**Exhibit
        4.2**
 
 **THIS
        NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
        REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER
        ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
        PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
        AS
        TO THE SECURITIES OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY
        APPLICABLE STATE SECURITIES LAWS. THE COMPANY, IN ITS SOLE DISCRETION, SHALL
        HAVE THE RIGHT TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
        THE
        COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
        CONNECTION WITH ANY PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF
        ANY
        APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY
        NOTE
        ISSUED IN EXCHANGE FOR THIS NOTE.**
 
 **SMART
        ONLINE, INC.**
 
 **CONVERTIBLE
        SECURED SUBORDINATED PROMISSORY NOTE**
  $[_______________]
              November
                  14, 2007
 Durham,
        NC
 
 
 FOR
        VALUE
        RECEIVED, Smart Online, Inc., a Delaware corporation (the “ **Company** ”)
        promises to pay to [____________________] (“ **Investor** ”),
        or
        its registered assigns, in lawful money of the United States of America the
        principal sum of [__________] Dollars ($[_________]), or such lesser amount
        as
        shall equal the outstanding principal amount hereof, together with interest
        from
        the date of this Note on the unpaid principal balance at a rate equal to
        8.00%
        per annum, computed on the basis of the actual number of days elapsed and
        a year
        of 360 days. All unpaid principal, together with any then unpaid and accrued
        interest and other amounts payable hereunder, shall be due and payable on
        the
        earlier of (i) November 14, 2010 (the “ **Maturity
        Date** ”),
        (ii)
        a Change of Control or (iii) when, upon or after the occurrence of an Event
        of Default (as defined below), such amounts are declared due and payable
        by
        Investor or made automatically due and payable in accordance with the terms
        hereof.
 
 This
        Note
        is one of the “Notes” issued pursuant to the Convertible Secured  Subordinated Note Purchase Agreement of even date herewith (as amended, modified
        or supplemented, the “ **Note
        Purchase Agreement** ”)
        between the Company and the Investors (as defined in the Note Purchase
        Agreement). Capitalized terms used herein and not otherwise defined shall
        have
        the meanings assigned thereto in the Note Purchase Agreement. This Note and
        the
        Investor are subject to certain restrictions, and are entitled to certain
        rights
        and privileges, set forth in the Note Purchase Agreement.
  
  THE
        OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT (THE
        “ **SECURITY
        AGREEMENT** ”)
        DATED
        AS OF THE DATE HEREOF AND EXECUTED BY COMPANY FOR THE BENEFIT OF INVESTOR.
        ADDITIONAL RIGHTS OF INVESTOR ARE SET FORTH IN THE SECURITY
        AGREEMENT.
 
 The
        following is a statement of the rights of Investor and the conditions to
        which
        this Note is subject, and to which Investor, by the acceptance of this Note,
        agrees:
 
 1.  ***Definitions*** .
        As used
        in this Note, the following capitalized terms have the following
        meanings:
 
 (a)  “ **Business
        Day** ”
shall
        mean any day other than a Saturday or Sunday or other day on which the New
        York
        Stock Exchange is permitted or required by law to close.
 
 (b)  the
        “ **Company** ”
        includes the corporation initially executing this Note and any Person which
        shall succeed to or assume the obligations of the Company under this
        Note.
 
 (c)  “ **Conversion
        Price** ” shall mean
        120% multiplied by the lower of (i) the average of the closing bid and
        asked prices of the Common Stock quoted in the Over-The-Counter Market Summary
        averaged over the five (5) trading days prior to the Initial Closing Date
        (as adjusted for stock splits, dividends or combinations,
        recapitalizations or similar events), and (ii) the average of the
        closing bid and asked prices of the Common Stock quoted in the Over-The-Counter
        Market Summary averaged over the five (5) trading days prior to the date of
        issuance of the Note or, if the Common Stock is not traded on the
        Over-The-Counter market, the closing price of the Common Stock
        reported on the Nasdaq National Market or the principal exchange on which
        the
        Common Stock is listed, in each such case averaged over the five (5) trading
        days prior to the date of issuance of the Note (as adjusted for stock
        splits, dividends or combinations, recapitalizations or similar
        events).
 
 (d)  “ **Change
        of Control** ”
shall
        mean (i) any consolidation or merger or other transaction or series of
        transactions involving the Company pursuant to which the Company’s stockholders
        own less than fifty percent (50%) of the voting securities of the surviving
        entity (other than an equity financing) or (ii) the sale of all or substantially
        all of the assets of the Company.
 
 (e)  “ **Event
        of Default** ”
has
        the
        meaning given in **Section 4** hereof.
 
 (f)  “ **Lien** ”
shall
        mean, with respect to any property, any security interest, mortgage, pledge,
        lien, claim, charge or other encumbrance in, of, or on such property or the
        income therefrom, including, without limitation, the interest of a vendor
        or
        lessor under a conditional sale agreement, capital lease or other title
        retention agreement, or any agreement to provide any of the foregoing, and
        the
        filing of any financing statement or similar instrument under the Uniform
        Commercial Code or comparable law of any jurisdiction.
 
 (g)  “ **Note
        Purchase Agreement** ”
has
        the
        meaning given in the introductory paragraph hereof.
  -2-
  (h)  “ **Obligations** ”
shall
        mean and include all loans, advances, debts, liabilities and obligations,
        howsoever arising, owed by the Company to Investor of every kind and description
        (whether or not evidenced by any note or instrument and whether or not for
        the
        payment of money), now existing or hereafter arising under or pursuant to
        the
        terms of this Note, the Note Purchase Agreement and the Security Agreement,
        including, all interest, fees, charges, expenses, attorneys’ fees and costs and
        accountants’ fees and costs chargeable to and payable by the Company hereunder
        and thereunder, in each case, whether direct or indirect, absolute or
        contingent, due or to become due, and whether or not arising after the
        commencement of a proceeding under Title 11 of the United States Code (11
        U. S. C. Section 101 *et
        seq* .),
        as
        amended from time to time (including post-petition interest) and whether
        or not
        allowed or allowable as a claim in any such proceeding.
 
 (i)  “ **Person** ”
shall
        mean and include an individual, a partnership, a corporation (including a
        business trust), a joint stock company, a limited liability company, an
        unincorporated association, a joint venture or other entity or a governmental
        authority.
 
 (j)  “ **Requisite
        Percentage** ”
shall
        mean, at least a majority of the aggregate outstanding principal amount of
        the Notes issued pursuant to the Note Purchase Agreement.
 
 (k)  “ **Securities
        Act** ”
shall
        mean the Securities Act of 1933, as amended.
 
 (l)  “ **Security
        Agreement** ”
has
        the
        meaning given in the introductory paragraphs to this Note.
 
 (m)  “ **Transaction
        Documents** ”
shall
        mean this Note, each of the other Notes issued under the Note Purchase
        Agreement, the Note Purchase Agreement, the Registration Rights Agreement
        and
        the Security Agreement.
 
 2.  ***Interest*** .
        Accrued
        interest on this Note shall be payable in cash in quarterly installments
        commencing on the third month anniversary of the date of issuance of this
        Note
        with the final installment payable on the Maturity Date.
 
 3.  ***Prepayment*** .
        This
        Note may not be prepaid without the consent of a Requisite Percentage. Any
        prepayment must be made in connection with the prepayment of all outstanding
        Notes.
 
 4.  ***Events
        of Default*** .
        The
        occurrence of any of the following shall constitute an “ **Event
        of Default** ”
under
        this Note and the other Transaction Documents:
 
 (a)  *Failure
        to Pay* .
        The
        Company shall fail to pay (i) when due any principal or interest payment on
        the due date hereunder or (ii) any other payment required under the terms
        of this Note or any other Transaction Document on the date due and, with
        respect
        to this subclause (ii) only, such payment shall not have been made within
        five
        (5) days of the Company’s receipt of written notice to the Company of such
        failure to pay;
 
 (b)  *Non-Performance
        of Affirmative Covenants* .
        The
        Company shall default in the due observance or performance of any material
        covenant set forth in the Note, the Note Purchase Agreement on the Security
        Agreement, which default shall continue uncured for 15 days after receipt
        of
        written notice to the Company thereof;
  -3-
  (c)  *Voluntary
        Bankruptcy or Insolvency Proceedings* . ** The
        Company shall (i) apply for or consent to the appointment of a receiver,
        trustee, liquidator or custodian of itself or of all or a substantial part
        of
        its property, (ii) be unable, or admit in writing its inability, to pay its
        debts generally as they mature, (iii) make a general assignment for the
        benefit of its or any of its creditors, (iv) be dissolved or liquidated,
        (v) become insolvent (as such term may be defined or interpreted under any
        applicable statute), (vi) commence a voluntary case or other proceeding
        seeking liquidation, reorganization or other relief with respect to itself
        or
        its debts under any bankruptcy, insolvency or other similar law now or hereafter
        in effect or consent to any such relief or to the appointment of or taking
        possession of its property by any official in an involuntary case or other
        proceeding commenced against it, or (vii) take any action for the purpose
        of effecting any of the foregoing;
 
 (d)  *Involuntary
        Bankruptcy or Insolvency Proceedings.* Proceedings
        for the appointment of a receiver, trustee, liquidator or custodian of the
        Company or of all or a substantial part of the property thereof, or an
        involuntary case or other proceedings seeking liquidation, reorganization
        or
        other relief with respect to the Company or the debts thereof under any
        bankruptcy, insolvency or other similar law now or hereafter in effect shall
        be
        commenced and an order for relief entered or such proceeding shall not be
        dismissed or discharged within 30 days of commencement;
 
 (e)  *Misrepresentations* .
        Any of
        the representations and warranties of the Company in the Note Purchase Agreement
        or the Security Agreement proves to have been false or misleading in any
        material respect when made or furnished or deemed made;
 
 (f)  *Judgments* .
        One or
        more judgments, decrees or orders (excluding settlement orders) for the payment
        of money shall be entered against the Company or any of its subsidiaries
        involving in the aggregate a liability of $1,000,000 or more, and any such
        judgment, decree or order shall continue without discharge or stay for a
        period
        of sixty (60) days; or
 
 (g)   *Cross-Defaults* .
        The
        Company or any of its subsidiaries shall default in the performance or
        observance of any agreement or instrument relating to any indebtedness, or
        any
        other event shall occur or condition exist, and the effect of such default,
        event or condition is to cause or permit the holder or holders of any such
        indebtedness to cause indebtedness, in excess of $500,000 individually or
        in the
        aggregate, to become due prior to its stated maturity.
 
 5.  ***Rights
        of Investor upon Default*** .
        Upon
        the occurrence or existence of any Event of Default (other than an Event
        of
        Default described in **Sections 4(c)** or **4(d)** )
        and at
        any time thereafter during the continuance of such Event of Default, Investor
        may, with the consent of the Agent, by written notice to the Company, declare
        all outstanding Obligations payable by the Company hereunder to be immediately
        due and payable without presentment, demand, protest or any other notice
        of any
        kind, all of which are hereby expressly waived. Upon the occurrence or existence
        of any Event of Default described in **Sections 4(c)** and **4(d)** , **** immediately
        and without notice, all outstanding Obligations payable by the Company hereunder
        shall automatically become immediately due and payable, without presentment,
        demand, protest or any other notice of any kind, all of which are hereby
        expressly waived. In addition to the foregoing remedies, upon the occurrence
        or
        existence of any Event of Default and subject to the consent of the Agent,
        Investor may exercise any other right power or remedy granted to it by the
        Transaction Documents or otherwise permitted to it by law, either by suit
        in
        equity or by action at law, or both.
  -4-
  6.  ***Conversion*** **.**
 
 (a)  *Optional
        Conversion* .
        At the
        Maturity Date, each Investor shall have the option to convert the entire
        principal amount of this Note then outstanding into Common Stock. The number
        of
        shares of Common Stock that this Note may be converted into shall be determined
        by dividing the principal amount then outstanding by the Conversion Price
        at the
        time of conversion. If the Investor elects to convert this Note at maturity,
        it
        shall provide the Company with written notice of its election at least one
        (1)
        day prior to the Maturity Date. Upon conversion, the Investor shall deliver
        to
        the Company the original of this Note (or a notice to the effect that the
        original Note has been lost, stolen or destroyed and an agreement reasonably
        acceptable to the Company whereby the holder agrees to indemnify the Company
        from any loss incurred by it in connection with this Note). However, upon
        such
        conversion of this Note, this Note shall be deemed converted and of no further
        force and effect, whether or not the Note is delivered for cancellation as
        set
        forth in the preceding sentence. If there shall occur a Change of Control,
        the
        Company shall give written notice to the Investor at least five (5) days
        prior
        to any closing thereof and the Investor’s election to convert this Note shall be
        conditional upon the consummation thereof.
 
 (b)  Mechanics
        of Optional Conversion .
        As soon
        as practicable following surrender by the Investor of the original of its
        Note,
        the Company shall issue and deliver to Investor a certificate or certificates
        for the shares of Common Stock into which the Note has been converted (bearing
        such legends as may be required or advisable in the opinion of counsel to
        the
        Company). Such conversion shall be deemed to have been made immediately prior
        to
        the close of business on the Maturity Date, and the Investor shall be treated
        for all purposes as the record holder or holders of such Common Stock on
        such
        date.
 
 (c)  *Fractional
        Shares; Interest; Effect of Conversion.* No
        fractional shares shall be issued upon conversion of this Note. In lieu of
        the
        Company issuing any fractional shares to Investor upon the conversion of
        this
        Note, the Company shall pay to Investor an amount equal to the product obtained
        by multiplying the Conversion Price by the fraction of a share not issued
        pursuant to the previous sentence. Upon conversion of this Note in full and
        the
        payment of any amounts specified in this **Section 6(c)** ,
        the
        Company shall be forever released from all its obligations and liabilities
        under
        this Note.
 
 7.  ***Successors
        and Assigns*** **.** Subject
        to the restrictions on transfer described in **Sections 9** and **10** below,
        the rights and obligations of the Company and Investor shall be binding upon
        and
        benefit the successors, assigns, heirs, administrators and transferees of
        the
        parties.
 
 8.  ***Waiver
        and Amendment*** **.** Any
        provision of this Note may be amended, waived or modified upon the written
        consent of the Company and the holders of a Requisite Percentage.
  -5-
  9.  ***Transfer
        of this Note or Securities Issuable on Conversion
        Hereof*** **.** With
        respect to any offer, sale or other disposition of this Note or securities
        into
        which such Note may be converted, Investor will give written notice to the
        Company prior thereto, describing briefly the manner thereof, together with
        (unless waived by the Company) a written opinion of Investor’s counsel, or other
        evidence if reasonably satisfactory to the Company, to the effect that such
        offer, sale or other distribution may be effected without registration or
        qualification (under any federal or state law then in effect). Upon receiving
        such written notice and reasonably satisfactory opinion, if so requested,
        or
        other evidence, the Company, as promptly as practicable, shall notify Investor
        that Investor may sell or otherwise dispose of this Note or such securities,
        all
        in accordance with the terms of the notice delivered to the Company. If a
        determination has been made pursuant to this **Section 9** that the
        opinion of counsel for Investor, or other evidence, is not reasonably
        satisfactory to the Company, the Company shall so notify Investor promptly
        after
        such determination has been made. Each Note thus transferred and each
        certificate representing the securities thus transferred shall bear a legend
        as
        to the applicable restrictions on transferability in order to ensure compliance
        with the Securities Act, unless in the opinion of counsel for the Company
        such
        legend is not required in order to ensure compliance with the Securities
        Act.
        The Company may issue stop transfer instructions to its transfer agent in
        connection with such restrictions. Subject to the foregoing, transfers of
        this
        Note shall be registered upon registration books maintained for such purpose
        by
        or on behalf of the Company. Prior to presentation of this Note for registration
        of transfer, the Company shall treat the registered holder hereof as the
        owner
        and holder of this Note for the purpose of receiving all payments of principal
        and interest hereon and for all other purposes whatsoever, whether or not
        this
        Note shall be overdue and the Company shall not be affected by notice to
        the
        contrary. Notwithstanding anything in this Section 9 to the contrary, no
        opinion
        of counsel shall be required with respect to any transfer by an Investor
        to its
        officers, directors, partners, members or other affiliates.
 
 10.  ***Assignment
        by the Company*** **.** Neither
        this Note nor any of the rights, interests or obligations hereunder may be
        assigned, by operation of law or otherwise, in whole or in part, by the Company
        without the prior written consent of the holders of a Requisite
        Percentage.
 
 11.  ***Notices*** **.** All
        notices, requests, demands, consents, instructions or other communications
        required or permitted hereunder shall in writing and faxed, mailed or delivered
        to each party at the respective addresses of the parties as set forth in
        the
        Note Purchase Agreement, or at such other address or facsimile number as
        the
        Company shall have furnished to Investor in writing. All such notices and
        communications will be deemed effectively given the earlier of (i) when
        received, (ii) when delivered personally, (iii) one business day after
        being delivered by facsimile (with receipt of appropriate confirmation),
        (iv) one business day after being deposited with an overnight courier
        service of recognized standing or (v) two days after being deposited in the
        U.S. mail, first class with postage prepaid.
 
 12.  ***Pari
        Passu Notes*** **.** Investor
        acknowledges and agrees that the payment of all or any portion of the
        outstanding principal amount of this Note and all interest hereon shall be *pari
        passu* in
        right
        of payment and in all other respects to the other Notes issued pursuant to
        the
        Note Purchase Agreement or pursuant to the terms of such Notes. In the event
        Investor receives payments in excess of its pro rata share of the Company’s
        payments to the Investors of all of the Notes, then Investor shall hold in
        trust
        all such excess payments for the benefit of the holders of the other Notes
        and
        shall pay such amounts held in trust to such other holders upon demand by
        such
        holders.
  -6-
  13.  ***Usury*** **.** In the
        event any interest is paid on this Note which is deemed to be in excess of
        the
        then legal maximum rate, then that portion of the interest payment representing
        an amount in excess of the then legal maximum rate shall be deemed a payment
        of
        principal and applied against the principal of this Note.
 
 14.  ***Waivers*** **.** The
        Company hereby waives notice of default, presentment or demand for payment,
        protest or notice of nonpayment or dishonor and all other notices or demands
        relative to this instrument.
 
 15.  ***Remedies
        Cumulative*** .
        The
        remedies of Investor as provided herein and in the Note Purchase Agreement
        and
        in any other documents governing or securing repayment hereof shall be
        cumulative and concurrent and may be pursued singly, successively, or together,
        at the sole discretion of Investor to the extent provided herein and in the
        Note
        Purchase Agreement and may be exercised as often as occasion therefore shall
        arise. No act or omission of the Investor, including specifically, but without
        limitation, any failure to exercise any right, remedy or recourse, shall
        be
        effective as a waiver of any right of the Investor hereunder, unless set
        forth
        in a written document executed by the Investor, and then only to the extent
        specifically recited therein. A waiver or release with reference to one event
        shall not be construed as continuing, as a bar to, or as a waiver or release
        of
        any subsequent right, remedy or recourse as to any subsequent event. All
        notices, waivers, releases and/or consents by an Investor shall be directed
        to
        the Company only through the Agent.
 
 16.  ***No
        Rights of a Stockholder*** .
        Nothing
        contained in this Note shall be construed as conferring upon the Investor
        or any
        other Person the right to vote or consent or to receive notice as an stockholder
        in respect of meetings of stockholders for the election of directors of the
        Company or any other matters or any rights whatsoever as a stockholder of
        the
        Company prior to the time that this Note is converted pursuant to **Section
        6** .
 
 17.  ***Governing
        Law*** **.** This
        Note and all actions arising out of or in connection with this Note shall
        be
        governed by and construed in accordance with the laws of the State of Delaware,
        without regard to the conflicts of law provisions of the State of Delaware,
        or
        of any other state.
 
 ( *Signature
        Page Follows* )
 
 -7-
 
 The
        Company has caused this Note to be issued as of the date first written
        above.
 
 **SMART
        ONLINE, INC.**
 a
        Delaware corporation
 
 By:
        _______________________________
 
 Name:
        _____________________________
 
 Title:
        ______________________________
 
 
 
 
 
 
 
 -8-