b) The Employee shall devote his loyalty, attention, and time to the business and affairs of
the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee
under this Agreement, use his best efforts to carry out such responsibilities faithfully and
efficiently.



(c) During his employment, the Employee shall not engage in any other business activities of
any nature whatsoever (including board memberships) for which he receives compensation without the
Company’s prior written consent; provided, however, this provision does not prohibit him from
personally owning and trading in stocks, bonds, securities, real estate or other investment
properties for his own benefit which do not create actual or potential conflicts of interest with
the Company.



2. COMPENSATION. 



(a) Base Salary. The Employee’s base annual salary initially shall be One Hundred
Eighty Thousand and No/100 Dollars ($180,000.00), less any applicable taxes and withholdings,
payable monthly. This salary shall be evaluated annually and is subject to such increases as the
Board approves.



(b) Housing. The Company shall provide the Employee with the use of one bedroom of a
two-bedroom apartment leased by the Company in Research Triangle Park, North Carolina during the
term of the Agreement. The Employee acknowledges that the second bedroom of such apartment shall
be for use by Company guests in the Company’s discretion.



(c) Other Benefits. The Employee may participate in all medical, dental, disability,
insurance, 401(k), pension, vacation and other employee benefit plans and programs which may be
made available from time to time to Company employees at the Employee’s level; provided, however,
that the Employee’s participation is subject to the applicable terms, conditions and eligibility
requirements of these plans and programs, some of which are within the plan administrator’s
discretion, as they may exist from time to time. Notwithstanding anything herein to the contrary,
the Employee shall be entitled to four (4) weeks of vacation each year and shall be paid for any
unused portion of the four (4) weeks upon termination of employment hereunder as provided in
Sections 4 and 5.



(d) Restricted Stock Award. On the Effective Date hereof, the Employee shall be
granted an award of One Hundred Thousand (100,000) shares of restricted stock. The restrictions on
those shares shall lapse as to Twenty-Five Thousand (25,000) shares on January 1, 2008,
Thirty-Seven Thousand Five Hundred (37,500) shares on January 1, 2010, Eighteen Thousand Seven
Hundred Fifty (18,750) shares on January 1, 2011, and Eighteen Thousand Seven Hundred Fifty
(18,750) shares on January 1, 2012.



3. TERM AND TERMINATION OF EMPLOYMENT. The original term of employment under this
Agreement shall be a one (1) year period commencing as of the Effective Date hereof and terminating
one (1) year thereafter subject to the following provisions:  



(a) Automatic Renewal. Upon the expiration of the original term or any renewal term
of employment, the Employee’s employment hereunder shall be automatically renewed for a one (1)
year period unless, at least thirty (30) days prior to the renewal date, either party gives the
other party written notice of its intent not to continue the employment relationship. During any
renewal term of employment, the terms, conditions and provisions set forth in this Agreement shall
remain in effect unless modified in accordance with Section 15(c) below.



(b) Death or Disability. The Employee’s employment and this Agreement shall terminate
automatically upon the Employee’s death. The Company may terminate the Employee’s employment
because of his physical or mental inability to perform the essential functions of his duties with
or without reasonable accommodation for a period of one hundred eighty (180) consecutive days or
one hundred eighty (180) days in total within a 365-day period as determined by the Company in its
sole discretion and in accordance with applicable law (“Disability”).



(c) Without Cause. During the original or any renewal term of this Agreement, the
employment relationship hereunder may be terminated without Cause by the Company by giving thirty
(30) days written notice of such termination to the Employee and by the Employee by his giving the
Company thirty (30) days written notice of such termination. Upon such notice by the Employee, the
Company may accelerate the effective date of termination and waive the notice requirement; in such
event, the Employee’s employment shall terminate on such earlier date chosen by the Company.



(d) With Cause. The Company may terminate the Employee’s employment immediately for
Cause. For purposes of this Agreement, “Cause” means:



(i) Any act or omission of the Employee constituting misconduct or negligence, fraud,
misappropriation, embezzlement, conflict of interest or competitive business activities, including
without limitation any arrest on criminal charges;



(ii) any chemical dependence which materially adversely affects the performance of his duties
and responsibilities to the Company;



(iii) breach of the Employee’s fiduciary obligations to the Company in a material respect;



(iv) the Employee’s repeated failure to perform his duties after written notice of the alleged
failure and a reasonable opportunity to cure;



(v) the Employee’s material breach of the Company’s policies or any material provision of this
Agreement;



(vi) the Employee’s gross misconduct resulting in substantial loss to the Company or damage to
the reputation of the Company; or



(vii) the Employee’s knowing material violation of securities laws, rules or regulations.



4. OBLIGATIONS OF THE COMPANY UPON TERMINATION PRIOR TO A CHANGE IN CONTROL.



(a) Termination by the Company without Cause or by Notice of Non-Renewal. If the
Company terminates the employment of the Employee without Cause prior to a Change in Control, as
defined herein, or by notice of non-renewal:



(i) the Company shall pay the Employee the portion of his base salary in effect at the time of
termination as he may be entitled to receive for services rendered prior to the date of such
termination;



(ii) the Company shall pay the Employee for any unused portion of his four (4) weeks of
vacation in a lump sum within five (5) days of termination; and



(iii) the Company shall pay an amount (less any applicable taxes and withholdings) equal to
the Employee’s then current salary for the then remaining term of this Agreement, payable in
substantially equal installments on the last business day of each applicable month. For purposes
of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) (“Section 409A”), as
applicable, each installment payment shall be considered to be a separate payment. If the total
amount of payments due the Employee under this Section should exceed the maximum amount permitted
to be paid under a separation pay plan exempt from regulation under Section 409A pursuant to
Treasury Regulations Section 1.409A-1(b)(9)(iii), then the entire amount in excess of such maximum
amount shall be paid in a lump sum no later than two and one-half (21/2) months following the end of
the calendar year in which the Employee’s employment terminated.



(b) Termination on Account of Death or Disability. If the Company terminates the
employment of the Employee on account of Disability of the Employee, or in the event of the
Employee’s death, the Company shall pay or provide to the Employee or his beneficiary such
compensation and benefits as are set forth in subsections (a)(i) (amounts due at termination) and
(a)(ii) (unused vacation) above.



(c) Termination with Cause. If the Company terminates the employment of the Employee
with Cause, the Company shall pay the Employee or his beneficiary such compensation as is set forth
in subsections (a)(i) (amounts due at termination) and (a)(ii) (unused vacation) above.



5. CHANGE IN CONTROL. 



(a) If a Change in Control (as defined in subsection (b) below) occurs and within eighteen
(18) months following the Change in Control either (i) the Employee’s employment is terminated by
the Company without Cause or by notice of non-renewal, or (ii) the Employee terminates his
employment for Good Cause, then the Employee shall be entitled to receive the benefits to which he
would have been entitled upon a termination by the Company without Cause or by notice of
non-renewal prior to a Change in Control (the benefits in Sections 4(a)(i)-(iii) above) and, in
addition, all of the restrictions on his shares of restricted stock in the Company shall
immediately lapse. For purposes of this Section 5, “Good Cause” shall mean the Employee’s
resignation within six (6) months of any of the following conditions having arisen without his
consent and after having given the Company written notice of the existence of such condition within
sixty (60) days of the initial existence of the condition and providing the Company with thirty
(30) days to remedy the condition:



(i) A material diminution in the Employee’s authority or responsibilities;



(ii) A material diminution in the Employee’s base salary;



(iii) relocation of the Employee’s office to a location more than thirty (30) miles outside of
Research Triangle Park, North Carolina; or



(iv) any material breach of this Agreement by the Company.



(b) For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred on
the earliest of the following dates:



(i) the date on which any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than: (i) the Company;
(ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company;
(iii) a corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company; or (iv) the existing
holders of capital stock of the Company as of the effective date hereof, is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the combined voting power
of the Company’s then outstanding securities; or



(ii) the date the shareholders of the Company approve a definitive agreement or plan for: (A)
a merger, share exchange, consolidation or reorganization involving the Company and any other
corporation or other entity as a result of which less than fifty percent (50%) of the combined
voting power of the Company or of the surviving or resulting corporation or entity after such
transaction is held in the aggregate by the holders of the combined voting power of the outstanding
securities of the Company immediately prior to such transaction; or (B) a complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or substantially all
of the Company’s assets.



6. EXPENSES. The Company shall reimburse the Employee for reasonable and necessary
expenses incurred by the Employee in the furtherance of the Company’s business in accordance with
such procedures as the Company may from time to time establish.



7. EMPLOYEE REPRESENTATION. The Employee represents and warrants that he is under no
contractual or other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of duties hereunder or other rights of the Company hereunder.



8. COVENANT NOT TO COMPETE. The Employee covenants that during his employment and for
one (1) year following the termination of his employment for any reason (the “Noncompetition
Period”) and within the “Noncompetition Area” below, he shall not, directly or indirectly, as
owner, employee, stockholder, principal, agent, consultant, trustee or otherwise or through the
agency of any corporation, partnership, association, or other entity (other than the Company)
compete with the Company in the “Business” as defined below.



(a) The Employee acknowledges and agrees that the Company does business on an international
basis and that the Employee will assist the Company in developing the Company’s business in both
the United States, India and Europe, and the Company has customers throughout the United States,
India and Europe, and the Employee will be involved in servicing those customers, and that any
breach of the Employee’s covenants contained herein would materially damage the Company, regardless
of the area of the world in which the activities constituting such breach were to occur.
Accordingly, for purposes of this Agreement, the “Noncompetition Area” shall be:



(i) the State of North Carolina;



(ii) any state other than North Carolina in which the Company conducts the “Business” and in
or for which the Employee assists or performs services assisting the Company;



(iii) any political subdivision of foreign countries in which the Company currently does
“Business” or does “Business” at the time of termination of the Employee’s employment with the
Company; and



(iv) any other state, country, or political subdivision where the Company does “Business” and
in or for which the Employee assists or performs services assisting the Company.



(b) For the purposes of this Agreement, “Business” shall include any business, service, or
product engaged in, provided, or produced by the Company from the date of this Agreement to the
date of the termination of the Employee’s employment with the Company, including, but not limited
to, (i) the business of development, production, marketing, design, manufacturing, leasing or
selling software related to business plans, accounting or legal services for use by small
businesses, whether for use by professionals or consumers; (ii) the business of development,
marketing and operation of a business services Internet portal for use by small businesses, and
other products or services related to any of the foregoing; (iii) providing web-hosted applications
and technology infrastructure syndication and/or (iv) any other business conducted by the Company
immediately prior to the date of termination of Employee’s employment or in which the Company shall
at the time of termination of Employee’s employment with the Company be actively preparing for.
For purposes of the foregoing definition of “Business,” a “small business” is any business
enterprise with fewer than 100 employees and a “business services Internet portal” is a web site
providing users with multiple online business resources covering broad topics for small businesses
such as, for example only, marketing, financial management, legal, and business strategies using
databases, online documents, reference material, chat rooms, newsgroups, hyperlinking or other
information tools.



9. NONSOLICITATION COVENANT. The Employee covenants that during the Noncompetition
Period he shall not directly or indirectly, on behalf of himself or on behalf of any other person,
firm, partnership, corporation, association or other entity, call upon any of the customers or
clients of the Company for the purpose of soliciting or providing any product or service similar to
that provided by the Company nor will he, in any way, directly or indirectly, for himself, or on
behalf of any other person, firm, partnership, corporation, association, or other entity solicit,
divert or take away, or attempt to solicit, divert, or take away any of the customers, clients,
business, or patrons of the Company. The Employee further covenants that during the Noncompetition
Period he shall not, directly or indirectly, as principal, agent, consultant, trustee or through
the agency of any corporation, partnership, association, or agency, induce or attempt to induce any
person to leave the employ of the Company.



10. NONDISCLOSURE COVENANT.



(a) The parties acknowledge that the Company is an enterprise whose success is attributable
largely to the ownership, use and development of certain valuable confidential and proprietary
information (the “Confidential Data”), and that the Employee’s employment with the Company will
involve the Employee’s access to and work with such information. The Employee acknowledges that
his relationship with the Company is a confidential relationship. The Employee covenants and
agrees that (i) he shall keep and maintain the Confidential Data in strictest confidence, and
(ii) he shall not, either directly or indirectly, use any Confidential Data for his own benefit, or
divulge, disclose, or communicate any Confidential Data in any manner whatsoever to any person or
entity other than the employees or agents of the Company having a need to know such Confidential
Data, and only to the extent necessary to perform their responsibilities on behalf of the Company,
and other than in the performance of the Employee’s duties in the employment by the Company. The
Employee’s agreement not to disclose Confidential Data shall apply to all Confidential Data,
whether or not the Employee participated in the development thereof. Upon termination of
employment for any reason, the Employee will return to the Company all Company documents, notes,
programs, data and any other materials (including any copies thereof) in his/her possession.



(b) For purposes of this Agreement, the term “Confidential Data” shall include any and all
information related to the business of the Company, or to its products, sales or businesses which
is not general public knowledge, specifically including (but without limiting the generality of the
foregoing) all financial and accounting data; computer software; processes; formulae; inventions;
methods; trade secrets; computer programs; engineering or technical data, drawings, or designs;
manufacturing techniques; patents, patent applications, copyrights and copyright applications (in
any such case, whether registered or to be registered in the United States of America or elsewhere)
applied for, issued to or owned by the Company; information concerning pricing and pricing
policies; marketing techniques; suppliers; methods and manner of operations; and information
relating to the identity, needs and location of all past, present and prospective customers. The
parties stipulate that as between them the above-described matters are important and confidential
and gravely affect the successful conduct of the business of the Company and that any breach of the
terms of this paragraph shall be a material breach of this Agreement.



11. INVENTIONS. All inventions, designs, improvements and developments made by the
Employee, either solely or in collaboration with others, during his employment with the Company,
whether or not during working hours, and relating to any methods, apparatus or products which are
manufactured, sold, leased, used or developed by the Company or which pertain to the Business (the
“Developments”), shall become and remain the property of the Company. The Employee shall disclose
promptly in writing to the Company all such Developments. The Employee acknowledges and agrees
that all Developments shall be deemed “works made for hire” within the meaning of the United States
Copyright Act, as amended. If, for any reason, such Developments are not deemed works made for
hire, the Employee shall assign, and hereby assigns, to the Company, all of the Employee’s right,
title and interest (including, but not limited to, copyright and all rights of inventorship) in and
to such Developments. At the request and expense of the Company, whether during or after
employment hereunder, the Employee shall make, execute and deliver all application papers,
assignments or instruments, and perform or cause to be performed such other lawful acts as the
Company may deem necessary or desirable in making or prosecuting applications, domestic or foreign,
for patents (including reissues, continuations and extensions thereof) and copyrights related to
such Developments or in vesting in the Company full legal title to such Developments. The Employee
shall assist and cooperate with the Company or its representatives in any controversy or legal
proceeding relating to such Developments, or to any patents, copyrights or trade secrets with
respect thereto. If for any reason the Employee refuses or is unable to assist the Company in
obtaining or enforcing its rights with respect to such Developments, the Employee hereby
irrevocably designates and appoints the Company and its duly authorized agents as the Employee’s
agents and attorneys-in-fact to execute and file any documents and to do all other lawful acts
necessary to protect the Company’s rights in the Developments. The Employee expressly acknowledges
that the special foregoing power of attorney is coupled with an interest and is therefore
irrevocable and shall survive (i) the Employee’s death or incompetency and (ii) any termination of
this Agreement.



12. INDEPENDENT COVENANTS. Each of the covenants on the part of the Employee
contained in paragraphs 9, 10 and 11 of this Agreement shall be construed as an agreement
independent of each other such covenant. The existence of any claim or cause of action of the
Employee against the Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any such covenant.



13. REASONABLENESS; INJUNCTION. The Employee acknowledges that the covenants
contained in this agreement are reasonably necessary and designed for the protection of the Company
and its business, and that such covenants are reasonably limited with respect to the activities
prohibited, the duration thereof, the geographic area thereof, the scope thereof and the effect
thereof on the Employee and the general public. The Employee further acknowledges that violation
of the covenants would immeasurably and irreparably damage the Company, and by reason thereof the
Employee agrees that for violation or threatened violation of any of the provisions of this
Agreement, the Company shall, in addition to any other rights and remedies available to it, at law
or otherwise, be entitled to any injunction to be issued by any court of competent jurisdiction
enjoining and restraining the Employee from committing any violation or threatened violation of
this Agreement. The Employee consents to the issuance of such injunction. Furthermore, the
Company shall, in addition to any other rights or remedies available to it, at law or otherwise, be
entitled to reimbursement of court costs, attorneys’ fees, and other expenses incurred as a result
of a breach of this Agreement. The Employee agrees to reimburse the Company for such expenses
promptly following a final determination that the Employee has breached this Agreement. In the
event of a final determination that Employee has not breached this Agreement, the Company agrees to
reimburse the Employee for his court costs and attorneys’ fees promptly following such
determination.



14. DELAYED DISTRIBUTION TO KEY EMPLOYEES. If the Company determines, in accordance
with Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the
Company’s sole discretion, that the Employee is a Key Employee of the Company on the date his
employment with the Company terminates and that a delay in severance pay and benefits provided
under this Agreement is necessary for compliance with Section 409A(a)(2)(B)(i), then any severance
payments and any continuation of benefits or reimbursement of benefit costs provided under this
Agreement and not otherwise exempt from Section 409A shall be delayed for a period of six (6)
months (the “409A Delay Period”). In such event, any such severance payments and the cost of any
such continuation of benefits provided under this Agreement that would otherwise be due and payable
to the Employee during the 409A Delay Period shall be paid to the Employee in a lump sum cash
amount in the month following the end of the 409A Delay Period. For purposes of this Agreement,
“Key Employee” shall mean an employee who, on an Identification Date (“Identification Date” shall
mean each December 31) is a key employee as defined in Section 416(i) of the Code without regard to
paragraph (5) of that section. If the Employee is identified as a Key Employee on an
Identification Date, then the Employee shall be considered a Key Employee for purposes of this
Agreement during the period beginning on the first April 1 following the Identification Date and
ending on the following March 31.



15. MISCELLANEOUS.



(a) This Agreement shall be subject to and governed by the substantive laws of the State of
North Carolina, without giving effect to the conflicts of laws provisions thereof. The Employee
hereby submits to the jurisdiction and venue of the state and federal courts of North Carolina.



(b) The Company’s failure to insist upon strict compliance with any provision of this
Agreement shall not be deemed a waiver of such provision or any other provision.



(c) This Agreement may not be modified except by an agreement in writing executed by the
parties.



(d) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision.



(e) This Agreement may be assigned by the Company, but it is not assignable by the Company.



(f) This Agreement shall inure to the benefit of and be binding upon the Company and it
successors and assigns.



(g) This Agreement expresses the whole and entire agreement between the parties and supersedes
and replaces any prior employment agreement, understanding or arrangement between Company and the
Employee.



IN WITNESS WHEREOF, the parties executed this Agreement under seal as of the day and year
written below




SMART ONLINE, INC.



	 	 	 
	By:

	 	/s/ Doron Roethler
	
 
	 	 
	
 
	 	Name:Doron Roethler

Title:Chairman of the Board
	Date:

	 	November 30, 2007
	
 
	 	 







	 	 	EMPLOYEE:






/s/David E. Colburn




	 	 	David E. Colburn






Date: November 30, 2007