Document:

EX-10.1

Exhibit 10.1

Mr. Kris Sennesael

3025 N. 50th St.

Phoenix, AZ 85018

December 8, 2008

Dear Mr. Sennesael,

On behalf of SMSC (the “Company), I am pleased to offer you the position of Vice President and
Chief Financial Officer. This position will be based in our Corporate Headquarters located in
Hauppauge, NY and reports directly to Christine King, CEO. This offer is subject to background
check verifications by a third party provider.

In return for your contributions you will receive and be eligible for the following:

Annualized Base Salary

You will be paid at the bi-weekly rate of $11,538.46, which is equivalent to $300,000.00 on an
annual basis.

New Hire Inducement Stock Options

An SMSC stock option grant of 100,000 SMSC shares which vests over five years at one-fifth of the
option shares per year will be granted and valued based on the closing price per share of SMSC
common stock on the NASDAQ on your first day of employment. You will be required to execute the
Company’s standard form stock option agreement to receive these options.

Annual Stock Appreciation Rights Award

The Company shall grant to you 75,000 stock appreciation rights (“SARS”) on an annual basis which
will be awarded quarterly on the same schedule as such grants are made to the Directors of the
Company pursuant to the terms and conditions of the plan from which such grants are made. The
first such grant of 18,750 SARS will be granted in January 2010. 25% of each such SAR grant will
vest on each of the first four anniversaries of the grant date of such SAR provided you continue to
remain employed by the Company on each of the applicable vesting dates. Notwithstanding anything
herein to the contrary, from time to time, the Board or the Compensation Committee, in its sole
discretion may modify the grant to include a partial or total substitution of alternative equity
based instruments.

Incentive Plan

You will be eligible to participate in the Management Incentive Bonus Plan (the “Plan”) on the
first day of the Company’s fiscal quarter immediately following your hire date with an annual
at-plan incentive bonus target of 75% of your base salary. Generally, one-half of any earned
incentive bonus is paid in restricted stock. Twenty-five percent (25%) of the restrictions on this
award are removed one year after the date of grant, another 25% after two years and the remaining
50% after three years. Generally, one-half is paid in cash.

Sign-on Bonus

Effective on your start date, the Company shall grant to you restricted stock with an intrinsic
value, calculated as of the date of grant, of $100,000, 25% of which will vest on the second
anniversary of the date of the grant, 25% of which will vest on the third anniversary of the date
of the grant and 50% of which will vest on the fourth anniversary of the date of the grant,
provided, in each case, that you remain employed by the Company through the applicable vesting
date.

Incentive Savings & Retirement Plan

You will be eligible to participate on the first of the month following the completion of three
months of employment. At that time, you can contribute up to 100% of salary (highly compensated
employees — 12%) per pay period up to a maximum annual contribution as defined by law. Employees
who are considered highly compensated will be informed at the time of eligibility. SMSC
contributes 66 2/3% for each $1.00 you contribute up to 6% of your eligible compensation. The
employer matching contribution will be invested in SMSC Company Stock. This program is a
“before-tax” program, also known as a “401(k)” Plan, which allows employees to save before-tax
dollars on a favorable basis.

Group Insurance Benefits

SMSC provides a full range of health and welfare “flex” benefits. There is a contributory fee for
some of the insurance coverages; however, the major costs of these coverages are assumed by the
Company. Elected group benefits commence on your first day of employment. A Summary of Benefits
is enclosed.

Executive Disability

You will be eligible for Company paid Individual Executive Disability Income Insurance (up to
1/3rd of salary), subject to physical exam and obtaining underwriting. This is in
addition to the LTD plan provided under the “flex” benefits program.

Paid Vacation

Vacation is accrued monthly to provide for an accrual rate of twenty (20) days per year or four (4)
weeks per year.

Paid Holidays

Eleven (11) paid holidays per year based on the Company’s current holiday schedule.

Educational Assistance

The Company will pay tuition for job-related degree or advanced degree courses in accordance with
the provisions of the Company’s Tuition Reimbursement Program.

Executive Severance Benefit (the “Executive Benefit”)

You will be eligible for the Executive Severance Benefit under the SMSC Severance Plan (the
“Plan”), a copy of which is enclosed with amendments, but with a benefit equal to one year’s salary
upon the occurrence of required “Relocation” as defined in Section 9(a) of the Plan or “Other
Events” as defined in Section 9(c) of the Plan. Except for the amount of the severance benefit,
your severance benefits, including without limitation the timing and manner of any payments, will
be governed by the terms and conditions of the Plan. In the event of a Change in Control as
defined in the Severance Plan, notwithstanding any provisions of the Severance Plan to the
contrary, you shall become 100% vested in all of your outstanding stock options and stock
appreciation rights awards.

Executive Relocation Program

The Company will reimburse you for typical costs of relocation including a guaranteed buy-out and
home sale incentive for your home in Phoenix, AZ. In addition, the Company will fully tax protect
reportable, non-deductible income resulting from relocation payments to you or on your behalf. In
the event you voluntarily leave the Company’s employ on or before four years from the first date of
your employment, you will be required to immediately pay to the Company, based on the schedule
below, the applicable portion of the total of the relocation costs paid to you or on your behalf,
including tax protection payments, which were reportable income to you. The taxable relocation
costs will be earned out at a rate of 25% of the total of the expenses for each completed year of
service following your hire date. For example, if the sum of the taxable relocation costs paid to
you is $100,000 and you voluntarily resign two years after your hire date or you are terminated for
cause including unsatisfactory job performance, you will have earned out 50% of the total taxable
relocation costs ($50,000). In this example, you would be obligated to repay the unearned 50%
portion of the taxable relocation costs ($50,000). The relocation benefits are administered
through Paragon Relocation Resources. A detailed Relocation Benefits Guide is enclosed for your
perusal. Your acceptance of this offer will serve to acknowledge that you understand and agree to
your obligation in exchange for relocation assistance.

Section 409A Compliance 

(i) The intent of the parties hereto is that payments and benefits under this offer letter
comply with Section 409A of the Internal Revenue Code of 1986, as amended and the regulations
promulgated thereunder (the “Code”) (except to the extent exempt as short-term deferrals or
otherwise) and, accordingly, to the maximum extent permitted, this offer letter shall be
interpreted to be in compliance therewith.

(ii) It is intended that each installment, if any, of the payments and benefits, if any,
provided to you under this Agreement shall be treated as a separate “payment” for purposes of
Section 409A of the Code. Neither the Company nor you shall have the right to accelerate or
defer the delivery of any such payments or benefits except to the extent specifically permitted
or required by Section 409 of the Code.

(iii) All reimbursements and in-kind benefits provided under this offer letter (including, the
provision of relocation benefits pursuant hereto) shall be made or provided in accordance with
the requirements of Section 409A of the Code to the extent that such reimbursements or in-kind
benefits are subject to Section 409A of the Code. All expenses or other reimbursements paid
pursuant hereto that are taxable income to you shall in no event be paid later than the end of
the calendar year next following the calendar year in which you incur such expense or pay such
related tax. With regard to any provision herein that provides for reimbursement of costs and
expenses or in-kind benefits, except as permitted by Section 409A of the Code, (i) the right to
reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another
benefit and (ii) the amount of expenses eligible for reimbursement, or in-kind benefits
provided, during any taxable year shall not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other taxable year.

Miscellaneous Provisions

Your eligibility to participate in the various compensation and benefits plans offered by the
Company, including without limitation the MIP Plan, is subject to your compliance with the terms
and conditions of each plan. The Company retains sole and absolute discretion to modify, amend or
terminate any such compensation and benefit plans at any time.

This offer letter shall be governed by and construed in accordance with the laws of the State of
New York, without reference to its principles of conflicts of law. This offer letter, the
documents referenced herein, and any other documents you execute upon commencing employment shall
constitute the entire agreement among the parties hereto with respect to your employment hereunder,
and supersedes and is in full substitution for any and all prior understandings or agreements with
respect to your employment. This offer letter may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which enforcement of such waiver is sought.
The failure of any party hereto at any time to require the performance by any other party hereto of
any provision hereof shall in no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken
or held to be a waiver of any succeeding breach of such provision or a waiver of the provision
itself or a waiver of any other provision of this offer letter. Any provision of this offer letter
(or portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall,
as to that jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the remaining provisions
thereof in such jurisdiction or rendering that or any other provisions of this offer letter
invalid, illegal, or unenforceable in any other jurisdiction.

Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the
interpretation hereof or any agreements relating hereto or contemplated herein or the
interpretation, breach, termination, validity or invalidity hereof shall be settled exclusively and
finally by arbitration provided that neither party hereto shall be required to submit to
arbitration claims for injunctive relief. The arbitration shall be conducted in accordance with
the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (the “AAA”),
except as amplified or otherwise varied hereby. The Company and you jointly shall appoint one
individual to act as arbitrator within thirty (30) days of initiation of the arbitration. If the
parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed
by the President of the New York Bar Association and shall be a person who maintains her principal
place of business in the New York metropolitan area and shall be an attorney, accountant or other
professional licensed to practice by the State of

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New York who has substantial experience in employment and executive compensation matters. All fees
and expenses of such arbitrator shall be shared equally by the Company and you. The situs of the
arbitration shall be New York City. Any decision or award of the arbitral tribunal shall be final
and binding upon the parties to the arbitration proceeding. The parties hereto hereby waive to the
extent permitted by law any rights to appeal or to seek review of such award by any court or
tribunal. The arbitration award shall be paid within thirty (30) days after the award has been
made. Judgment upon the award may be entered in any federal or state court having jurisdiction
over the parties and shall be final and binding. Each party shall be required to keep all
proceedings related to any such arbitration and the final award and judgment strictly confidential;
provided that either party may disclose such award as necessary to enter the award in a court of
competent jurisdiction or to enforce the award, and to the extent required by law, court order,
regulation or similar order.

The Immigration Reform and Control Act of 1986 require that employers must verify the identity and
work authorization of all new employees. You are therefore requested to complete Section 1 of the
attached Form I-9 “Employment Eligibility Verification” and bring this to us together with one of
the original documents listed in Section 2 under List A to establish identity and employment
eligibility or one from List B to establish identity and one from List C to establish employment
eligibility on your first day of employment.

Also enclosed is a copy of the Company’s standard form Employee Agreement and Indemnity Agreement
for your review and execution. Please return signed copies along with this offer letter.

You may accept this offer of employment and the terms and conditions thereof by confirming your
acceptance in writing by December 12, 2008. In anticipation of you accepting this offer, we would
like to agree to a start date as soon as possible. This offer of employment is not a contract or
commitment of employment for any period of time; you remain an “at will” employee should you accept
this offer. Please complete sign and date in the section below, keep one copy of the letter for
your records and return one copy to me along with the signed Employee Agreement in the enclosed
stamped, self-addressed envelope.

We are enthusiastic about your joining us, and believe that our ambitious business plans and goals
will provide every opportunity for you to achieve your personal and professional objectives. In
the meantime, if you have any questions, please do not hesitate to contact me at 631-435-6360
(office) or at jim.mulski@smsc.com (email).

We are looking forward to you joining the team to help us take SMSC to the next level.

Sincerely,

/s/ Jim Mulski

Jim Mulski

SMSC Vice President

Human Resources

Accepted and agreed.

	 	 	 
	Signature:

	 	/s/ Kris Sennesael
	
 
	 	 
	Date:

	 	12/9/08
	
 
	 	 
	Starting Date:

	 	1/5/09
	
 
	 	 

Enclosures:

Summary of Benefits

401K Plan

Severance Plan

U.S. Domestic Employee Relocation Benefits Guide (Executive Program)

Employee Agreement

Form I-9 page 2

2EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

This SEPARATION AGREEMENT AND GENERAL RELEASE (“Agreement”) is made and entered into by SMART
ONLINE, INC. (the “Company”) and David E. Colburn (“Employee”). Throughout the remainder of the
Agreement, the Company and Employee may be collectively referred to as “the parties.”

The Company currently employs Employee as President and Chief Executive Officer. The parties
desire to conclude the employment relationship, effective December 9, 2008 on mutually agreeable
terms and to avoid all litigation relating to the employment relationship and its termination, and
Employee desires certain benefits. Accordingly, the parties have agreed upon the terms described
herein

Employee represents that he has carefully read the entire Agreement, understands its
consequences, and voluntarily enters into it.

In consideration of the above and the mutual promises and good and valuable consideration set
forth below, the sufficiency of which is acknowledged by the parties, Employee and the Company
agree as follows:

1. SEPARATION. Employee’s employment by the Company will terminate, effective
December 9, 2008 (“Termination Date”). Employee also resigns as a member of the board of directors
of the Company effective December 10, 2008.

2. BENEFITS. The Company will pay Employee his current salary through and including
March 31, 2009 (less any applicable taxes and withholdings). This amount shall be paid in eight
substantially equal installments, in accordance with the Company’s payroll practices and schedule
applicable to Employee immediately prior to the termination of his employment, beginning with the
first regularly scheduled payday after the revocation period set forth in Paragraph 7 below
expires. In addition, the Company shall pay Employee’s premium payments under the Consolidated
Budget Reconciliation Act (“COBRA”) to continue his and his family’s health insurance coverage
through and including March 31, 2009. Any obligation for the Company to make payments for COBRA
under this paragraph 2 shall immediately cease when Employee is employed by an entity providing
health insurance coverage.

The benefits afforded under this Agreement are in lieu of any other compensation or benefits
to which Employee otherwise might be entitled, including without limitation under the Employment
Agreement effective December 12, 2007 by and between Employee and the Company (the “Employment
Agreement”).

3. RELEASE. In consideration of the benefits conferred by this Agreement, EMPLOYEE
(ON BEHALF OF HIMSELF AND HIS ASSIGNS, HEIRS, AND OTHER REPRESENTATIVES) RELEASES THE COMPANY, ITS
PREDECESSORS, SUCCESSORS, AND ASSIGNS AND ITS AND/OR THEIR PAST, PRESENT, AND FUTURE OWNERS,
PARENTS, SUBSIDIARIES, AFFILIATES, PREDECESSORS, SUCCESSORS, ASSIGNS, OFFICERS, DIRECTORS,
EMPLOYEES, EMPLOYEE BENEFIT PLANS (TOGETHER WITH ALL PLAN ADMINISTRATORS, TRUSTEES, FIDUCIARIES,
AND INSURERS), AND AGENTS (“RELEASEES”) FROM ALL CLAIMS AND WAIVES ALL RIGHTS,
KNOWN OR UNKNOWN, HE MAY HAVE OR CLAIM TO HAVE RELATING TO HIS EMPLOYMENT WITH THE COMPANY, ITS
PREDECESSORS, SUBSIDIARIES, OR AFFILIATES OR HIS SEPARATION THEREFROM arising before the execution
of this Agreement, including, but not limited to, claims: (i) for discrimination,
harassment, or retaliation arising under federal, state, or local laws prohibiting age (including,
but not limited to, claims under the Age Discrimination in Employment Act of 1967 (ADEA), as
amended, and the Older Workers Benefit Protection Act of 1990 (OWBPA)), sex, national origin, race,
religion, disability, veteran status, or other protected class discrimination, harassment, or
retaliation for protected activity; (ii) for compensation and benefits (including, but not limited
to, claims under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, the Fair
Labor Standards Act of 1938 (FLSA), as amended, and similar federal, state, and local laws);
(iii) arising under federal, state, or local law of any nature whatsoever (including, but not
limited to, constitutional, statutory, tort, express or implied contract, or other common law); and
(iv) for attorneys’ fees. The release of claims set forth in this paragraph does not apply to
claims for workers’ compensation benefits or unemployment benefits filed with the applicable state
agencies.

4. COVENANT NOT TO SUE. Employee will not sue Releasees on any matters relating to
his employment arising before the execution of this Agreement, including, but not limited to,
claims under the ADEA, or join as a party with others who may sue Releasees on any such claims;
provided, however, this paragraph will not bar a challenge under the OWBPA to the enforceability of
the waiver and release of ADEA claims set forth in this Agreement or claims for workers’
compensation or unemployment benefits referenced in paragraph 3 above, and this paragraph will not
apply when prohibited by law. If Employee does not abide by this paragraph, then: (i) he will
return all monies received under this Agreement and indemnify Releasees for all expenses they incur
in defending the action; and (ii) Releasees will be relieved of their obligations hereunder.

5. AGENCY CHARGES/INVESTIGATIONS. Nothing in this Agreement shall prohibit Employee
from filing a charge or participating in an investigation or proceeding conducted by the U.S. Equal
Employment Opportunity Commission or other governmental agency with jurisdiction concerning the
terms, conditions, and privileges of his employment; provided, however, that by signing this
Agreement, Employee waives his right to, and shall not seek or accept, any monetary or other relief
of any nature whatsoever in connection with any such charges, investigations, or proceedings.

6. COMPANY INFORMATION AND PROPERTY. Employee shall not at any time after his
employment terminates disclose, use, or aid third parties in obtaining or using any confidential or
proprietary Company information. Confidential or proprietary Company information is information
relating to the Company, the Company’s parents, subsidiaries, or affiliates, or any aspect of their
business that is not generally available to the public, their competitors, or other third parties
or ascertainable through common sense or general business or technical knowledge. Nothing in this
Agreement shall relieve Employee from any confidentiality, proprietary information, secrecy,
non-disclosure, non-solicitation, or invention rights and assignment obligations under any
previously executed agreements; however, Employee is relieved of his covenant not to compete, which
was set forth in Paragraph 8 of the Employment Agreement.

All records, files, or other materials maintained by or under the control, custody, or
possession of the Company or its agents in their capacity as such shall be and remain the Company’s
property. Before the Termination Date, Employee shall: (i) return all Company property (including,
but not limited to, credit cards; keys; company car; cell phones; computer hardware and software;
records; files; documents; company manuals; and other documents in whatever form they exist,
whether electronic, hard copy, or otherwise and all copies, notes, or summaries thereof) that he
received in connection with his employment and (ii) bring all such records, files, and other
materials up to date before returning them. In addition, Employee shall fully cooperate with the
Company in winding up his work and transferring that work to those individuals designated by the
Company

7. RIGHT TO REVIEW AND REVOKE. The Company hand delivered this Agreement to Employee
on December 9, 2008 and desires that he have adequate time and opportunity to review and understand
the consequences of entering into it. Accordingly, the Company advises him to consult with an
attorney prior to executing it, that he has twenty-one days within which to consider it, and that
he may not execute it prior to the Termination Date. In the event that he does not return an
executed copy of the Agreement to the Company by no later than the 22nd calendar day
after receiving it, it and the obligations of the Company herein shall become null and void.
Employee may revoke the Agreement during the seven day period immediately following his execution
of it. The Agreement will not become effective or enforceable until the revocation period has
expired. To revoke the Agreement, a written notice of revocation must be delivered to Derryl Dey,
Smart Online, Inc., 2530 Meridian Parkway, 2nd Floor, Durham, North Carolina 27713.

8. CONFIDENTIALITY AND NONDISPARAGEMENT. The terms and provisions of this Agreement
are confidential, and Employee represents and warrants that since receiving this Agreement he has
not disclosed, and going forward will not disclose, the terms and conditions of this Agreement to
third parties, except as required by law. Notwithstanding the above, he may reveal the terms and
provisions of this Agreement to members of his immediate family or to an attorney whom he may
consult for legal advice, provided that such persons agree to maintain the confidentiality of the
Agreement. Employee represents and warrants that since receiving this Agreement, he: (i) has not
made, and going forward will not make, disparaging, defaming, or derogatory remarks about the
Company or its products, services, business practices, directors, officers, managers, or employees
to anyone; and (ii) has not taken, and going forward will not take, any action that may impair the
relations between the Company and its vendors, customers, employees, or agents or that may be
detrimental to or interfere with the Company or its business. The Company represents and warrants
that since delivering this Agreement, none of its employees or directors have not made, and going
forward will not make, disparaging, defaming, or derogatory remarks about Employee to anyone.

9. STIPULATION. Employee acknowledges, agrees, and hereby stipulates to the following
facts: (i) during his employment with the Company, Employee was allowed to take all leave and
afforded all other rights to which he was entitled under the Family and Medical Leave Act (FMLA);
and (ii) the Company has not in any way interfered with, restrained, or denied Employee’s exercise
of (or attempt to exercise) any FMLA rights and has not terminated or otherwise discriminated or
retaliated against Employee for exercising (or attempting to exercise) any such rights.

10.

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OTHER. Except as expressly provided in this Agreement, this Agreement supersedes all
other understandings and agreements, oral or written, between the parties and constitutes the sole
agreement between the parties with respect to its subject matter. Each party acknowledges that no
representations, inducements, promises, or agreements, oral or written, have been made by any party
or by anyone acting on behalf of any party, that are not embodied in this Agreement, and no
agreement, statement, or promise not contained or described in this Agreement shall be valid or
binding on the parties. No change or modification of this Agreement shall be valid or binding on
the parties unless such change or modification is in writing and is signed by the parties.
Employee’s or the Company’s waiver of any breach of a provision of this Agreement shall not waive
any subsequent breach by the other party. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal, or unenforceable,
that invalidity, illegality, or unenforceability shall not affect any other provision in this
Agreement.

This Agreement is intended to avoid all litigation relating to Employee’s employment with the
Company and his separation therefrom; therefore, it is not to be construed as the Company’s
admission of any liability to him – liability that the Company denies.

This Agreement shall apply to, be binding upon, and inure to the benefit of the parties’
successors, assigns, heirs, and other representatives and be governed by North Carolina law and the
applicable provisions of federal law, including but not limited to the ADEA.

CAUTION! READ BEFORE SIGNING. THIS AGREEMENT CONTAINS A RELEASE OF ALL CLAIMS.

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year written
below.

EMPLOYEE REPRESENTS THAT HE HAS CAREFULLY READ THE ENTIRE AGREEMENT, UNDERSTANDS ITS
CONSEQUENCES, AND VOLUNTARILY ENTERS INTO IT.

	 	 	 
	/s/ David E. Colburn

	 	12/9/08
	 

	 	 
	David E. Colburn

	 	Date
	SMART ONLINE, INC.

By: /s/ Doron Roethler

	 	

12/9/08
	 

	 	 
	Doron Roethler

	 	Date
	Title: Chairman of the Board of Directors

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