Document:

ex4-2_august2007.htm

    EXHIBIT 4.2

     

    

      REGISTRATION
        RIGHTS AGREEMENT

       

      REGISTRATION
        RIGHTS AGREEMENT (this “Agreement”), dated as of August 9,
        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 20,000,000 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
bonafide, 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.

       

      

       

      

       

      

       

      

       

      

       

      

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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
        MASTER FUND, LTD.

      By:  First
        Street Manager II, LLC

      

      ______________________________________

      Corey
        S.
        Ribotsky

      Manager

      

      

      NEW
        MILLENNIUM CAPITAL PARTNERS, II, LLC

       

      By:  First
        Street Manager II, LLC

       

      ______________________________________

      Corey
        S.
        Ribotsky

      Managerex4-3_august2007.htm

    EXHIBIT 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

       

      August
        9,
        2007                                                                                                                                                                                                                                                                                          
$225,250

       

      FOR
        VALUE RECEIVED, AVITAR INC., a Delaware corporation
        (hereinafter called the “Borrower”), hereby promises to pay to
        the order of AJW MASTER FUND, LTD. or registered assigns (the
“Holder”) the sum of $225,250, on August 9, 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 August 9, 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 August 9, 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 August 9, 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 providedfurther 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 August 9, 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
prorata 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 bonafide
        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 9th day of
        August,
        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 August 9, 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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