Document:

EXHIBIT 4.2

    REGISTRATION
      RIGHTS AGREEMENT

     

    REGISTRATION
      RIGHTS AGREEMENT (this “Agreement”),
      dated
      as of May 7, 2007, by and among Avitar Inc., a Delaware corporation with its
      headquarters located at 65 Dan Road, Canton, MA 02021 (the “Company”),
      and
      each of the undersigned (together with their respective affiliates and any
      assignee or transferee of all of their respective rights hereunder, the
“Initial
      Investors”).
      

     

    WHEREAS:

     

    A.  In
      connection with the Securities Purchase Agreement by and among the parties
      hereto of even date herewith (the “Securities Purchase Agreement”), the Company
      has agreed, upon the terms and subject to the conditions contained therein,
      to
      issue and sell to the Initial Investors (i) secured
      convertible notes in the aggregate principal amount of up to Two Hundred Fifty
      Thousand Dollars ($250,000) (the “Notes”) that are convertible into shares of
      the Company’s common stock (the “Common Stock”), upon the terms and subject to
      the limitations and conditions set forth in such Notes and (ii) warrants
      (the “Warrants”) to acquire an aggregate of 10,000,000 shares of Common Stock,
      upon the terms and conditions and subject to the limitations and conditions
      set
      forth in the Warrants; and

     

    B.  To
      induce
      the Initial Investors to execute and deliver the Securities Purchase Agreement,
      the Company has agreed to provide certain registration rights under the
      Securities Act of 1933, as amended, and the rules and regulations thereunder,
      or
      any similar successor statute (collectively, the “1933
      Act”),
      and
      applicable state securities laws;

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and each of the Initial Investors hereby agree
      as follows:

     

    1.  DEFINITIONS.

     

    a.  As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    (i)  “Investors”
means
      the Initial Investors and any transferee or assignee who agrees to become bound
      by the provisions of this Agreement in accordance with Section 9
      hereof.

     

    (ii)  “register,”
      “registered,”
and
      “registration”
refer
      to a registration effected by preparing and filing a Registration Statement
      or
      Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
      1933 Act or any successor rule providing for offering securities on a continuous
      basis (“Rule
      415”),
      and
      the declaration or ordering of effectiveness of such Registration Statement
      by
      the United States Securities and Exchange Commission (the “SEC”).

     

    (iii)  “Registrable
      Securities”
means
      the Conversion Shares issued or issuable upon conversion or otherwise pursuant
      to the Notes including, without limitation, Damages Shares (as defined in the
      Notes) issued or issuable pursuant to the Notes, shares of Common Stock issued
      or issuable in payment of the Standard Liquidated Damages Amount (as defined
      in
      the Securities Purchase Agreement), shares issued or issuable in respect of
      interest or in redemption of the Notes in accordance with the terms thereof)
      and
      Warrant Shares issuable, upon exercise or otherwise pursuant to the Warrants,
      and any shares of capital stock issued or issuable as a dividend on or in
      exchange for or otherwise with respect to any of the foregoing.

     

    (iv)  “Registration
      Statement”
means
      a
      registration statement of the Company under the 1933 Act.

     

    b.  Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Securities Purchase Agreement or the Convertible
      Note.

     

    2.  REGISTRATION.

     

    a.  Mandatory
      Registration.
      The
      Company shall prepare, and, on or prior to thirty (30) days from the date of
      receipt of written demand of the Investors (the “Filing
      Date”),
      file
      with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
      available, on such form of Registration Statement as is then available to effect
      a registration of the Registrable Securities, subject to the consent of the
      Initial Investors, which consent will not be unreasonably withheld) covering
      the
      resale of the Registrable Securities underlying the Notes and Warrants issued
      or
      issuable pursuant to the Securities Purchase Agreement, which Registration
      Statement, to the extent allowable under the 1933 Act and the rules and
      regulations promulgated thereunder (including Rule 416), shall state that such
      Registration Statement also covers such indeterminate number of additional
      shares of Common Stock as may become issuable upon conversion of or otherwise
      pursuant to the Notes and exercise of the Warrants to prevent dilution resulting
      from stock splits, stock dividends or similar transactions. The number of shares
      of Common Stock initially included in such Registration Statement shall be
      no
      less than an amount equal to two (2) times the sum of the number of Conversion
      Shares that are then issuable upon conversion of the Notes and Additional Notes
      (based on the Variable Conversion Price as would then be in effect and assuming
      the Variable Conversion Price is the Conversion Price at such time), and the
      number of Warrant Shares that are then issuable upon exercise of the Warrants,
      without regard to any limitation on the Investor’s ability to convert the Notes
      or exercise the Warrants. The Company acknowledges that the number of shares
      initially included in the Registration Statement represents a good faith
      estimate of the maximum number of shares issuable upon conversion of the Notes
      and upon exercise of the Warrants.

     

    b.  Underwritten
      Offering.
      If any
      offering pursuant to a Registration Statement pursuant to Section 2(a) hereof
      involves an underwritten offering, the Investors who hold a majority in interest
      of the Registrable Securities subject to such underwritten offering, with the
      consent of a majority-in-interest of the Initial Investors, shall have the
      right
      to select one legal counsel and an investment banker or bankers and manager
      or
      managers to administer the offering, which investment banker or bankers or
      manager or managers shall be reasonably satisfactory to the
      Company.

     

    c.  Payments
      by the Company.
      The
      Company shall use its best efforts to obtain effectiveness of the Registration
      Statement as soon as practicable. If (i) the
      Registration Statement(s) covering the Registrable Securities required to be
      filed by the Company pursuant to Section 2(a) hereof is not filed by the Filing
      Date or declared effective by the SEC on or prior to one hundred and twenty
      (120) days from the date of receipt of written demand of the Investors pursuant
      to Section 2(a) hereof, or (ii) after
      the Registration Statement has been declared effective by the SEC, sales of
      all
      of the Registrable Securities cannot be made pursuant to the Registration
      Statement, or (iii) the
      Common Stock is not listed or included for quotation on the Nasdaq National
      Market (“Nasdaq”),
      the
      Nasdaq SmallCap Market (“Nasdaq
      SmallCap”),
      the
      New York Stock Exchange (the “NYSE”)
      or the
      American Stock Exchange (the “AMEX”)
      after
      being so listed or included for quotation after the date hereof, or (iv) the
      Common Stock ceases to be traded on the Over-the-Counter Bulletin Board (the
      “OTCBB”)
      or any
      equivalent replacement exchange prior to being listed or included for quotation
      on one of the aforementioned markets, then the Company will make payments to
      the
      Investors in such amounts and at such times as shall be determined pursuant
      to
      this Section 2(c) as partial relief for the damages to the Investors by reason
      of any such delay in or reduction of their ability to sell the Registrable
      Securities (which remedy shall not be exclusive of any other remedies available
      at law or in equity). The Company shall pay to each holder of the Notes or
      Registrable Securities an amount equal to the then outstanding principal amount
      of the Notes (and, in the case of holders of Registrable Securities, the
      principal amount of Notes from which such Registrable Securities were converted)
      (“Outstanding
      Principal Amount”),
      multiplied by the Applicable Percentage (as defined below) times the sum of:
      (i)
      the number of months (prorated for partial months) after the Filing Date or
      the
      end of the aforementioned one hundred and twenty (120) day period and prior
      to
      the date the Registration Statement is declared effective by the SEC, provided,
      however, that there shall be excluded from such period any delays which are
      solely attributable to changes required by the Investors in the Registration
      Statement with respect to information relating to the Investors, including,
      without limitation, changes to the plan of distribution, or to the failure
      of
      the Investors to conduct their review of the Registration Statement pursuant
      to
      Section 3(h) below in a reasonably prompt manner; (ii) the number of months
      (prorated for partial months) that sales of all of the Registrable Securities
      cannot be made pursuant to the Registration Statement after the Registration
      Statement has been declared effective (including, without limitation, when
      sales
      cannot be made by reason of the Company’s failure to properly supplement or
      amend the prospectus included therein in accordance with the terms of this
      Agreement, but excluding any days during an Allowed Delay (as defined in Section
      3(f)); and (iii) the number of months (prorated for partial months) that the
      Common Stock is not listed or included for quotation on the OTCBB, Nasdaq,
      Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after the
      Registration Statement has been declared effective. The term “Applicable
      Percentage”
means
      two hundredths (.02). (For example, if the Registration Statement becomes
      effective one (1) month after the end of such one hundred and twenty (120)
      day
      period, the Company would pay $5,000 for each $250,000 of Outstanding Principal
      Amount. If thereafter, sales could not be made pursuant to the Registration
      Statement for an additional period of one (1) month, the Company would pay
      an
      additional $5,000 for each $250,000 of Outstanding Principal Amount.) Such
      amounts shall be paid in cash or, at the Company’s option, in shares of Common
      Stock priced at the Conversion Price (as defined in the Notes) on such payment
      date. 

     

    d.  Piggy-Back
      Registrations.
      Subject
      to the last sentence of this Section 2(d), if at any time prior to the
      expiration of the Registration Period (as hereinafter defined) the Company
      shall
      determine to file with the SEC a Registration Statement relating to an offering
      for its own account or the account of others under the 1933 Act of any of its
      equity securities (other than on Form S-4 or Form S-8 or their then equivalents
      relating to equity securities to be issued solely in connection with any
      acquisition of any entity or business or equity securities issuable in
      connection with stock option or other bona fide,
      employee benefit plans), the Company shall send to each Investor who is entitled
      to registration rights under this Section 2(d) written notice of such
      determination and, if within fifteen (15) days after the effective date of
      such
      notice, such Investor shall so request in writing, the Company shall include
      in
      such Registration Statement all or any part of the Registrable Securities such
      Investor requests to be registered, except that if, in connection with any
      underwritten public offering for the account of the Company the managing
      underwriter(s) thereof shall impose a limitation on the number of shares of
      Common Stock which may be included in the Registration Statement because, in
      such underwriter(s)’ judgment, marketing or other factors dictate such
      limitation is necessary to facilitate public distribution, then the Company
      shall be obligated to include in such Registration Statement only such limited
      portion of the Registrable Securities with respect to which such Investor has
      requested inclusion hereunder as the underwriter shall permit. Any exclusion
      of
      Registrable Securities shall be made pro rata among the Investors seeking to
      include Registrable Securities in proportion to the number of Registrable
      Securities sought to be included by such Investors; provided,
      however,
      that
      the Company shall not exclude any Registrable Securities unless the Company
      has
      first excluded all outstanding securities, the holders of which are not entitled
      to inclusion of such securities in such Registration Statement or are not
      entitled to pro rata inclusion with the Registrable Securities; and provided,
      further,
      however,
      that,
      after giving effect to the immediately preceding proviso, any exclusion of
      Registrable Securities shall be made pro rata with holders of other securities
      having the right to include such securities in the Registration Statement other
      than holders of securities entitled to inclusion of their securities in such
      Registration Statement by reason of demand registration rights. No right to
      registration of Registrable Securities under this Section 2(d) shall be
      construed to limit any registration required under Section 2(a) hereof. If
      an
      offering in connection with which an Investor is entitled to registration under
      this Section 2(d) is an underwritten offering, then each Investor whose
      Registrable Securities are included in such Registration Statement shall, unless
      otherwise agreed by the Company, offer and sell such Registrable Securities
      in
      an underwritten offering using the same underwriter or underwriters and, subject
      to the provisions of this Agreement, on the same terms and conditions as other
      shares of Common Stock included in such underwritten offering. Notwithstanding
      anything to the contrary set forth herein, the registration rights of the
      Investors pursuant to this Section 2(d) shall only be available in the event
      the
      Company fails to timely file, obtain effectiveness or maintain effectiveness
      of
      any Registration Statement to be filed pursuant to Section 2(a) in accordance
      with the terms of this Agreement.

     

    e.  Eligibility
      for Form S-3, SB-2 or S-1; Conversion to Form S-3.
      The
      Company represents and warrants that it meets the requirements for the use
      of
      Form S-3, SB-2 or S-1 for registration of the sale by the Initial Investors
      and
      any other Investors of the Registrable Securities. The Company agrees to file
      all reports required to be filed by the Company with the SEC in a timely manner
      so as to remain eligible or become eligible, as the case may be, and thereafter
      to maintain its eligibility, for the use of Form S-3. If the Company is not
      currently eligible to use Form S-3, not later than five (5) business days after
      the Company first meets the registration eligibility and transaction
      requirements for the use of Form S-3 (or any successor form) for registration
      of
      the offer and sale by the Initial Investors and any other Investors of
      Registrable Securities, the Company shall file a Registration Statement on
      Form
      S-3 (or such successor form) with respect to the Registrable Securities covered
      by the Registration Statement on Form SB-2 or Form S-1, whichever is applicable,
      filed pursuant to Section 2(a) (and include in such Registration Statement
      on
      Form S-3 the information required by Rule 429 under the 1933 Act) or convert
      the
      Registration Statement on Form SB-2 or Form S-1, whichever is applicable, filed
      pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933
      Act
      and cause such Registration Statement (or such amendment) to be declared
      effective no later than thirty (30) days after filing. In the event of a breach
      by the Company of the provisions of this Section 2(e), the Company will be
      required to make payments pursuant to Section 2(c) hereof.

     

    3.  OBLIGATIONS
      OF THE COMPANY. 

     

    In
      connection with the registration of the Registrable Securities, the Company
      shall have the following obligations:

     

    a.  The
      Company shall prepare promptly, and file with the SEC not later than the Filing
      Date, a Registration Statement with respect to the number of Registrable
      Securities provided in Section 2(a), and thereafter use its best efforts to
      cause such Registration Statement relating to Registrable Securities to become
      effective as soon as possible after such filing but in no event later than
      one
      hundred and twenty (120) days from the date of receipt of written demand of
      the
      Investors pursuant to Section 2(a) hereof, and keep the Registration Statement
      effective pursuant to Rule 415 at all times until such date as is the earlier
      of
      (i) the date on which all of the Registrable Securities have been sold and
      (ii)
      the date on which the Registrable Securities (in the opinion of counsel to
      the
      Initial Investors) may be immediately sold to the public without registration
      or
      restriction (including, without limitation, as to volume by each holder thereof)
      under the 1933 Act (the “Registration
      Period”),
      which
      Registration Statement (including any amendments or supplements thereto and
      prospectuses contained therein) shall not contain any untrue statement of a
      material fact or omit to state a material fact required to be stated therein,
      or
      necessary to make the statements therein not misleading.

     

    b.  The
      Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to the Registration Statements and
      the prospectus used in connection with the Registration Statements as may be
      necessary to keep the Registration Statements effective at all times during
      the
      Registration Period, and, during such period, comply with the provisions of
      the
      1933 Act with respect to the disposition of all Registrable Securities of the
      Company covered by the Registration Statements until such time as all of such
      Registrable Securities have been disposed of in accordance with the intended
      methods of disposition by the seller or sellers thereof as set forth in the
      Registration Statements. In the event the number of shares available under
      a
      Registration Statement filed pursuant to this Agreement is insufficient to
      cover
      all of the Registrable Securities issued or issuable upon conversion of the
      Notes and exercise of the Warrants, the Company shall amend the Registration
      Statement, or file a new Registration Statement (on the short form available
      therefor, if applicable), or both, so as to cover all of the Registrable
      Securities, in each case, as soon as practicable, but in any event within
      fifteen (15) days after the necessity therefor arises (based on the market
      price
      of the Common Stock and other relevant factors on which the Company reasonably
      elects to rely). The Company shall use its best efforts to cause such amendment
      and/or new Registration Statement to become effective as soon as practicable
      following the filing thereof, but in any event within thirty (30) days after
      the
      date on which the Company reasonably first determines (or reasonably should
      have
      determined) the need therefor. The provisions of Section 2(c) above shall be
      applicable with respect to such obligation, with the one hundred and twenty
      (120) days running from the day the Company reasonably first determines (or
      reasonably should have determined) the need therefor.

     

    c.  The
      Company shall furnish to each Investor whose Registrable Securities are included
      in a Registration Statement and its legal counsel (i) promptly
      (but in no event more than two (2) business days) after the same is prepared
      and
      publicly distributed, filed with the SEC, or received by the Company, one copy
      of each Registration Statement and any amendment thereto, each preliminary
      prospectus and prospectus and each amendment or supplement thereto, and, in
      the
      case of the Registration Statement referred to in Section 2(a), each letter
      written by or on behalf of the Company to the SEC or the staff of the SEC,
      and
      each item of correspondence from the SEC or the staff of the SEC, in each case
      relating to such Registration Statement (other than any portion of any thereof
      which contains information for which the Company has sought confidential
      treatment), and (ii) promptly
      (but in no event more than two (2) business days) after the Registration
      Statement is declared effective by the SEC, such number of copies of a
      prospectus, including a preliminary prospectus, and all amendments and
      supplements thereto and such other documents as such Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor. The Company will immediately notify each Investor by
      facsimile of the effectiveness of each Registration Statement or any
      post-effective amendment. The Company will promptly respond to any and all
      comments received from the SEC (which comments shall promptly be made available
      to the Investors upon request), with a view towards causing each Registration
      Statement or any amendment thereto to be declared effective by the SEC as soon
      as practicable, shall promptly file an acceleration request as soon as
      practicable (but in no event more than two (2) business days) following the
      resolution or clearance of all SEC comments or, if applicable, following
      notification by the SEC that any such Registration Statement or any amendment
      thereto will not be subject to review and shall, if required by SEC Rules,
      promptly file with the SEC a final prospectus as soon as practicable (but in
      no
      event more than two (2) business days) following receipt by the Company from
      the
      SEC of an order declaring the Registration Statement effective. In the event
      of
      a breach by the Company of the provisions of this Section 3(c), the Company
      will
      be required to make payments pursuant to Section 2(c) hereof.

     

    d.  The
      Company shall use reasonable efforts to (i) register
      and qualify the Registrable Securities covered by the Registration Statements
      under such other securities or “blue sky” laws of such jurisdictions in the
      United States as the Investors who hold a majority in interest of the
      Registrable Securities being offered reasonably request, (ii) prepare
      and file in those jurisdictions such amendments (including post-effective
      amendments) and supplements to such registrations and qualifications as may
      be
      necessary to maintain the effectiveness thereof during the Registration Period,
      (iii) take
      such other actions as may be necessary to maintain such registrations and
      qualifications in effect at all times during the Registration Period, and
(iv) take
      all other actions reasonably necessary or advisable to qualify the Registrable
      Securities for sale in such jurisdictions; provided,
      however,
      that
      the Company shall not be required in connection therewith or as a condition
      thereto to (a) qualify
      to do business in any jurisdiction where it would not otherwise be required
      to
      qualify but for this Section 3(d), (b) subject
      itself to general taxation in any such jurisdiction, (c) file
      a general consent to service of process in any such jurisdiction, (d) provide
      any undertakings that cause the Company undue expense or burden, or (e) make
      any change in its charter or bylaws, which in each case the Board of Directors
      of the Company determines to be contrary to the best interests of the Company
      and its shareholders.

     

    e.  In
      the
      event Investors who hold a majority-in-interest of the Registrable Securities
      being offered in the offering (with the approval of a majority-in-interest
      of
      the Initial Investors) select underwriters for the offering, the Company shall
      enter into and perform its obligations under an underwriting agreement, in
      usual
      and customary form, including, without limitation, customary indemnification
      and
      contribution obligations, with the underwriters of such offering.

     

    f.  As
      promptly as practicable after becoming aware of such event, the Company shall
      notify each Investor of the happening of any event, of which the Company has
      knowledge, as a result of which the prospectus included in any Registration
      Statement, as then in effect, includes an untrue statement of a material fact
      or
      omission to state a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, and use its best efforts promptly
      to
      prepare a supplement or amendment to any Registration Statement to correct
      such
      untrue statement or omission, and deliver such number of copies of such
      supplement or amendment to each Investor as such Investor may reasonably
      request; provided that, for not more than ten (10) consecutive trading days
      (or
      a total of not more than twenty (20) trading days in any twelve (12) month
      period), the Company may delay the disclosure of material non-public information
      concerning the Company (as well as prospectus or Registration Statement
      updating) the disclosure of which at the time is not, in the good faith opinion
      of the Company, in the best interests of the Company (an “Allowed
      Delay”);
      provided, further, that the Company shall promptly (i) notify
      the Investors in writing of the existence of (but in no event, without the
      prior
      written consent of an Investor, shall the Company disclose to such investor
      any
      of the facts or circumstances regarding) material non-public information giving
      rise to an Allowed Delay and (ii) advise
      the Investors in writing to cease all sales under such Registration Statement
      until the end of the Allowed Delay. Upon expiration of the Allowed Delay, the
      Company shall again be bound by the first sentence of this Section 3(f) with
      respect to the information giving rise thereto.

     

    g.  The
      Company shall use its best efforts to prevent the issuance of any stop order
      or
      other suspension of effectiveness of any Registration Statement, and, if such
      an
      order is issued, to obtain the withdrawal of such order at the earliest possible
      moment and to notify each Investor who holds Registrable Securities being sold
      (or, in the event of an underwritten offering, the managing underwriters) of
      the
      issuance of such order and the resolution thereof.

     

    h.  The
      Company shall permit a single firm of counsel designated by the Initial
      Investors to review such Registration Statement and all amendments and
      supplements thereto (as well as all requests for acceleration or effectiveness
      thereof) a reasonable period of time prior to their filing with the SEC, and
      not
      file any document in a form to which such counsel reasonably objects and will
      not request acceleration of such Registration Statement without prior notice
      to
      such counsel. The sections of such Registration Statement covering information
      with respect to the Investors, the Investor’s beneficial ownership of securities
      of the Company or the Investors intended method of disposition of Registrable
      Securities shall conform to the information provided to the Company by each
      of
      the Investors.

     

    i.  The
      Company shall make generally available to its security holders as soon as
      practicable, but not later than one hundred and twenty (120) days after the
      close of the period covered thereby, an earnings statement (in form complying
      with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
      period beginning not later than the first day of the Company’s fiscal quarter
      next following the effective date of the Registration Statement.

     

    j.  At
      the
      request of any Investor, the Company shall furnish, on the date that Registrable
      Securities are delivered to an underwriter, if any, for sale in connection
      with
      any Registration Statement or, if such securities are not being sold by an
      underwriter, on the date of effectiveness thereof (i) an
      opinion, dated as of such date, from counsel representing the Company for
      purposes of such Registration Statement, in form, scope and substance as is
      customarily given in an underwritten public offering, addressed to the
      underwriters, if any, and the Investors and (ii) a
      letter, dated such date, from the Company’s independent certified public
      accountants in form and substance as is customarily given by independent
      certified public accountants to underwriters in an underwritten public offering,
      addressed to the underwriters, if any, and the Investors.

     

    k.  The
      Company shall make available for inspection by (i) any
      Investor, (ii) any
      underwriter participating in any disposition pursuant to a Registration
      Statement, (iii) one
      firm of attorneys and one firm of accountants or other agents retained by the
      Initial Investors, (iv) one
      firm of attorneys and one firm of accountants or other agents retained by all
      other Investors, and (v) one
      firm of attorneys retained by all such underwriters (collectively, the
“Inspectors”)
      all
      pertinent financial and other records, and pertinent corporate documents and
      properties of the Company, including without limitation, records of conversions
      by other holders of convertible securities issued by the Company and the
      issuance of stock to such holders pursuant to the conversions (collectively,
      the
“Records”),
      as
      shall be reasonably deemed necessary by each Inspector to enable each Inspector
      to exercise its due diligence responsibility, and cause the Company’s officers,
      directors and employees to supply all information which any Inspector may
      reasonably request for purposes of such due diligence; provided,
      however,
      that
      each Inspector shall hold in confidence and shall not make any disclosure
      (except to an Investor) of any Record or other information which the Company
      determines in good faith to be confidential, and of which determination the
      Inspectors are so notified, unless (a) the
      disclosure of such Records is necessary to avoid or correct a misstatement
      or
      omission in any Registration Statement, (b) the
      release of such Records is ordered pursuant to a subpoena or other order from
      a
      court or government body of competent jurisdiction, or (c) the
      information in such Records has been made generally available to the public
      other than by disclosure in violation of this or any other agreement. The
      Company shall not be required to disclose any confidential information in such
      Records to any Inspector until and unless such Inspector shall have entered
      into
      confidentiality agreements (in form and substance satisfactory to the Company)
      with the Company with respect thereto, substantially in the form of this Section
      3(k). Each Investor agrees that it shall, upon learning that disclosure of
      such
      Records is sought in or by a court or governmental body of competent
      jurisdiction or through other means, give prompt notice to the Company and
      allow
      the Company, at its expense, to undertake appropriate action to prevent
      disclosure of, or to obtain a protective order for, the Records deemed
      confidential. Nothing herein (or in any other confidentiality agreement between
      the Company and any Investor) shall be deemed to limit the Investor’s ability to
      sell Registrable Securities in a manner which is otherwise consistent with
      applicable laws and regulations. 

     

    l.  The
      Company shall hold in confidence and not make any disclosure of information
      concerning an Investor provided to the Company unless (i) disclosure
      of such information is necessary to comply with federal or state securities
      laws, (ii) the
      disclosure of such information is necessary to avoid or correct a misstatement
      or omission in any Registration Statement, (iii) the
      release of such information is ordered pursuant to a subpoena or other order
      from a court or governmental body of competent jurisdiction, or (iv) such
      information has been made generally available to the public other than by
      disclosure in violation of this or any other agreement. The Company agrees
      that
      it shall, upon learning that disclosure of such information concerning an
      Investor is sought in or by a court or governmental body of competent
      jurisdiction or through other means, give prompt notice to such Investor prior
      to making such disclosure, and allow the Investor, at its expense, to undertake
      appropriate action to prevent disclosure of, or to obtain a protective order
      for, such information.

     

    m.  The
      Company shall (i) cause
      all the Registrable Securities covered by the Registration Statement to be
      listed on each national securities exchange on which securities of the same
      class or series issued by the Company are then listed, if any, if the listing
      of
      such Registrable Securities is then permitted under the rules of such exchange,
      or (ii) to
      the extent the securities of the same class or series are not then listed on
      a
      national securities exchange, secure the designation and quotation, of all
      the
      Registrable Securities covered by the Registration Statement on Nasdaq or,
      if
      not eligible for Nasdaq, on Nasdaq SmallCap or, if not eligible for Nasdaq
      or
      Nasdaq SmallCap, on the OTCBB and, without limiting the generality of the
      foregoing, to arrange for at least two market makers to register with the
      National Association of Securities Dealers, Inc. (“NASD”)
      as
      such with respect to such Registrable Securities.

     

    n.  The
      Company shall provide a transfer agent and registrar, which may be a single
      entity, for the Registrable Securities not later than the effective date of
      the
      Registration Statement.

     

    o.  The
      Company shall cooperate with the Investors who hold Registrable Securities
      being
      offered and the managing underwriter or underwriters, if any, to facilitate
      the
      timely preparation and delivery of certificates (not bearing any restrictive
      legends) representing Registrable Securities to be offered pursuant to a
      Registration Statement and enable such certificates to be in such denominations
      or amounts, as the case may be, as the managing underwriter or underwriters,
      if
      any, or the Investors may reasonably request and registered in such names as
      the
      managing underwriter or underwriters, if any, or the Investors may request,
      and,
      within three (3) business days after a Registration Statement which includes
      Registrable Securities is ordered effective by the SEC, the Company shall
      deliver, and shall cause legal counsel selected by the Company to deliver,
      to
      the transfer agent for the Registrable Securities (with copies to the Investors
      whose Registrable Securities are included in such Registration Statement) an
      instruction in the form attached hereto as Exhibit
      1
      and an
      opinion of such counsel in the form attached hereto as Exhibit 2.

     

    p.  At
      the
      request of the holders of a majority-in-interest of the Registrable Securities,
      the Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to a Registration Statement and
      any
      prospectus used in connection with the Registration Statement as may be
      necessary in order to change the plan of distribution set forth in such
      Registration Statement.

     

    q.  From
      and
      after the date of this Agreement, the Company shall not, and shall not agree
      to,
      allow the holders of any securities of the Company to include any of their
      securities, in excess of 250,000 shares of Common Stock, in any Registration
      Statement under Section 2(a) hereof or any amendment or supplement thereto
      under
      Section 3(b) hereof without the consent of the holders of a majority-in-interest
      of the Registrable Securities.

     

    r.  The
      Company shall take all other reasonable actions necessary to expedite and
      facilitate disposition by the Investors of Registrable Securities pursuant
      to a
      Registration Statement.

     

    4.  OBLIGATIONS
      OF THE INVESTORS.

     

    In
      connection with the registration of the Registrable Securities, the Investors
      shall have the following obligations:

     

    a.  It
      shall
      be a condition precedent to the obligations of the Company to complete the
      registration pursuant to this Agreement with respect to the Registrable
      Securities of a particular Investor that such Investor shall furnish to the
      Company such information regarding itself, the Registrable Securities held
      by it
      and the intended method of disposition of the Registrable Securities held by
      it
      as shall be reasonably required to effect the registration of such Registrable
      Securities and shall execute such documents in connection with such registration
      as the Company may reasonably request. At least three (3) business days prior
      to
      the first anticipated filing date of the Registration Statement, the Company
      shall notify each Investor of the information the Company requires from each
      such Investor. 

     

    b.  Each
      Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of the Registration Statements hereunder, unless
      such Investor has notified the Company in writing of such Investor’s election to
      exclude all of such Investor’s Registrable Securities from the Registration
      Statements.

     

    c.  In
      the
      event Investors holding a majority-in-interest of the Registrable Securities
      being registered (with the approval of the Initial Investors) determine to
      engage the services of an underwriter, each Investor agrees to enter into and
      perform such Investor’s obligations under an underwriting agreement, in usual
      and customary form, including, without limitation, customary indemnification
      and
      contribution obligations, with the managing underwriter of such offering and
      take such other actions as are reasonably required in order to expedite or
      facilitate the disposition of the Registrable Securities, unless such Investor
      has notified the Company in writing of such Investor’s election to exclude all
      of such Investor’s Registrable Securities from such Registration
      Statement.

     

    d.  Each
      Investor agrees that, upon receipt of any notice from the Company of the
      happening of any event of the kind described in Section 3(f) or 3(g), such
      Investor will immediately discontinue disposition of Registrable Securities
      pursuant to the Registration Statement covering such Registrable Securities
      until such Investor’s receipt of the copies of the supplemented or amended
      prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
      Company, such Investor shall deliver to the Company (at the expense of the
      Company) or destroy (and deliver to the Company a certificate of destruction)
      all copies in such Investor’s possession, of the prospectus covering such
      Registrable Securities current at the time of receipt of such
      notice.

     

    e.  No
      Investor may participate in any underwritten registration hereunder unless
      such
      Investor (i) agrees
      to sell such Investor’s Registrable Securities on the basis provided in any
      underwriting arrangements in usual and customary form entered into by the
      Company, (ii) completes
      and executes all questionnaires, powers of attorney, indemnities, underwriting
      agreements and other documents reasonably required under the terms of such
      underwriting arrangements, and (iii) agrees
      to pay its pro rata share of all underwriting discounts and commissions and
      any
      expenses in excess of those payable by the Company pursuant to Section 5
      below.

     

    5.  EXPENSES
      OF REGISTRATION.

     

    All
      reasonable expenses, other than underwriting discounts and commissions, incurred
      in connection with registrations, filings or qualifications pursuant to Sections
      2 and 3, including, without limitation, all registration, listing and
      qualification fees, printers and accounting fees, the fees and disbursements
      of
      counsel for the Company, and the reasonable fees and disbursements of one
      counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
      hereof shall be borne by the Company and shall be included in the fees paid
      to
      counsel under the Securities Purchase Agreement for purposes of counsel selected
      by the Initial Investors.

     

    6.  INDEMNIFICATION.
      

     

    In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:

     

    a.  To
      the
      extent permitted by law, the Company will indemnify, hold harmless and defend
      (i) each
      Investor who holds such Registrable Securities, (ii) the
      directors, officers, partners, employees, agents and each person who controls
      any Investor within the meaning of the 1933 Act or the Securities Exchange
      Act
      of 1934, as amended (the “1934
      Act”),
      if
      any, (iii) any
      underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
      directors, officers, partners, employees and each person who controls any such
      underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each,
      an
“Indemnified
      Person”),
      against any joint or several losses, claims, damages, liabilities or expenses
      (collectively, together with actions, proceedings or inquiries by any regulatory
      or self-regulatory organization, whether commenced or threatened, in respect
      thereof, “Claims”)
      to
      which any of them may become subject insofar as such Claims arise out of or
      are
      based upon: (i) any untrue statement or alleged untrue statement of a material
      fact in a Registration Statement or the omission or alleged omission to state
      therein a material fact required to be stated or necessary to make the
      statements therein not misleading; (ii) any untrue statement or alleged untrue
      statement of a material fact contained in any preliminary prospectus if used
      prior to the effective date of such Registration Statement, or contained in
      the
      final prospectus (as amended or supplemented, if the Company files any amendment
      thereof or supplement thereto with the SEC) or the omission or alleged omission
      to state therein any material fact necessary to make the statements made
      therein, in light of the circumstances under which the statements therein were
      made, not misleading; or (iii) any violation or alleged violation by the Company
      of the 1933 Act, the 1934 Act, any other law, including, without limitation,
      any
      state securities law, or any rule or regulation thereunder relating to the
      offer
      or sale of the Registrable Securities (the matters in the foregoing clauses
      (i)
      through (iii) being, collectively, “Violations”).
      Subject to the restrictions set forth in Section 6(c) with respect to the number
      of legal counsel, the Company shall reimburse the Indemnified Person, promptly
      as such expenses are incurred and are due and payable, for any reasonable legal
      fees or other reasonable expenses incurred by them in connection with
      investigating or defending any such Claim. Notwithstanding anything to the
      contrary contained herein, the indemnification agreement contained in this
      Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
      Violation which occurs in reliance upon and in conformity with information
      furnished in writing to the Company by any Indemnified Person or underwriter
      for
      such Indemnified Person expressly for use in connection with the preparation
      of
      such Registration Statement or any such amendment thereof or supplement thereto,
      if such prospectus was timely made available by the Company pursuant to Section
      3(c) hereof; (ii) shall not apply to amounts paid in settlement of any Claim
      if
      such settlement is effected without the prior written consent of the Company,
      which consent shall not be unreasonably withheld; and (iii) with respect to
      any
      preliminary prospectus, shall not inure to the benefit of any Indemnified Person
      if the untrue statement or omission of material fact contained in the
      preliminary prospectus was corrected on a timely basis in the prospectus, as
      then amended or supplemented, such corrected prospectus was timely made
      available by the Company pursuant to Section 3(c) hereof, and the Indemnified
      Person was promptly advised in writing not to use the incorrect prospectus
      prior
      to the use giving rise to a Violation and such Indemnified Person,
      notwithstanding such advice, used it. Such indemnity shall remain in full force
      and effect regardless of any investigation made by or on behalf of the
      Indemnified Person and shall survive the transfer of the Registrable Securities
      by the Investors pursuant to Section 9.

     

    b.  In
      connection with any Registration Statement in which an Investor is
      participating, each such Investor agrees severally and not jointly to indemnify,
      hold harmless and defend, to the same extent and in the same manner set forth
      in
      Section 6(a), the Company, each of its directors, each of its officers who
      signs
      the Registration Statement, each person, if any, who controls the Company within
      the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
      shareholder selling securities pursuant to the Registration Statement or any
      of
      its directors or officers or any person who controls such shareholder or
      underwriter within the meaning of the 1933 Act or the 1934 Act (collectively
      and
      together with an Indemnified Person, an “Indemnified
      Party”),
      against any Claim to which any of them may become subject, under the 1933 Act,
      the 1934 Act or otherwise, insofar as such Claim arises out of or is based
      upon
      any Violation by such Investor, in each case to the extent (and only to the
      extent) that such Violation occurs in reliance upon and in conformity with
      written information furnished to the Company by such Investor expressly for
      use
      in connection with such Registration Statement; and subject to Section 6(c)
      such
      Investor will reimburse any legal or other expenses (promptly as such expenses
      are incurred and are due and payable) reasonably incurred by them in connection
      with investigating or defending any such Claim; provided,
      however,
      that
      the indemnity agreement contained in this Section 6(b) shall not apply to
      amounts paid in settlement of any Claim if such settlement is effected without
      the prior written consent of such Investor, which consent shall not be
      unreasonably withheld; provided,
      further,
      however,
      that
      the Investor shall be liable under this Agreement (including this Section 6(b)
      and Section 7) for only that amount as does not exceed the net proceeds to
      such
      Investor as a result of the sale of Registrable Securities pursuant to such
      Registration Statement. Such indemnity shall remain in full force and effect
      regardless of any investigation made by or on behalf of such Indemnified Party
      and shall survive the transfer of the Registrable Securities by the Investors
      pursuant to Section 9. Notwithstanding anything to the contrary contained
      herein, the indemnification agreement contained in this Section 6(b) with
      respect to any preliminary prospectus shall not inure to the benefit of any
      Indemnified Party if the untrue statement or omission of material fact contained
      in the preliminary prospectus was corrected on a timely basis in the prospectus,
      as then amended or supplemented.

     

    c.  Promptly
      after receipt by an Indemnified Person or Indemnified Party under this Section
      6
      of notice of the commencement of any action (including any governmental action),
      such Indemnified Person or Indemnified Party shall, if a Claim in respect
      thereof is to be made against any indemnifying party under this Section 6,
      deliver to the indemnifying party a written notice of the commencement thereof,
      and the indemnifying party shall have the right to participate in, and, to
      the
      extent the indemnifying party so desires, jointly with any other indemnifying
      party similarly noticed, to assume control of the defense thereof with counsel
      mutually satisfactory to the indemnifying party and the Indemnified Person
      or
      the Indemnified Party, as the case may be; provided,
      however,
      that an
      Indemnified Person or Indemnified Party shall have the right to retain its
      own
      counsel with the fees and expenses to be paid by the indemnifying party, if,
      in
      the reasonable opinion of counsel retained by the indemnifying party, the
      representation by such counsel of the Indemnified Person or Indemnified Party
      and the indemnifying party would be inappropriate due to actual or potential
      differing interests between such Indemnified Person or Indemnified Party and
      any
      other party represented by such counsel in such proceeding. The indemnifying
      party shall pay for only one separate legal counsel for the Indemnified Persons
      or the Indemnified Parties, as applicable, and such legal counsel shall be
      selected by Investors holding a majority-in-interest of the Registrable
      Securities included in the Registration Statement to which the Claim relates
      (with the approval of a majority-in-interest of the Initial Investors), if
      the
      Investors are entitled to indemnification hereunder, or the Company, if the
      Company is entitled to indemnification hereunder, as applicable. The failure
      to
      deliver written notice to the indemnifying party within a reasonable time of
      the
      commencement of any such action shall not relieve such indemnifying party of
      any
      liability to the Indemnified Person or Indemnified Party under this Section
      6,
      except to the extent that the indemnifying party is actually prejudiced in
      its
      ability to defend such action. The indemnification required by this Section
      6
      shall be made by periodic payments of the amount thereof during the course
      of
      the investigation or defense, as such expense, loss, damage or liability is
      incurred and is due and payable.

     

    7.  CONTRIBUTION.

     

    To
      the
      extent any indemnification by an indemnifying party is prohibited or limited
      by
      law, the indemnifying party agrees to make the maximum contribution with respect
      to any amounts for which it would otherwise be liable under Section 6 to the
      fullest extent permitted by law; provided,
      however,
      that
(i) no
      contribution shall be made under circumstances where the maker would not have
      been liable for indemnification under the fault standards set forth in Section
      6, (ii) no
      seller of Registrable Securities guilty of fraudulent misrepresentation (within
      the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
      from any seller of Registrable Securities who was not guilty of such fraudulent
      misrepresentation, and (iii)contribution
      (together with any indemnification or other obligations under this Agreement)
      by
      any seller of Registrable Securities shall be limited in amount to the net
      amount of proceeds received by such seller from the sale of such Registrable
      Securities.

     

    8.  REPORTS
      UNDER THE 1934 ACT.

     

    With
      a
      view to making available to the Investors the benefits of Rule 144 promulgated
      under the 1933 Act or any other similar rule or regulation of the SEC that
      may
      at any time permit the investors to sell securities of the Company to the public
      without registration (“Rule
      144”),
      the
      Company agrees to:

     

    a.  make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144;

     

    b.  file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the 1933 Act and the 1934 Act so long as the Company remains
      subject to such requirements (it being understood that nothing herein shall
      limit the Company’s obligations under Section 4(c) of the Securities Purchase
      Agreement) and the filing of such reports and other documents is required for
      the applicable provisions of Rule 144; and

     

    c.  furnish
      to each Investor so long as such Investor owns Registrable Securities, promptly
      upon request, (i) a
      written statement by the Company that it has complied with the reporting
      requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a
      copy of the most recent annual or quarterly report of the Company and such
      other
      reports and documents so filed by the Company, and (iii) such
      other information as may be reasonably requested to permit the Investors to
      sell
      such securities pursuant to Rule 144 without registration.

     

    9.  ASSIGNMENT
      OF REGISTRATION RIGHTS.

     

    The
      rights under this Agreement shall be automatically assignable by the Investors
      to any transferee of all or any portion of Registrable Securities if:
      (i) the Investor agrees in writing with the transferee or assignee to
      assign such rights, and a copy of such agreement is furnished to the Company
      within a reasonable time after such assignment, (ii) the Company is, within
      a reasonable time after such transfer or assignment, furnished with written
      notice of (a) the
      name and address of such transferee or assignee, and (b) the
      securities with respect to which such registration rights are being transferred
      or assigned, (iii) following such transfer or assignment, the further
      disposition of such securities by the transferee or assignee is restricted
      under
      the 1933 Act and applicable state securities laws, (iv) at or before the time
      the Company receives the written notice contemplated by clause (ii) of this
      sentence, the transferee or assignee agrees in writing with the Company to
      be
      bound by all of the provisions contained herein, (v) such transfer shall have
      been made in accordance with the applicable requirements of the Securities
      Purchase Agreement, and (vi) such transferee shall be an “accredited
      investor”
as
      that
      term defined in Rule 501 of Regulation D promulgated under the 1933
      Act.

     

    10.  AMENDMENT
      OF REGISTRATION RIGHTS. 

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with written consent of the Company, each of the Initial
      Investors (to the extent such Initial Investor still owns Registrable
      Securities) and Investors who hold a majority interest of the Registrable
      Securities. Any amendment or waiver effected in accordance with this Section
      10
      shall be binding upon each Investor and the Company.

     

    11.  MISCELLANEOUS.

     

    a.  A
      person
      or entity is deemed to be a holder of Registrable Securities whenever such
      person or entity owns of record such Registrable Securities. If the Company
      receives conflicting instructions, notices or elections from two or more persons
      or entities with respect to the same Registrable Securities, the Company shall
      act upon the basis of instructions, notice or election received from the
      registered owner of such Registrable Securities.

     

    b.  Any
      notices required or permitted to be given under the terms hereof shall be sent
      by certified or registered mail (return receipt requested) or delivered
      personally or by courier (including a recognized overnight delivery service)
      or
      by facsimile and shall be effective five days after being placed in the mail,
      if
      mailed by regular United States mail, or upon receipt, if delivered personally
      or by courier (including a recognized overnight delivery service) or by
      facsimile, in each case addressed to a party. The addresses for such
      communications shall be:

     

    If
      to the
      Company:

     

    Avitar
      Inc.

     

    65
      Dan
      Road

     

    Canton,
      MA 02021

     

    Attention:
      Chief Executive Officer

     

    Telephone:
      (781) 821-2440  

     

    Facsimile:
      (781) 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    With
      a
      copy to:

     

    Dolgenos
      Newman & Cronin LLP

    1001
      Avenue of the Americas

    New
      York,
      NY 10018

    Attention:
      Eugene Cronin, Esq.

    Telephone:
      (212) 925-2800

    Facsimile:
      (212) 925-0690

     

    If
      to an
      Investor: to the address set forth immediately below such Investor’s name on the
      signature pages to the Securities Purchase Agreement. 

     

    With
      a
      copy to:

     

    Ballard
      Spahr Andrews & Ingersoll, LLP

     

    1735
      Market Street

     

    51st
      Floor

     

    Philadelphia,
      Pennsylvania 19103

     

    Attention:
      Gerald J. Guarcini, Esq.

     

    Telephone:
      215-865-8625

     

    Facsimile:
      215-864-8999

     

    

     

    c.  Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

     

    d.  
      THIS
      AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
      ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
      LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
      UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH RESPECT TO ANY
      DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
      HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
      IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
      SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
      UPON
      A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
      SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
      SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
      BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH
      SUIT
      OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
      BY
      SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
      PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR
      ALL
      FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
      IN CONNECTION WITH SUCH DISPUTE.

     

    e.  In
      the
      event that any provision of this Agreement is invalid or unenforceable under
      any
      applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law. Any provision hereof
      which
      may prove invalid or unenforceable under any law shall not affect the validity
      or enforceability of any other provision hereof.

     

    f.  This
      Agreement, the Notes, the Warrants and the Securities Purchase Agreement
      (including all schedules and exhibits thereto) constitute the entire agreement
      among the parties hereto with respect to the subject matter hereof and thereof.
      There are no restrictions, promises, warranties or undertakings, other than
      those set forth or referred to herein and therein. This Agreement and the
      Securities Purchase Agreement supersede all prior agreements and understandings
      among the parties hereto with respect to the subject matter hereof and
      thereof.

     

    g.  Subject
      to the requirements of Section 9 hereof, this Agreement shall be binding upon
      and inure to the benefit of the parties and their successors and
      assigns.

     

    h.  The
      headings in this Agreement are for convenience of reference only and shall
      not
      form part of, or affect the interpretation of, this Agreement.

     

    i.  This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original but all of which shall constitute one and the same agreement
      and shall become effective when counterparts have been signed by each party
      and
      delivered to the other party. This Agreement, once executed by a party, may
      be
      delivered to the other party hereto by facsimile transmission of a copy of
      this
      Agreement bearing the signature of the party so delivering this
      Agreement.

     

    j.  Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    k.  Except
      as
      otherwise provided herein, all consents and other determinations to be made
      by
      the Investors pursuant to this Agreement shall be made by Investors holding
      a
      majority of the Registrable Securities, determined as if the all of the Notes
      then outstanding have been converted into for Registrable
      Securities.

     

    l.  The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to each Investor by vitiating the intent and purpose of the
      transactions contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for breach of its obligations under this Agreement will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of any of the provisions under this Agreement, that each Investor shall
      be entitled, in addition to all other available remedies in law or in equity,
      and in addition to the penalties assessable herein, to an injunction or
      injunctions restraining, preventing or curing any breach of this Agreement
      and
      to enforce specifically the terms and provisions hereof, without the necessity
      of showing economic loss and without any bond or other security being
      required.

     

    m.  The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

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    IN
      WITNESS WHEREOF,
      the
      Company and the undersigned Initial Investors have caused this Agreement to
      be
      duly executed as of the date first above written.

     

    AVITAR
      INC.

     

    ______________________________________

     

    Peter
      Phildius

     

    Chief
      Executive Officer

     

    AJW
      PARTNERS, LLC

     

    By:
      SMS
      Group, LLC

     

    ______________________________________

    Corey
      S.
      Ribotsky

     

    Manager
      

     

    AJW
      OFFSHORE, LTD.

    By:
      First
      Street Manager II, LLC

    

    ______________________________________

    Corey
      S.
      Ribotsky

    Manager

    

    

    AJW
      QUALIFIED PARTNERS, LLC

     

    By:
      AJW
      Manager, LLC

     

    ____________________________________

    Corey
      S.
      Ribotsky

    Manager

    

    

    NEW
      MILLENNIUM CAPITAL PARTNERS, II, LLC

     

    By:
      First
      Street Manager II, LLC

     

    ______________________________________

    Corey
      S.
      Ribotsky

    ManagerEXHIBIT 4.3

    
      
 

       

      THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
        TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
        FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
        AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT
        REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
        144
        OR REGULATION S UNDER SAID ACT.

       

      

       

      CALLABLE
        SECURED CONVERTIBLE NOTE

       

      New
        York,
        New York

       

      May
        7,
        2007                                                                                                                                                                                                                                                                                                 
$12,500

       

      FOR
        VALUE RECEIVED,
        AVITAR INC.,
        a
        Delaware corporation (hereinafter called the “Borrower”),
        hereby promises to pay to the order of AJW PARTNERS, LLC or registered assigns
        (the “Holder”)
        the
        sum of $12,500, on May 7, 2010 (the “Maturity
        Date”),
        and
        to pay interest on the unpaid principal balance hereof at the rate of eight
        percent (8%) (the “Interest
        Rate”)
        per
        annum from May 7, 2007 (the “Issue
        Date”)
        until
        the same becomes due and payable, whether at maturity or upon acceleration
        or by
        prepayment or otherwise. Any amount of principal or interest on this Note
        which
        is not paid when due shall bear interest at the rate of fifteen percent (15%)
        per annum from the due date thereof until the same is paid (“Default
        Interest”).
        Interest shall commence accruing on the Issue Date, shall be computed on
        the
        basis of a 365-day year and the actual number of days elapsed and shall be
        payable quarterly provided that no interest shall be due and payable for
        any
        month in which the Trading Price (as such term is defined below) is greater
        than
        $.20 for each Trading Day (as such term is defined below) of the month. All
        payments due hereunder (to the extent not converted into common stock, $.01
        par
        value per share (the “Common
        Stock”)
        in
        accordance with the terms hereof) shall be made in lawful money of the United
        States of America. All payments shall be made at such address as the Holder
        shall hereafter give to the Borrower by written notice made in accordance
        with
        the provisions of this Note. Whenever any amount expressed to be due by the
        terms of this Note is due on any day which is not a business day, the same
        shall
        instead be due on the next succeeding day which is a business day and, in
        the
        case of any interest payment date which is not the date on which this Note
        is
        paid in full, the extension of the due date thereof shall not be taken into
        account for purposes of determining the amount of interest due on such date.
        As
        used in this Note, the term “business day” shall mean any day other than a
        Saturday, Sunday or a day on which commercial banks in the city of New York,
        New
        York are authorized or required by law or executive order to remain closed.
        Each
        capitalized term used herein, and not otherwise defined, shall have the meaning
        ascribed thereto in that certain Securities Purchase Agreement, dated May
        7,
        2007, pursuant to which this Note was originally issued (the “Purchase
        Agreement”).

       

      This
        Note
        is free from all taxes, liens, claims and encumbrances with respect to the
        issue
        thereof and shall not be subject to preemptive rights or other similar rights
        of
        shareholders of the Borrower and will not impose personal liability upon
        the
        holder thereof. The obligations of the Borrower under this Note shall be
        secured
        by that certain Security Agreement and Intellectual Property Security Agreement,
        each dated May 7, 2007 by and between the Borrower and the Holder.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION
        RIGHTS

       

      1.1  Conversion
        Right.
        The
        Holder shall have the right from time to time, and at any time on or prior
        to
        the earlier of (i) the Maturity Date and (ii) the date of payment of the
        Default
        Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
        III,
        the Optional Prepayment Amount (as defined in Section 5.1 or any payments
        pursuant to Section 1.7, each in respect of the remaining outstanding principal
        amount of this Note to convert all or any part of the outstanding and unpaid
        principal amount of this Note into fully paid and non-assessable shares of
        Common Stock, as such Common Stock exists on the Issue Date, or any shares
        of
        capital stock or other securities of the Borrower into which such Common
        Stock
        shall hereafter be changed or reclassified at the conversion price (the
“Conversion
        Price”)
        determined as provided herein (a “Conversion”);
        provided,
        however,
        that in
        no event shall the Holder be entitled to convert any portion of this Note
        in
        excess of that portion of this Note upon conversion of which the sum of (1)
        the
        number of shares of Common Stock beneficially owned by the Holder and its
        affiliates (other than shares of Common Stock which may be deemed beneficially
        owned through the ownership of the unconverted portion of the Notes or the
        unexercised or unconverted portion of any other security of the Borrower
        (including, without limitation, the warrants issued by the Borrower pursuant
        to
        the Purchase Agreement) subject to a limitation on conversion or exercise
        analogous to the limitations contained herein) and (2) the number of shares
        of
        Common Stock issuable upon the conversion of the portion of this Note with
        respect to which the determination of this proviso is being made, would result
        in beneficial ownership by the Holder and its affiliates of more than 4.99%
        of
        the outstanding shares of Common Stock and provided further
        that the
        Holder shall not be entitled to convert any portion of this Note during any
        month immediately succeeding a Determination Date on which the Borrower
        exercises its prepayment option pursuant to Section 5.2 of this Note. For
        purposes of the proviso to the immediately preceding sentence, beneficial
        ownership shall be determined in accordance with Section 13(d) of the Securities
        Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
        as
        otherwise provided in clause (1) of such proviso. The number of shares of
        Common
        Stock to be issued upon each conversion of this Note shall be determined
        by
        dividing the Conversion Amount (as defined below) by the applicable Conversion
        Price then in effect on the date specified in the notice of conversion, in
        the
        form attached hereto as Exhibit A (the “Notice
        of Conversion”),
        delivered to the Borrower by the Holder in accordance with Section 1.4 below;
        provided that the Notice of Conversion is submitted by facsimile (or by other
        means resulting in, or reasonably expected to result in, notice) to the Borrower
        before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
        Date”).
        The
        term “Conversion
        Amount”
means,
        with respect to any conversion of this Note, the sum of (1) the principal
        amount
        of this Note to be converted in such conversion plus
        (2)
        accrued and unpaid interest, if any, on such principal amount at the interest
        rates provided in this Note to the Conversion Date, provided, however, that
        the
        Company shall have the right to pay any or all interest in cash plus
        (3)
        Default Interest, if any, on the amounts referred to in the immediately
        preceding clauses (1) and/or (2) plus
        (4) at
        the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
        1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
        Agreement, dated as of May 7, 2007, executed in connection with the initial
        issuance of this Note and the other Notes issued on the Issue Date (the
“Registration
        Rights Agreement”).
        The
        term “Determination
        Date” means
        the
        last business day of each month after the Issue Date.

       

      1.2  Conversion
        Price.

       

      (a)  Calculation
        of Conversion Price.
        The
        Conversion Price shall be the Variable Conversion Price (as defined herein)
        (subject, in each case, to equitable adjustments for stock splits, stock
        dividends or rights offerings by the Borrower relating to the Borrower’s
        securities or the securities of any subsidiary of the Borrower, combinations,
        recapitalization, reclassifications, extraordinary distributions and similar
        events). The “Variable
        Conversion Price”
shall
        mean the Applicable Percentage (as defined herein) multiplied by the Market
        Price (as defined herein). “Market
        Price”
means
        the average of the lowest three (3) Trading Prices (as defined below) for
        the
        Common Stock during the twenty (20) Trading Day period ending one Trading
        Day
        prior to the date the Conversion Notice is sent by the Holder to the Borrower
        via facsimile (the “Conversion
        Date”).
        “Trading
        Price”
means,
        for any security as of any date, the intraday trading price on the
        Over-the-Counter Bulletin Board (the “OTCBB”)
        as
        reported by a reliable reporting service (“Reporting
        Service”)
        mutually acceptable to Borrower and Holder and hereafter designated by Holders
        of a majority in interest of the Notes and the Borrower or, if the OTCBB
        is not
        the principal trading market for such security, the intraday trading price
        of
        such security on the principal securities exchange or trading market where
        such
        security is listed or traded or, if no intraday trading price of such security
        is available in any of the foregoing manners, the average of the intraday
        trading prices of any market makers for such security that are listed in
        the
“pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
        be calculated for such security on such date in the manner provided above,
        the
        Trading Price shall be the fair market value as mutually determined by the
        Borrower and the holders of a majority in interest of the Notes being converted
        for which the calculation of the Trading Price is required in order to determine
        the Conversion Price of such Notes. “Trading
        Day”
shall
        mean any day on which the Common Stock is traded for any period on the OTCBB,
        or
        on the principal securities exchange or other securities market on which
        the
        Common Stock is then being traded. “Applicable
        Percentage”
shall
        mean 55.0%.

       

      (b)  Conversion
        Price During Major Announcements.
        Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in which the Borrower is the surviving
        or
        continuing corporation and its capital stock is unchanged) or sell or transfer
        all or substantially all of the assets of the Borrower or (ii) any person,
        group
        or entity (including the Borrower) publicly announces a tender offer to purchase
        50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
        date of the announcement referred to in clause (i) or (ii) is hereinafter
        referred to as the “Announcement
        Date”),
        then
        the Conversion Price shall, effective upon the Announcement Date and continuing
        through the Adjusted Conversion Price Termination Date (as defined below),
        be
        equal to the lower of (x) the Conversion Price which would have been applicable
        for a Conversion occurring on the Announcement Date and (y) the Conversion
        Price
        that would otherwise be in effect. From and after the Adjusted Conversion
        Price
        Termination Date, the Conversion Price shall be determined as set forth in
        this
        Section 1.2(a). For purposes hereof, “Adjusted
        Conversion Price Termination Date”
shall
        mean, with respect to any proposed transaction or tender offer (or takeover
        scheme) for which a public announcement as contemplated by this Section 1.2(b)
        has been made, the date upon which the Borrower (in the case of clause (i)
        above) or the person, group or entity (in the case of clause (ii) above)
        consummates or publicly announces the termination or abandonment of the proposed
        transaction or tender offer (or takeover scheme) which caused this Section
        1.2(b) to become operative.

       

      1.3  Authorized
        Shares.
        Subject
        to Stockholder Approval (as such term is defined in Section 4(n) of the
        Securities Purchase Agreement), the Borrower covenants that during the period
        the conversion right exists, the Borrower will reserve from its authorized
        and
        unissued Common Stock a sufficient number of shares, free from preemptive
        rights, to provide for the issuance of Common Stock upon the full conversion
        of
        this Note and the other Notes issued pursuant to the Purchase Agreement.
        The
        Borrower is required at all times to have authorized and reserved two times
        the
        number of shares that is actually issuable upon full conversion of the Notes
        (based on the Conversion Price of the Notes or the Exercise Price of the
        Warrants in effect from time to time) (the “Reserved
        Amount”).
        The
        Reserved Amount shall be increased from time to time in accordance with the
        Borrower’s obligations pursuant to Section 4(h) of the Purchase Agreement. The
        Borrower represents that upon issuance, such shares will be duly and validly
        issued, fully paid and non-assessable. In addition, if the Borrower shall
        issue
        any securities or make any change to its capital structure which would change
        the number of shares of Common Stock into which the Notes shall be convertible
        at the then current Conversion Price, the Borrower shall at the same time
        make
        proper provision so that thereafter there shall be a sufficient number of
        shares
        of Common Stock authorized and reserved, free from preemptive rights, for
        conversion of the outstanding Notes. The Borrower (i) acknowledges that it
        has
        irrevocably instructed its transfer agent to issue certificates for the Common
        Stock issuable upon conversion of this Note, and (ii) agrees that its
        issuance of this Note shall constitute full authority to its officers and
        agents
        who are charged with the duty of executing stock certificates to execute
        and
        issue the necessary certificates for shares of Common Stock in accordance
        with
        the terms and conditions of this Note.

       

      If,
        at
        any time a Holder of this Note submits a Notice of Conversion, and the Borrower
        does not have sufficient authorized but unissued shares of Common Stock
        available to effect such conversion in accordance with the provisions of
        this
        Article I (a “Conversion
        Default”),
        subject to Section 4.8, the Borrower shall issue to the Holder all of the
        shares
        of Common Stock which are then available to effect such conversion. The portion
        of this Note which the Holder included in its Conversion Notice and which
        exceeds the amount which is then convertible into available shares of Common
        Stock (the “Excess
        Amount”)
        shall,
        notwithstanding anything to the contrary contained herein, not be convertible
        into Common Stock in accordance with the terms hereof until (and at the Holder’s
        option at any time after) the date additional shares of Common Stock are
        authorized by the Borrower to permit such conversion, at which time the
        Conversion Price in respect thereof shall be the lesser of (i) the Conversion
        Price on the Conversion Default Date (as defined below) and (ii) the Conversion
        Price on the Conversion Date thereafter elected by the Holder in respect
        thereof. In addition, the Borrower shall pay to the Holder payments
        (“Conversion
        Default Payments”)
        for a
        Conversion Default in the amount of (x) the sum
        of
        (1) the
        then outstanding principal amount of this Note plus
        (2)
        accrued and unpaid interest on the unpaid principal amount of this Note through
        the Authorization Date (as defined below) plus
        (3)
        Default Interest, if any, on the amounts referred to in clauses (1) and/or
        (2),
multiplied
        by
        (y) .24,
multiplied
        by
        (z)
        (N/365), where N = the number of days from the day the holder submits a Notice
        of Conversion giving rise to a Conversion Default (the “Conversion
        Default Date”)
        to the
        date (the “Authorization
        Date”)
        that
        the Borrower authorizes a sufficient number of shares of Common Stock to
        effect
        conversion of the full outstanding principal balance of this Note. The Borrower
        shall use its best efforts to authorize a sufficient number of shares of
        Common
        Stock as soon as practicable following the earlier of (i) such time that
        the
        Holder notifies the Borrower or that the Borrower otherwise becomes aware
        that
        there are or likely will be insufficient authorized and unissued shares to
        allow
        full conversion thereof and (ii) a Conversion Default. The Borrower shall
        send
        notice to the Holder of the authorization of additional shares of Common
        Stock,
        the Authorization Date and the amount of Holder’s accrued Conversion Default
        Payments. The accrued Conversion Default Payments for each calendar month
        shall
        be paid in cash or shall be convertible into Common Stock (at such time as
        there
        are sufficient authorized shares of Common Stock) at the applicable Conversion
        Price, at the Borrower’s option, as follows:

       

      (a)  In
        the
        event Holder elects to take such payment in cash, cash payment shall be made
        to
        Holder by the fifth (5th)
        day of
        the month following the month in which it has accrued; and

       

      (b)  In
        the
        event Holder elects to take such payment in Common Stock, the Holder may
        convert
        such payment amount into Common Stock at the Conversion Price (as in effect
        at
        the time of conversion) at any time after the fifth day of the month following
        the month in which it has accrued in accordance with the terms of this Article
        I
        (so long as there is then a sufficient number of authorized shares of Common
        Stock).

       

      The
        Holder’s election shall be made in writing to the Borrower at any time prior to
        6:00 p.m., New York, New York time, on the third day of the month following
        the
        month in which Conversion Default payments have accrued. If no election is
        made,
        the Holder shall be deemed to have elected to receive cash. Nothing herein
        shall
        limit the Holder’s right to pursue actual damages (to the extent in excess of
        the Conversion Default Payments) for the Borrower’s failure to maintain a
        sufficient number of authorized shares of Common Stock, and each holder shall
        have the right to pursue all remedies available at law or in equity (including
        degree of specific performance and/or injunctive relief).

       

      1.4  Method
        of Conversion.

       

      (a)  Mechanics
        of Conversion.
        Subject
        to Section 1.1, this Note may be converted by the Holder in whole or in part
        at
        any time from time to time after the Issue Date, by (A) submitting to the
        Borrower a Notice of Conversion (by facsimile or other reasonable means of
        communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
        New York time) and (B) subject to Section 1.4(b), surrendering this Note at
        the principal office of the Borrower. 

       

      (b)  Surrender
        of Note Upon Conversion.
        Notwithstanding
        anything to the contrary set forth herein, upon conversion of this Note in
        accordance with the terms hereof, the Holder shall not be required to physically
        surrender this Note to the Borrower unless the entire unpaid principal amount
        of
        this Note is so converted. The Holder and the Borrower shall maintain records
        showing the principal amount so converted and the dates of such conversions
        or
        shall use such other method, reasonably satisfactory to the Holder and the
        Borrower, so as not to require physical surrender of this Note upon each
        such
        conversion. In the event of any dispute or discrepancy, such records of the
        Borrower shall be controlling and determinative in the absence of manifest
        error. Notwithstanding the foregoing, if any portion of this Note is converted
        as aforesaid, the Holder may not transfer this Note unless the Holder first
        physically surrenders this Note to the Borrower, whereupon the Borrower will
        forthwith issue and deliver upon the order of the Holder a new Note of like
        tenor, registered as the Holder (upon payment by the Holder of any applicable
        transfer taxes) may request, representing in the aggregate the remaining
        unpaid
        principal amount of this Note. The Holder and any assignee, by acceptance
        of
        this Note, acknowledge and agree that, by reason of the provisions of this
        paragraph, following conversion of a portion of this Note, the unpaid and
        unconverted principal amount of this Note represented by this Note may be
        less
        than the amount stated on the face hereof.

       

      (c)  Payment
        of Taxes.
        The
        Borrower shall not be required to pay any tax which may be payable in respect
        of
        any transfer involved in the issue and delivery of shares of Common Stock
        or
        other securities or property on conversion of this Note in a name other than
        that of the Holder (or in street name), and the Borrower shall not be required
        to issue or deliver any such shares or other securities or property unless
        and
        until the person or persons (other than the Holder or the custodian in whose
        street name such shares are to be held for the Holder’s account) requesting the
        issuance thereof shall have paid to the Borrower the amount of any such tax
        or
        shall have established to the satisfaction of the Borrower that such tax
        has
        been paid.

       

      (d)  Delivery
        of Common Stock Upon Conversion.
        Upon
        receipt by the Borrower from the Holder of a facsimile transmission (or other
        reasonable means of communication) of a Notice of Conversion meeting the
        requirements for conversion as provided in this Section 1.4, the Borrower
        shall
        issue and deliver or cause to be issued and delivered to or upon the order
        of
        the Holder certificates for the Common Stock issuable upon such conversion
        within three (3) business days after such receipt (and, solely in the case
        of
        conversion of the entire unpaid principal amount hereof, surrender of this
        Note)
        (such third business day being hereinafter referred to as the “Deadline”)
        in
        accordance with the terms hereof and the Purchase Agreement (including, without
        limitation, in accordance with the requirements of Section 2(g) of the Purchase
        Agreement that certificates for shares of Common Stock issued on or after
        the
        effective date of the Registration Statement upon conversion of this Note
        shall
        not bear any restrictive legend).

       

      (e)  Obligation
        of Borrower to Deliver Common Stock.
        Upon
        receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed
        to
        be the holder of record of the Common Stock issuable upon such conversion,
        the
        outstanding principal amount and the amount of accrued and unpaid interest
        on
        this Note shall be reduced to reflect such conversion, and, unless the Borrower
        defaults on its obligations under this Article I, all rights with respect
        to the
        portion of this Note being so converted shall forthwith terminate except
        the
        right to receive the Common Stock or other securities, cash or other assets,
        as
        herein provided, on such conversion. If the Holder shall have given a Notice
        of
        Conversion as provided herein, the Borrower’s obligation to issue and deliver
        the certificates for Common Stock shall be absolute and unconditional,
        irrespective of the absence of any action by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision thereof, the recovery of
        any
        judgment against any person or any action to enforce the same, any failure
        or
        delay in the enforcement of any other obligation of the Borrower to the holder
        of record, or any setoff, counterclaim, recoupment, limitation or termination,
        or any breach or alleged breach by the Holder of any obligation to the Borrower,
        and irrespective of any other circumstance which might otherwise limit such
        obligation of the Borrower to the Holder in connection with such conversion.
        The
        Conversion Date specified in the Notice of Conversion shall be the Conversion
        Date so long as the Notice of Conversion is received by the Borrower before
        6:00
        p.m., New York, New York time, on such date.

       

      (f)  Delivery
        of Common Stock by Electronic Transfer.
        In
        lieu
        of delivering physical certificates representing the Common Stock issuable
        upon
        conversion, provided the Borrower’s transfer agent is participating in the
        Depository Trust Company (“DTC”)
        Fast
        Automated Securities Transfer (“FAST”)
        program, upon request of the Holder and its compliance with the provisions
        contained in Section 1.1 and in this Section 1.4, the Borrower shall use
        its
        best efforts to cause its transfer agent to electronically transmit the Common
        Stock issuable upon conversion to the Holder by crediting the account of
        Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
        (“DWAC”)
        system.

       

      (g)  Failure
        to Deliver Common Stock Prior to Deadline.
        Without
        in any way limiting the Holder’s right to pursue other remedies, including
        actual damages and/or equitable relief, the parties agree that if delivery
        of
        the Common Stock issuable upon conversion of this Note is more than two (2)
        business days after the Deadline (other than a failure due to the circumstances
        described in Section 1.3 above, which failure shall be governed by such Section)
        the Borrower shall pay to the Holder $2,000 per day in cash, for each day
        beyond
        the Deadline that the Borrower fails to deliver such Common Stock. Such cash
        amount shall be paid to Holder by the fifth day of the month following the
        month
        in which it has accrued or, at the option of the Holder (by written notice
        to
        the Borrower by the first day of the month following the month in which it
        has
        accrued), shall be added to the principal amount of this Note, in which event
        interest shall accrue thereon in accordance with the terms of this Note and
        such
        additional principal amount shall be convertible into Common Stock in accordance
        with the terms of this Note.

       

      1.5  Concerning
        the Shares.
        The
        shares of Common Stock issuable upon conversion of this Note may not be sold
        or
        transferred unless (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        agent
        shall have been furnished with an opinion of counsel (which opinion shall
        be in
        form, substance and scope customary for opinions of counsel in comparable
        transactions) to the effect that the shares to be sold or transferred may
        be
        sold or transferred pursuant to an exemption from such registration or
        (iii) such shares are sold or transferred pursuant to Rule 144 under the
        Act (or a successor rule) (“Rule
        144”)
        or
        (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of
        the Borrower who agrees to sell or otherwise transfer the shares only in
        accordance with this Section 1.5 and who is an Accredited Investor (as defined
        in the Purchase Agreement). Except as otherwise provided in the Purchase
        Agreement (and subject to the removal provisions set forth below), until
        such
        time as the shares of Common Stock issuable upon conversion of this Note
        have
        been registered under the Act as contemplated by the Registration Rights
        Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
        as to the number of securities as of a particular date that can then be
        immediately sold, each certificate for shares of Common Stock issuable upon
        conversion of this Note that has not been so included in an effective
        registration statement or that has not been sold pursuant to an effective
        registration statement or an exemption that permits removal of the legend,
        shall
        bear a legend substantially in the following form, as appropriate:

       

      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
        OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
        SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
        SCOPE
        CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
        IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
        S
        UNDER SAID ACT.”

       

      The
        legend set forth above shall be removed and the Borrower shall issue to the
        Holder a new certificate therefor free of any transfer legend if (i) the
        Borrower or its transfer agent shall have received an opinion of counsel,
        in
        form, substance and scope customary for opinions of counsel in comparable
        transactions, to the effect that a public sale or transfer of such Common
        Stock
        may be made without registration under the Act and the shares are so sold
        or
        transferred, (ii) such Holder provides the Borrower or its transfer agent
        with
        reasonable assurances that the Common Stock issuable upon conversion of this
        Note (to the extent such securities are deemed to have been acquired on the
        same
        date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
        Stock
        issuable upon conversion of this Note, such security is registered for sale
        by
        the Holder under an effective registration statement filed under the Act
        or
        otherwise may be sold pursuant to Rule 144 without any restriction as to
        the
        number of securities as of a particular date that can then be immediately
        sold.
        Nothing in this Note shall (i) limit the Borrower’s obligation under the
        Registration Rights Agreement or (ii) affect in any way the Holder’s obligations
        to comply with applicable prospectus delivery requirements upon the resale
        of
        the securities referred to herein.

       

      1.6  Effect
        of Certain Events.

       

      (a)  Effect
        of Merger, Consolidation, Etc.
        At the
        option of the Holder, the sale, conveyance or disposition of all or
        substantially all of the assets of the Borrower, the effectuation by the
        Borrower of a transaction or series of related transactions in which more
        than
        50% of the voting power of the Borrower is disposed of, or the consolidation,
        merger or other business combination of the Borrower with or into any other
        Person (as defined below) or Persons when the Borrower is not the survivor
        shall
        either: (i) be deemed to be an Event of Default (as defined in Article III)
        pursuant to which the Borrower shall be required to pay to the Holder upon
        the
        consummation of and as a condition to such transaction an amount equal to
        the
        Default Amount (as defined in Article III) or (ii) be treated pursuant to
        Section 1.6(b) hereof. “Person”
shall
        mean any individual, corporation, limited liability company, partnership,
        association, trust or other entity or organization.

       

      (b)  Adjustment
        Due to Merger, Consolidation, Etc.
        If,
        at
        any time when this Note is issued and outstanding and prior to conversion
        of all
        of the Notes, there shall be any merger, consolidation, exchange of shares,
        recapitalization, reorganization, or other similar event, as a result of
        which
        shares of Common Stock of the Borrower shall be changed into the same or
        a
        different number of shares of another class or classes of stock or securities
        of
        the Borrower or another entity, or in case of any sale or conveyance of all
        or
        substantially all of the assets of the Borrower other than in connection
        with a
        plan of complete liquidation of the Borrower, then the Holder of this Note
        shall
        thereafter have the right to receive upon conversion of this Note, upon the
        basis and upon the terms and conditions specified herein and in lieu of the
        shares of Common Stock immediately theretofore issuable upon conversion,
        such
        stock, securities or assets which the Holder would have been entitled to
        receive
        in such transaction had this Note been converted in full immediately prior
        to
        such transaction (without regard to any limitations on conversion set forth
        herein), and in any such case appropriate provisions shall be made with respect
        to the rights and interests of the Holder of this Note to the end that the
        provisions hereof (including, without limitation, provisions for adjustment
        of
        the Conversion Price and of the number of shares issuable upon conversion
        of the
        Note) shall thereafter be applicable, as nearly as may be practicable in
        relation to any securities or assets thereafter deliverable upon the conversion
        hereof. The Borrower shall not effect any transaction described in this Section
        1.6(b) unless (a) it first gives, to the extent practicable, thirty (30)
        days
        prior written notice (but in any event at least fifteen (15) days prior written
        notice) of the record date of the special meeting of shareholders to approve,
        or
        if there is no such record date, the consummation of, such merger,
        consolidation, exchange of shares, recapitalization, reorganization or other
        similar event or sale of assets (during which time the Holder shall be entitled
        to convert this Note) and (b) the resulting successor or acquiring entity
        (if
        not the Borrower) assumes by written instrument the obligations of this Section
        1.6(b). The above provisions shall similarly apply to successive consolidations,
        mergers, sales, transfers or share exchanges.

       

      (c)  Adjustment
        Due to Distribution.
        If
        the
        Borrower shall declare or make any distribution of its assets (or rights
        to
        acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
        by way of return of capital or otherwise (including any dividend or distribution
        to the Borrower’s shareholders in cash or shares (or rights to acquire shares)
        of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”),
        then
        the Holder of this Note shall be entitled, upon any conversion of this Note
        after the date of record for determining shareholders entitled to such
        Distribution, to receive the amount of such assets which would have been
        payable
        to the Holder with respect to the shares of Common Stock issuable upon such
        conversion had such Holder been the holder of such shares of Common Stock
        on the
        record date for the determination of shareholders entitled to such
        Distribution.

       

      (d)  Adjustment
        Due to Dilutive Issuance.
        If, at
        any time when any Notes are issued and outstanding, the Borrower issues or
        sells, or in accordance with this Section 1.6(d) hereof is deemed to have
        issued
        or sold, any shares of Common Stock for no consideration or for a consideration
        per share (before deduction of reasonable expenses or commissions or
        underwriting discounts or allowances in connection therewith) less than the
        Fixed Conversion Price in effect on the date of such issuance (or deemed
        issuance) of such shares of Common Stock (a “Dilutive
        Issuance”),
        then
        immediately upon the Dilutive Issuance, the Variable Conversion Price will
        be
        reduced to the amount of the consideration per share received by the Borrower
        in
        such Dilutive Issuance; provided
        that
        only one adjustment will be made for each Dilutive Issuance.

       

      The
        Borrower shall be deemed to have issued or sold shares of Common Stock if
        the
        Borrower in any manner issues or grants any warrants, rights or options (not
        including employee stock option plans), whether or not immediately exercisable,
        to subscribe for or to purchase Common Stock or other securities convertible
        into or exchangeable for Common Stock (“Convertible
        Securities”)
        (such
        warrants, rights and options to purchase Common Stock or Convertible Securities
        are hereinafter referred to as “Options”)
        and
        the price per share for which Common Stock is issuable upon the exercise
        of such
        Options is less than the Variable Conversion Price then in effect, then the
        Variable Conversion Price shall be equal to such price per share. For purposes
        of the preceding sentence, the “price per share for which Common Stock is
        issuable upon the exercise of such Options” is determined by dividing (i) the
        total amount, if any, received or receivable by the Borrower as consideration
        for the issuance or granting of all such Options, plus the minimum aggregate
        amount of additional consideration, if any, payable to the Borrower upon
        the
        exercise of all such Options, plus, in the case of Convertible Securities
        issuable upon the exercise of such Options, the minimum aggregate amount
        of
        additional consideration payable upon the conversion or exchange thereof
        at the
        time such Convertible Securities first become convertible or exchangeable,
        by
        (ii) the maximum total number of shares of Common Stock issuable upon the
        exercise of all such Options (assuming full conversion of Convertible
        Securities, if applicable). No further adjustment to the Conversion Price
        will
        be made upon the actual issuance of such Common Stock upon the exercise of
        such
        Options or upon the conversion or exchange of Convertible Securities issuable
        upon exercise of such Options.

       

      Additionally,
        the Borrower shall be deemed to have issued or sold shares of Common Stock
        if
        the Borrower in any manner issues or sells any Convertible Securities, whether
        or not immediately convertible (other than where the same are issuable upon
        the
        exercise of Options), and the price per share for which Common Stock is issuable
        upon such conversion or exchange is less than the Variable Conversion Price
        then
        in effect, then the Variable Conversion Price shall be equal to such price
        per
        share. For the purposes of the preceding sentence, the “price per share for
        which Common Stock is issuable upon such conversion or exchange” is determined
        by dividing (i) the total amount, if any, received or receivable by the Borrower
        as consideration for the issuance or sale of all such Convertible Securities,
        plus the minimum aggregate amount of additional consideration, if any, payable
        to the Borrower upon the conversion or exchange thereof at the time such
        Convertible Securities first become convertible or exchangeable, by (ii)
        the
        maximum total number of shares of Common Stock issuable upon the conversion
        or
        exchange of all such Convertible Securities. No further adjustment to the
        Variable Conversion Price will be made upon the actual issuance of such Common
        Stock upon conversion or exchange of such Convertible Securities.

       

      (e)  Purchase
        Rights.
        If,
        at
        any time when any Notes are issued and outstanding, the Borrower issues any
        convertible securities or rights to purchase stock, warrants, securities
        or
        other property (the “Purchase
        Rights”)
        pro
        rata to the record holders of any class of Common Stock, then the Holder
        of this
        Note will be entitled to acquire, upon the terms applicable to such Purchase
        Rights, the aggregate Purchase Rights which such Holder could have acquired
        if
        such Holder had held the number of shares of Common Stock acquirable upon
        complete conversion of this Note (without regard to any limitations on
        conversion contained herein) immediately before the date on which a record
        is
        taken for the grant, issuance or sale of such Purchase Rights or, if no such
        record is taken, the date as of which the record holders of Common Stock
        are to
        be determined for the grant, issue or sale of such Purchase Rights.

       

      (f)  Notice
        of Adjustments.
        Upon
        the
        occurrence of each adjustment or readjustment of the Conversion Price as
        a
        result of the events described in this Section 1.6, the Borrower, at its
        expense, shall promptly compute such adjustment or readjustment and prepare
        and
        furnish to the Holder of a certificate setting forth such adjustment or
        readjustment and showing in detail the facts upon which such adjustment or
        readjustment is based. The Borrower shall, upon the written request at any
        time
        of the Holder, furnish to such Holder a like certificate setting forth (i)
        such
        adjustment or readjustment, (ii) the Conversion Price at the time in effect
        and
        (iii) the number of shares of Common Stock and the amount, if any, of other
        securities or property which at the time would be received upon conversion
        of
        the Note.

       

      1.7  Trading
        Market Limitations.
        Unless
        permitted by the applicable rules and regulations of the principal securities
        market on which the Common Stock is then listed or traded, in no event shall
        the
        Borrower issue upon conversion of or otherwise pursuant to this Note and
        the
        other Notes issued pursuant to the Purchase Agreement more than the maximum
        number of shares of Common Stock that the Borrower can issue pursuant to
        any
        rule of the principal United States securities market on which the Common
        Stock
        is then traded (the “Maximum
        Share Amount”),
        which
        shall be 19.99% of the total shares outstanding on the Closing Date (as defined
        in the Purchase Agreement), subject to equitable adjustment from time to
        time
        for stock splits, stock dividends, combinations, capital reorganizations
        and
        similar events relating to the Common Stock occurring after the date hereof.
        Once the Maximum Share Amount has been issued (the date of which is hereinafter
        referred to as the “Maximum
        Conversion Date”),
        if
        the Borrower fails to eliminate any prohibitions under applicable law or
        the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Borrower or
        any of
        its securities on the Borrower’s ability to issue shares of Common Stock in
        excess of the Maximum Share Amount (a “Trading
        Market Prepayment Event”),
        in
        lieu of any further right to convert this Note, and in full satisfaction
        of the
        Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
        within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
        Market Prepayment Date”),
        an
        amount equal to 130% times
        the
sum
        of (a)
        the then outstanding principal amount of this Note immediately following
        the
        Maximum Conversion Date, plus
        (b)
        accrued and unpaid interest on the unpaid principal amount of this Note to
        the
        Trading Market Prepayment Date, plus
        (c)
        Default Interest, if any, on the amounts referred to in clause (a) and/or
        (b)
        above, plus
        (d) any
        optional amounts that may be added thereto at the Maximum Conversion Date
        by the
        Holder in accordance with the terms hereof (the then outstanding principal
        amount of this Note immediately following the Maximum Conversion Date,
plus
        the
        amounts referred to in clauses (b), (c) and (d) above shall collectively
        be
        referred to as the “Remaining
        Convertible Amount”).
        With
        respect to each Holder of Notes, the Maximum Share Amount shall refer to
        such
        Holder’s pro rata
        share
        thereof determined in accordance with Section 4.8 below. In the event that
        the
        sum of (x) the aggregate number of shares of Common Stock issued upon conversion
        of this Note and the other Notes issued pursuant to the Purchase Agreement
        plus
        (y) the
        aggregate number of shares of Common Stock that remain issuable upon conversion
        of this Note and the other Notes issued pursuant to the Purchase Agreement,
        represents at least one hundred percent (100%) of the Maximum Share Amount
        (the
“Triggering
        Event”),
        the
        Borrower will use its best efforts to seek and obtain Shareholder Approval
        (or
        obtain such other relief as will allow conversions hereunder in excess of
        the
        Maximum Share Amount) as soon as practicable following the Triggering Event
        and
        before the Maximum Conversion Date. As used herein, “Shareholder
        Approval”
means
        approval by the shareholders of the Borrower to authorize the issuance of
        the
        full number of shares of Common Stock which would be issuable upon full
        conversion of the then outstanding Notes but for the Maximum Share
        Amount.

       

      1.8  Status
        as Shareholder.
        Upon
        submission of a Notice of Conversion by a Holder, (i) the shares covered
        thereby
        (other than the shares, if any, which cannot be issued because their issuance
        would exceed such Holder’s allocated portion of the Reserved Amount or Maximum
        Share Amount) shall be deemed converted into shares of Common Stock and (ii)
        the
        Holder’s rights as a Holder of such converted portion of this Note shall cease
        and terminate, excepting only the right to receive certificates for such
        shares
        of Common Stock and to any remedies provided herein or otherwise available
        at
        law or in equity to such Holder because of a failure by the Borrower to comply
        with the terms of this Note. Notwithstanding the foregoing, if a Holder has
        not
        received certificates for all shares of Common Stock prior to the tenth (10th)
        business day after the expiration of the Deadline with respect to a conversion
        of any portion of this Note for any reason, then (unless the Holder otherwise
        elects to retain its status as a holder of Common Stock by so notifying the
        Borrower) the Holder shall regain the rights of a Holder of this Note with
        respect to such unconverted portions of this Note and the Borrower shall,
        as
        soon as practicable, return such unconverted Note to the Holder or, if the
        Note
        has not been surrendered, adjust its records to reflect that such portion
        of
        this Note has not been converted. In all cases, the Holder shall retain all
        of
        its rights and remedies (including, without limitation, (i) the right to
        receive
        Conversion Default Payments pursuant to Section 1.3 to the extent required
        thereby for such Conversion Default and any subsequent Conversion Default
        and
        (ii) the right to have the Conversion Price with respect to subsequent
        conversions determined in accordance with Section 1.3) for the Borrower’s
        failure to convert this Note.

       

       

      ARTICLE
        II.  CERTAIN
        COVENANTS

       

      2.1  Distributions
        on Capital Stock.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not without the Holder’s written consent (a) pay, declare or set apart for such
        payment, any dividend or other distribution (whether in cash, property or
        other
        securities) on shares of capital stock other than dividends on shares of
        Common
        Stock solely in the form of additional shares of Common Stock or (b) directly
        or
        indirectly or through any subsidiary make any other payment or distribution
        in
        respect of its capital stock except for distributions pursuant to any
        shareholders’ rights plan which is approved by a majority of the Borrower’s
        disinterested directors.

       

      2.2  Restriction
        on Stock Repurchases.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not without the Holder’s written consent redeem, repurchase or otherwise acquire
        (whether for cash or in exchange for property or other securities or otherwise)
        in any one transaction or series of related transactions any shares of capital
        stock of the Borrower or any warrants, rights or options to purchase or acquire
        any such shares.

       

      2.3  Borrowings.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, create, incur, assume or suffer to
        exist any liability for borrowed money, except (a) borrowings in existence
        or
        committed on the date hereof and of which the Borrower has informed Holder
        in
        writing prior to the date hereof, (b) indebtedness to trade creditors or
        financial institutions incurred in the ordinary course of business or (c)
        borrowings, the proceeds of which shall be used to repay this Note.

       

      2.4  Sale
        of Assets.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, sell, lease or otherwise dispose of
        any significant portion of its assets outside the ordinary course of business.
        Any consent to the disposition of any assets may be conditioned on a specified
        use of the proceeds of disposition.

       

      2.5  Advances
        and Loans.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, lend money, give credit or make
        advances to any person, firm, joint venture or corporation, including, without
        limitation, officers, directors, employees, subsidiaries and affiliates of
        the
        Borrower, except loans, credits or advances (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, (b) made in the ordinary course of business or (c) not in excess
        of
        $50,000.

       

      2.6  Contingent
        Liabilities.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, which shall not be unreasonably
        withheld, assume, guarantee, endorse, contingently agree to purchase or
        otherwise become liable upon the obligation of any person, firm, partnership,
        joint venture or corporation, except by the endorsement of negotiable
        instruments for deposit or collection and except assumptions, guarantees,
        endorsements and contingencies (a) in existence or committed on the date
        hereof
        and which the Borrower has informed Holder in writing prior to the date hereof,
        and (b) similar transactions in the ordinary course of business. 

       

       

      ARTICLE
        III.  EVENTS
        OF DEFAULT

       

      If
        any of
        the following events of default (each, an “Event
        of Default”)
        shall
        occur:

       

      3.1  Failure
        to Pay Principal or Interest.
        The
        Borrower fails to pay the principal hereof or interest thereon when due on
        this
        Note, whether at maturity, upon a Trading Market Prepayment Event pursuant
        to
        Section 1.7, upon acceleration or otherwise;

       

      3.2  Conversion
        and the Shares.
        The
        Borrower fails to issue shares of Common Stock to the Holder (or announces
        or
        threatens that it will not honor its obligation to do so) upon exercise by
        the
        Holder of the conversion rights of the Holder in accordance with the terms
        of
        this Note (for a period of at least sixty (60) days, if such failure is solely
        as a result of the circumstances governed by Section 1.3 and the Borrower
        is
        using its best efforts to authorize a sufficient number of shares of Common
        Stock as soon as practicable), fails to transfer or cause its transfer agent
        to
        transfer (electronically or in certificated form) any certificate for shares
        of
        Common Stock issued to the Holder upon conversion of or otherwise pursuant
        to
        this Note as and when required by this Note or the Registration Rights
        Agreement, or fails to remove any restrictive legend (or to withdraw any
        stop
        transfer instructions in respect thereof) on any certificate for any shares
        of
        Common Stock issued to the Holder upon conversion of or otherwise pursuant
        to
        this Note as and when required by this Note or the Registration Rights Agreement
        (or makes any announcement, statement or threat that it does not intend to
        honor
        the obligations described in this paragraph) and any such failure shall continue
        uncured (or any announcement, statement or threat not to honor its obligations
        shall not be rescinded in writing) for ten (10) days after the Borrower shall
        have been notified thereof in writing by the Holder;

       

      3.3  Failure
        to Timely File Registration or Effect Registration. Failure
        to Timely File Registration or Effect Registration.
        The
        Borrower fails to file the Registration Statement within thirty (30) days
        following an Investor Demand (as set forth in the Registration Rights Agreement)
        or obtain effectiveness with the Securities and Exchange Commission of the
        Registration Statement within one hundred twenty (120) days following the
        Investor Demand (as defined in the Registration Rights Agreement) or such
        Registration Statement lapses in effect (or sales cannot otherwise be made
        thereunder effective, whether by reason of the Borrower’s failure to amend or
        supplement the prospectus included therein in accordance with the Registration
        Rights Agreement or otherwise) for more than twenty (20) consecutive days
        or
        forty (40) days in any twelve month period after the Registration Statement
        becomes effective;

       

      3.4  Breach
        of Covenants.
        The
        Borrower breaches any material covenant or other material term or condition
        contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e),
        4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues
        for a
        period of ten (10) days after written notice thereof to the Borrower from
        the
        Holder;

       

      3.5  Breach
        of Representations and Warranties.
        Any
        representation or warranty of the Borrower made herein or in any agreement,
        statement or certificate given in writing pursuant hereto or in connection
        herewith (including, without limitation, the Purchase Agreement and the
        Registration Rights Agreement), shall be false or misleading in any material
        respect when made and the breach of which has (or with the passage of time
        will
        have) a material adverse effect on the rights of the Holder with respect
        to this
        Note, the Purchase Agreement or the Registration Rights Agreement;

       

      3.6  Receiver
        or Trustee.
        The
        Borrower or any subsidiary of the Borrower shall make an assignment for the
        benefit of creditors, or apply for or consent to the appointment of a receiver
        or trustee for it or for a substantial part of its property or business,
        or such
        a receiver or trustee shall otherwise be appointed;

       

      3.7  Judgments.
        Any
        money judgment, writ or similar process shall be entered or filed against
        the
        Borrower or any subsidiary of the Borrower or any of its property or other
        assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
        for a period of twenty (20) days unless otherwise consented to by the Holder,
        which consent will not be unreasonably withheld;

       

      3.8  Bankruptcy.
        Bankruptcy, insolvency, reorganization or liquidation proceedings or other
        proceedings for relief under any bankruptcy law or any law for the relief
        of
        debtors shall be instituted by or against the Borrower or any subsidiary
        of the
        Borrower, unless such proceeding shall be stayed within thirty (30)
        days;

       

      3.9  Delisting
        of Common Stock.
        The
        Borrower shall fail to maintain the listing of the Common Stock on at least
        one
        of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
        the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
        Stock
        Exchange; or

       

      3.10  Default
        Under Other Notes.
        An Event
        of Default has occurred and is continuing under any of the other Notes issued
        pursuant to the Purchase Agreement,

       

      then,
        upon the occurrence and during the continuation of any Event of Default
        specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
        of the Holders of a majority of the aggregate principal amount of the
        outstanding Notes issued pursuant to the Purchase Agreement exercisable through
        the delivery of written notice to the Borrower by such Holders (the
“Default
        Notice”),
        and
        upon the occurrence of an Event of Default specified in Section 3.6 or 3.8
        (unless, under Section 3.8, such proceeding shall be stayed within 30 days),
        the
        Notes shall become immediately due and payable and the Borrower shall pay
        to the
        Holder, in full satisfaction of its obligations hereunder, an amount equal
        to
        the greater of (i) 130% times
        the
sum
        of (w)
        the then outstanding principal amount of this Note plus
        (x)
        accrued and unpaid interest on the unpaid principal amount of this Note to
        the
        date of payment (the “Mandatory
        Prepayment Date”)
        plus
        (y)
        Default Interest, if any, on the amounts referred to in clauses (w) and/or
        (x)
plus
        (z) any
        amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
        pursuant to Section 2(c) of the Registration Rights Agreement (the then
        outstanding principal amount of this Note to the date of payment plus
        the
        amounts referred to in clauses (x), (y) and (z) shall collectively be known
        as
        the “Default
        Sum”)
        or
        (ii) the “parity value” of the Default Sum to be prepaid, where parity value
        means (a) the highest number of shares of Common Stock issuable upon conversion
        of or otherwise pursuant to such Default Sum in accordance with Article I,
        treating the Trading Day immediately preceding the Mandatory Prepayment Date
        as
        the “Conversion Date” for purposes of determining the lowest applicable
        Conversion Price, unless the Default Event arises as a result of a breach
        in
        respect of a specific Conversion Date in which case such Conversion Date
        shall
        be the Conversion Date), multiplied
        by
        (b) the
        highest Closing Price for the Common Stock during the period beginning on
        the
        date of first occurrence of the Event of Default and ending one day prior
        to the
        Mandatory Prepayment Date (the “Default
        Amount”)
        and
        all other amounts payable hereunder shall immediately become due and payable,
        all without demand, presentment or notice, all of which hereby are expressly
        waived, together with all costs, including, without limitation, legal fees
        and
        expenses, of collection, and the Holder shall be entitled to exercise all
        other
        rights and remedies available at law or in equity. If the Borrower fails
        to pay
        the Default Amount within five (5) business days of written notice that such
        amount is due and payable, then the Holder shall have the right at any time,
        so
        long as the Borrower remains in default (and so long and to the extent that
        there are sufficient authorized shares), to require the Borrower, upon written
        notice, to immediately issue, in lieu of the Default Amount, the number of
        shares of Common Stock of the Borrower equal to the Default Amount divided
        by
        the Conversion Price then in effect.

       

       

      ARTICLE
        IV.  MISCELLANEOUS

       

      4.1  Failure
        or Indulgence Not Waiver.
        No
        failure or delay on the part of the Holder in the exercise of any power,
        right
        or privilege hereunder shall operate as a waiver thereof, nor shall any single
        or partial exercise of any such power, right or privilege preclude other
        or
        further exercise thereof or of any other right, power or privileges. All
        rights
        and remedies existing hereunder are cumulative to, and not exclusive of,
        any
        rights or remedies otherwise available.

       

      4.2  Notices.
        Any
        notice herein required or permitted to be given shall be in writing and may
        be
        personally served or delivered by courier or sent by United States mail and
        shall be deemed to have been given upon receipt if personally served (which
        shall include telephone line facsimile transmission) or sent by courier or
        three
        (3) days after being deposited in the United States mail, certified, with
        postage pre-paid and properly addressed, if sent by mail. For the purposes
        hereof, the address of the Holder shall be as shown on the records of the
        Borrower; and the address of the Borrower shall be 65 Dan Road, Canton, MA
        02021, facsimile number: (781)
        821-4458. Both the Holder and the Borrower may change the address for service
        by
        service of written notice to the other as herein provided.

       

      4.3  Amendments.
        This
        Note and any provision hereof may only be amended by an instrument in writing
        signed by the Borrower and the Holder. The term “Note” and all reference
        thereto, as used throughout this instrument, shall mean this instrument (and
        the
        other Notes issued pursuant to the Purchase Agreement) as originally executed,
        or if later amended or supplemented, then as so amended or
        supplemented.

       

      4.4  Assignability.
        This
        Note shall be binding upon the Borrower and its successors and assigns, and
        shall inure to be the benefit of the Holder and its successors and assigns.
        Each
        transferee of this Note must be an “accredited investor” (as defined in Rule
        501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary,
        this Note may be pledged as collateral in connection with a bona fide
        margin
        account or other lending arrangement.

       

      4.5  Cost
        of Collection.
        If
        default is made in the payment of this Note, the Borrower shall pay the Holder
        hereof costs of collection, including reasonable attorneys’ fees.

       

      4.6  Governing
        Law.
        THIS
        NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
        LAWS OF
        THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
        WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
        THE
        BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
        FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
        ARISING
        UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
        TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
        THE
        DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.
        BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY
        FIRST
        CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
        UPON
        THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
        PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
        PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
        PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
        BY
        SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
        NOT
        PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL
        FEES
        AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
        CONNECTION WITH SUCH DISPUTE.

       

      4.7  Certain
        Amounts.
        Whenever
        pursuant to this Note the Borrower is required to pay an amount in excess
        of the
        outstanding principal amount (or the portion thereof required to be paid
        at that
        time) plus accrued and unpaid interest plus Default Interest on such interest,
        the Borrower and the Holder agree that the actual damages to the Holder from
        the
        receipt of cash payment on this Note may be difficult to determine and the
        amount to be so paid by the Borrower represents stipulated damages and not
        a
        penalty and is intended to compensate the Holder in part for loss of the
        opportunity to convert this Note and to earn a return from the sale of shares
        of
        Common Stock acquired upon conversion of this Note at a price in excess of
        the
        price paid for such shares pursuant to this Note. The Borrower and the Holder
        hereby agree that such amount of stipulated damages is not plainly
        disproportionate to the possible loss to the Holder from the receipt of a
        cash
        payment without the opportunity to convert this Note into shares of Common
        Stock.

       

      4.8  Allocations
        of Maximum Share Amount and Reserved Amount.
        The
        Maximum Share Amount and Reserved Amount shall be allocated pro rata among
        the
        Holders of Notes based on the principal amount of such Notes issued to each
        Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
        be
        allocated pro rata among the Holders of Notes based on the principal amount
        of
        such Notes held by each Holder at the time of the increase in the Maximum
        Share
        Amount or Reserved Amount. In the event a Holder shall sell or otherwise
        transfer any of such Holder’s Notes, each transferee shall be allocated a pro
        rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any
        portion of the Maximum Share Amount or Reserved Amount which remains allocated
        to any person or entity which does not hold any Notes shall be allocated
        to the
        remaining Holders of Notes, pro rata based on the principal amount of such
        Notes
        then held by such Holders.

       

      4.9  Damages
        Shares.
        The
        shares of Common Stock that may be issuable to the Holder pursuant to Sections
        1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights
        Agreement (“Damages
        Shares”)
        shall
        be treated as Common Stock issuable upon conversion of this Note for all
        purposes hereof and shall be subject to all of the limitations and afforded
        all
        of the rights of the other shares of Common Stock issuable hereunder, including
        without limitation, the right to be included in the Registration Statement
        filed
        pursuant to the Registration Rights Agreement. For purposes of calculating
        interest payable on the outstanding principal amount hereof, except as otherwise
        provided herein, amounts convertible into Damages Shares (“Damages
        Amounts”)
        shall
        not bear interest but must be converted prior to the conversion of any
        outstanding principal amount hereof, until the outstanding Damages Amounts
        is
        zero.

       

      4.10  Denominations.
        At the
        request of the Holder, upon surrender of this Note, the Borrower shall promptly
        issue new Notes in the aggregate outstanding principal amount hereof, in
        the
        form hereof, in such denominations of at least $50,000 as the Holder shall
        request.

       

      4.11  Purchase
        Agreement.
        By its
        acceptance of this Note, each Holder agrees to be bound by the applicable
        terms
        of the Purchase Agreement.

       

      4.12  Notice
        of Corporate Events.
        Except
        as otherwise provided below, the Holder of this Note shall have no rights
        as a
        Holder of Common Stock unless and only to the extent that it converts this
        Note
        into Common Stock. The Borrower shall provide the Holder with prior notification
        of any meeting of the Borrower’s shareholders (and copies of proxy materials and
        other information sent to shareholders). In the event of any taking by the
        Borrower of a record of its shareholders for the purpose of determining
        shareholders who are entitled to receive payment of any dividend or other
        distribution, any right to subscribe for, purchase or otherwise acquire
        (including by way of merger, consolidation, reclassification or
        recapitalization) any share of any class or any other securities or property,
        or
        to receive any other right, or for the purpose of determining shareholders
        who
        are entitled to vote in connection with any proposed sale, lease or conveyance
        of all or substantially all of the assets of the Borrower or any proposed
        liquidation, dissolution or winding up of the Borrower, the Borrower shall
        mail
        a notice to the Holder, at least twenty (20) days prior to the record date
        specified therein (or thirty (30) days prior to the consummation of the
        transaction or event, whichever is earlier), of the date on which any such
        record is to be taken for the purpose of such dividend, distribution, right
        or
        other event, and a brief statement regarding the amount and character of
        such
        dividend, distribution, right or other event to the extent known at such
        time.
        The Borrower shall make a public announcement of any event requiring
        notification to the Holder hereunder substantially simultaneously with the
        notification to the Holder in accordance with the terms of this Section
        4.12.

       

      4.13  Remedies.
        The
        Borrower acknowledges that a breach by it of its obligations hereunder will
        cause irreparable harm to the Holder, by vitiating the intent and purpose
        of the
        transaction contemplated hereby. Accordingly, the Borrower acknowledges that
        the
        remedy at law for a breach of its obligations under this Note will be inadequate
        and agrees, in the event of a breach or threatened breach by the Borrower
        of the
        provisions of this Note, that the Holder shall be entitled, in addition to
        all
        other available remedies at law or in equity, and in addition to the penalties
        assessable herein, to an injunction or injunctions restraining, preventing
        or
        curing any breach of this Note and to enforce specifically the terms and
        provisions thereof, without the necessity of showing economic loss and without
        any bond or other security being required.

       

       

      ARTICLE
        V.  CALL
        OPTION

       

      5.1  Call
        Option.
        Notwithstanding anything to the contrary contained in this Article V, so
        long as
(i) no
        Event of Default or Trading Market Prepayment Event shall have occurred and
        be
        continuing, (ii) the
        Borrower has a sufficient number of authorized shares of Common Stock reserved
        for issuance upon full conversion of the Notes, then at any time after the
        Issue
        Date, and (iii) the
        Common Stock is trading at or below $.25 per share, the Borrower shall have
        the
        right, exercisable on not less than ten (10) Trading Days prior written notice
        to the Holders of the Notes (which notice may not be sent to the Holders
        of the
        Notes until the Borrower is permitted to prepay the Notes pursuant to this
        Section 5.1), to prepay all of the outstanding Notes in accordance with this
        Section 5.1. Any notice of prepayment hereunder (an “Optional
        Prepayment”)
        shall
        be delivered to the Holders of the Notes at their registered addresses appearing
        on the books and records of the Borrower and shall state (1) that the Borrower
        is exercising its right to prepay all of the Notes issued on the Issue Date
        and
        (2) the date of prepayment (the “Optional
        Prepayment Notice”).
        On
        the date fixed for prepayment (the “Optional
        Prepayment Date”),
        the
        Borrower shall make payment of the Optional Prepayment Amount (as defined
        below)
        to or upon the order of the Holders as specified by the Holders in writing
        to
        the Borrower at least one (1) business day prior to the Optional Prepayment
        Date. If the Borrower exercises its right to prepay the Notes, the Borrower
        shall make payment to the holders of an amount in cash (the “Optional
        Prepayment Amount”)
        equal
        to either (i) 120% (for prepayments occurring within thirty (30) days of
        the Issue Date), (ii) 125% for prepayments occurring between thirty-one
        (31) and sixty (60) days of the Issue Date, or (iii) 135% (for prepayments
        occurring after the sixtieth (60th)
        day
        following the Issue Date), multiplied by the sum of (w) the then outstanding
        principal amount of this Note plus
        (x) accrued and unpaid interest on the unpaid principal amount of this Note
        to the Optional Prepayment Date plus
        (y)
        Default Interest, if any, on the amounts referred to in clauses (w) and (x)
        plus
        (z) any
        amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
        pursuant to Section 2(c) of the Registration Rights Agreement (the then
        outstanding principal amount of this Note to the date of payment plus
        the
        amounts referred to in clauses (x), (y) and (z) shall collectively be known
        as
        the “Optional
        Prepayment Sum”).
        Notwithstanding notice of an Optional Prepayment, the Holders shall at all
        times
        prior to the Optional Prepayment Date maintain the right to convert all or
        any
        portion of the Notes in accordance with Article I and any portion of Notes
        so
        converted after receipt of an Optional Prepayment Notice and prior to the
        Optional Prepayment Date set forth in such notice and payment of the aggregate
        Optional Prepayment Amount shall be deducted from the principal amount of
        Notes
        which are otherwise subject to prepayment pursuant to such notice. If the
        Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
        Prepayment Amount due to the Holders of the Notes within two (2) business
        days
        following the Optional Prepayment Date, the Borrower shall forever forfeit
        its
        right to redeem the Notes pursuant to this Section 5.1.

       

      5.2  Partial
        Call Option.
        Notwithstanding anything to the contrary contained in this Article V, in
        the
        event that the Average Daily Price of the Common Stock, as reported by the
        Reporting Service, for each day of the month ending on any Determination
        Date is
        below the Initial Market Price, the Borrower may, at its option, prepay a
        portion of the outstanding principal amount of the Notes equal to 104% of
        the
        principal amount hereof divided by thirty-six (36) plus one month’s interest.
        The term “Initial
        Market Price”
        means
        shall mean $.25. 

       

      

       

      

       

      

       

      

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF,
        Borrower has caused this Note to be signed in its name by its duly authorized
        officer this 7th
        day of
        May, 2007.

       

      

      AVITAR
        INC.

      

      

      

      By: ______________________________

      Peter
        Phildius

      Chief
        Executive Officer

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
        A

       

      NOTICE
        OF CONVERSION

       

      (To
        be
        Executed by the Registered Holder

       

      in
        order
        to Convert the Notes)

       

      The
        undersigned hereby irrevocably elects to convert $__________ principal amount
        of
        the Note (defined below) into shares of common stock, par value $.01 per
        share
        (“Common
        Stock”),
        of
        Avitar Inc., a Delaware corporation (the “Borrower”)
        according to the conditions of the convertible Notes of the Borrower dated
        as of
        May 7, 2007 (the “Notes”),
        as of
        the date written below. If securities are to be issued in the name of a person
        other than the undersigned, the undersigned will pay all transfer taxes payable
        with respect thereto and is delivering herewith such certificates. No fee
        will
        be charged to the Holder for any conversion, except for transfer taxes, if
        any.
        A copy of each Note is attached hereto (or evidence of loss, theft or
        destruction thereof).

       

      The
        Borrower shall electronically transmit the Common Stock issuable pursuant
        to
        this Notice of Conversion to the account of the undersigned or its nominee
        with
        DTC through its Deposit Withdrawal Agent Commission system (“DWAC
        Transfer”).

       

      Name
        of
        DTC Prime Broker:

      Account
        Number:

       

      In
        lieu
        of receiving shares of Common Stock issuable pursuant to this Notice of
        Conversion by way of a DWAC Transfer, the undersigned hereby requests that
        the
        Borrower issue a certificate or certificates for the number of shares of
        Common
        Stock set forth below (which numbers are based on the Holder’s calculation
        attached hereto) in the name(s) specified immediately below or, if additional
        space is necessary, on an attachment hereto:

       

      Name:

      Address:

       

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable to the undersigned upon conversion of the Notes
        shall
        be made pursuant to registration of the securities under the Securities Act
        of
        1933, as amended (the “Act”),
        or
        pursuant to an exemption from registration under the Act.

       

      Date
        of
        Conversion:___________________________

      Applicable
        Conversion Price:____________________

      Number
        of
        Shares of Common Stock to be Issued Pursuant to

      Conversion
        of the Notes:______________

      Signature:___________________________________

      Name:______________________________________

      Address:____________________________________

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      The
        Borrower shall issue and deliver shares of Common Stock to an overnight courier
        not later than three business days following receipt of the original Note(s)
        to
        be converted, and shall make payments pursuant to the Notes for the number
        of
        business days such issuance and delivery is late.

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