ex4_1.htm


    
      

    

    
      

    

    
      Exhibit
        4.1

      SECOND
        AMENDED AND RESTATED CERTIFICATE OF DESIGNATION

       

      OF
        THE RELATIVE RIGHTS AND PREFERENCES

       

      OF
        THE

       

      SERIES
        A CONVERTIBLE PREFERRED STOCK

       

      OF

       

      CHEMBIO
        DIAGNOSTICS, INC.

       

      The
        undersigned, the Chief Financial Officer of Chembio Diagnostics, Inc., a
        Nevada
        corporation (the “Company”), in accordance with the provisions of the
        Nevada Revised Statutes, does hereby certify that, pursuant to the authority
        conferred upon the Board of Directors by the Articles of Incorporation of
        the
        Company, the following resolution amending and restating the Certificate
        of
        Designation of the Series A Convertible Preferred Stock, was duly adopted
        with shareholder consent:

       

      RESOLVED,
        that pursuant to the authority expressly granted to and vested in the Board
        of
        Directors of the Company by provisions of the Articles of Incorporation of
        the
        Company (the “Articles of Incorporation”), there hereby is created out of
        the shares of Preferred Stock, par value $.01 per share, of the Company
        authorized in Article IV of the Articles of Incorporation (the
“Preferred Stock”), a series of Preferred Stock of the Company, to be
        named “Series A Convertible Preferred Stock,” consisting of Two Hundred
        Fifty (250) shares, which series shall have the following designations, powers,
        preferences and relative and other special rights and the following
        qualifications, limitations and restrictions:

       

      1.  Designation
        and Rank.  The designation of such series of the Preferred Stock
        shall be the Series A Convertible Preferred Stock, par value $.01 per share
        (the “Series A Preferred Stock”).  The maximum number of
        shares of Series A Preferred Stock shall be Two Hundred Fifty (250)
        shares.  The Series A Preferred Stock shall rank senior to the
        common stock, par value $.01 per share (the “Common Stock”), and to all
        other classes and series of equity securities of the Company which by their
        terms do not rank senior to the Series A Preferred Stock (“Junior
        Stock”).  The Series A Preferred Stock shall be subordinate
        to and rank junior to all indebtedness of the Company now or hereafter
        outstanding.

       

      2.  Dividends.

       

      (a)  Payment
        of Dividends.  Subject to Section 5(c)(ii) hereof, the holders of
        record of shares of Series A Preferred Stock shall be entitled to receive,
        out of any assets at the time legally available therefor and when and as
        declared by the Board of Directors, dividends at the rate of eight percent
        (8%)
        of the stated Liquidation Preference Amount (as defined in Section 4
        hereof) per share per annum commencing on the date of issuance (the “Issuance
        Date”) of the Series A Preferred Stock (the “Dividend Payment”),
        and no more, payable semi-annually at the option of the Company in cash,
        shares
        of Series A Preferred Stock or shares of Common Stock.  If the
        Company elects to pay any dividend in shares of Common Stock, the number
        of
        shares of Common Stock to be issued to the holder shall be an amount equal
        to
        the quotient of (i) the Dividend Payment divided by (ii) the volume
        weighted average trading price (the “VWAP”) of the Common Stock for the
        10 trading days preceding the dividend record date.  As used in this
        Certificate, the term “volume weighted average trading price”, or “VWAP”, shall
        mean, for any period of time, the sum of the purchase prices charged for
        all
        shares sold during that period of time divided by the number of shares sold
        during that period of time.  If the Company elects to pay any dividend
        in shares of Series A Preferred Stock, the number of shares of
        Series A Preferred Stock to be issued to the holder shall be an amount
        equal to the quotient of (i) the Dividend Payment divided by (ii) the
        VWAP of the Common Stock for the 10 trading days preceding the dividend record
        date and then issuing that number of shares of Series A Preferred Stock
        that would at the time of the calculation be convertible into the number
        of
        shares determined by dividing the Dividend Payment by the 10-day VWAP;
provided, that, the Company may only elect to pay any dividend in
        shares of Series A Preferred Stock if the amount of such shares shall not
        be less than one-tenth of one share of Series A Preferred Stock or a
        multiple of one-tenth of one share of Series A Preferred
        Stock.  If the Company elects or is required to pay any dividend in
        Common Stock or Series A Preferred Stock, the Company will give the holders
        of record of shares of the Series A Preferred Stock ten (10) trading days
        notice prior to the date of the applicable Dividend Payment.  In the
        case of shares of Series A Preferred Stock outstanding for less than a full
        year, dividends shall be pro rated based on the portion of each year during
        which such shares are outstanding.  Dividends on the Series A
        Preferred Stock shall be cumulative, shall accrue and be payable
        semi-annually.  Dividends on the Series A Preferred Stock are
        prior and in preference to any declaration or payment of any distribution
        (as
        defined below) on any outstanding shares of Junior Stock.  Such
        dividends shall accrue on each share of Series A Preferred Stock from day
        to day whether or not earned or declared so that if such dividends with respect
        to any previous dividend period at the rate provided for herein have not
        been
        paid on, or declared and set apart for, all shares of Series A Preferred
        Stock at the time outstanding, the deficiency shall be fully paid on, or
        declared and set apart for, such shares on a pro rata basis with all other
        equity securities of the Company ranking on a parity with the Series A
        Preferred Stock as to the payment of dividends before any distribution shall
        be
        paid on, or declared and set apart for Junior Stock.  Notwithstanding
        the foregoing, if the Company elects to pay any dividend in shares of Common
        Stock or in shares of Series A Preferred Stock, so long as Vicis Capital
        Master Fund owns any shares of Series A Preferred Stock, Vicis Capital
        Master Fund will be deemed to have elected to receive such dividend in cash
        unless it otherwise notifies the Company no later than five (5) trading days
        prior to the date of the applicable Dividend Payment.  Such payment to
        Vicis Capital Master Fund will not affect the Company’s election to make the
        applicable Dividend Payment in stock so long as the only holder receiving
        the
        Dividend Payment in cash is Vicis Capital Master Fund.

      
        1

        
          

        

      

       

      (b)  So
        long
        as any shares of Series A Preferred Stock are outstanding, the Company
        shall not declare, pay or set apart for payment any dividend or make any
        distribution on any Junior Stock (other than dividends or distributions payable
        in additional shares of Junior Stock), unless at the time of such dividend
        or
        distribution the Company shall have paid all accrued and unpaid dividends
        on the
        outstanding shares of Series A Preferred Stock.

       

      (c)  In
        the
        event of a dissolution, liquidation or winding up of the Company pursuant
        to
        Section 4, all accrued and unpaid dividends on the Series A Preferred
        Stock shall be payable on the date of payment of the preferential amount
        to the
        holders of Series A Preferred Stock.  In the event of (i) a
        mandatory redemption pursuant to Section 9 or (ii) a redemption upon
        the occurrence of a Major Transaction (as defined in Section 8(c)) or a
        Triggering Event (as defined in Section 8(d)), all accrued and unpaid dividends
        on the Series A Preferred Stock shall be payable on the date of such
        redemption.  In the event of a voluntary conversion pursuant to
        Section 5(a), all accrued and unpaid dividends on the Series A
        Preferred Stock being converted shall be payable on the day immediately
        preceding the Voluntary Conversion Date (as defined in Section
        5(b)(i)).

       

      (d)  For
        purposes hereof, unless the context otherwise requires, “distribution” shall
        mean the transfer of cash or property without consideration, whether by way
        of
        dividend or otherwise, payable other than in shares of Common Stock or other
        equity securities of the Company, or the purchase or redemption of shares
        of the
        Company (other than redemptions set forth in Section 8 below or repurchases
        of Common Stock held by employees or consultants of the Company upon termination
        of their employment or services pursuant to agreements providing for such
        repurchase or upon the cashless exercise of options held by employees or
        consultants) for cash or property.

       

      3.  Voting
        Rights.

       

      (a)  Class
        Voting Rights.  The Series A Preferred Stock shall have the
        following class voting rights (in addition to the voting rights set forth
        in
        Section 3(b) hereof).  So long as any shares of the Series A
        Preferred Stock remain outstanding, the Company shall not, without the
        affirmative vote or consent of the holders of at least three-fourths (3/4)
        of
        the shares of the Series A Preferred Stock outstanding at the time, given
        in person or by proxy, either in writing or at a meeting, in which the holders
        of the Series A Preferred Stock vote separately as a
        class:  (i) amend, alter or repeal the provisions of the
        Series A Preferred Stock, whether by merger, consolidation or otherwise, so
        as to adversely affect any right, preference, privilege or voting power of
        the
        Series A Preferred Stock; provided, however, that any
        creation and issuance of another series of Junior Stock shall not be deemed
        to
        adversely affect such rights, preferences, privileges or voting powers;
        (ii) repurchase, redeem or pay dividends on, shares of Common Stock or any
        other shares of the Company’s Junior Stock (other than de minimus repurchases
        from employees of the Company in certain circumstances); (iii) amend the
        Articles of Incorporation or By-Laws of the Company so as to affect materially
        and adversely any right, preference, privilege or voting power of the
        Series A Preferred Stock; provided, however, that any
        creation and issuance of another series of Junior Stock shall not be deemed
        to
        adversely affect such rights, preferences, privileges or voting powers;
        (iv) effect any distribution with respect to Junior Stock;
        (v) reclassify the Company’s outstanding securities; (vi) voluntarily
        file for bankruptcy, liquidate the Company’s assets or make an assignment for
        the benefit of the Company’s creditors; or (vii) change the nature of the
        Company’s business.  Notwithstanding the foregoing to the contrary, so
        long as at least $1,000,000 of Series A Preferred Stock is outstanding, the
        Company shall not, without the affirmative vote or consent of the holders
        of at
        least three-fourths (3/4) of the shares of the Series A Preferred Stock
        outstanding at the time, authorize, create, issue or increase the authorized
        or
        issued amount of any class or series of stock, including but not limited
        to the
        issuance of any more shares of previously authorized Common Stock or Preferred
        Stock, ranking paripassu or senior to the Series A Preferred
        Stock (except for shares of Series A Preferred Stock to be issued to
        certain holders of promissory notes issued by the Company in satisfaction
        of
        outstanding indebtedness in an amount not to exceed $750,000 and the issuance
        of
        shares of Series A Preferred Stock with respect to the payment of dividends
        on such shares of Series A Preferred Stock), with respect to the
        distribution of assets on liquidation, dissolution or winding up.

       

      (b)  General
        Voting Rights.  Except with respect to transactions upon which the
        Series A Preferred Stock shall be entitled to vote separately as a class
        pursuant to Section 3(a) above and except as otherwise required by Nevada
        law, the Series A Preferred Stock shall have no voting
        rights.  The Common Stock into which the Series A Preferred Stock
        is convertible shall, upon issuance, have all of the same voting rights as
        other
        issued and outstanding Common Stock of the Company.

       

      4.  Liquidation
        Preference.

       

      (a)  In
        the
        event of the liquidation, dissolution or winding up of the affairs of the
        Company, whether voluntary or involuntary, the holders of shares of the
        Series A Preferred Stock then outstanding shall be entitled to receive, out
        of the assets of the Company available for distribution to its stockholders,
        an
        amount equal to $30,000 per share (the “Liquidation Preference Amount”)
        of the Series A Preferred Stock plus any accrued and unpaid dividends
        before any payment shall be made or any assets distributed to the holders
        of the
        Common Stock or any other Junior Stock.  If the assets of the Company
        are not sufficient to pay in full the Liquidation Preference Amount plus
        any
        accrued and unpaid dividends payable to the holders of outstanding shares
        of the
        Series A Preferred Stock and any series of preferred stock or any other
        class of stock on a parity, as to rights on liquidation, dissolution or winding
        up, with the Series A Preferred Stock, then all of said assets will be
        distributed among the holders of the Series A Preferred Stock and the other
        classes of stock on a parity with the Series A Preferred Stock, if any,
        ratably in accordance with the respective amounts that would be payable on
        such
        shares if all amounts payable thereon were paid in full.  The
        liquidation payment with respect to each outstanding fractional share of
        Series A Preferred Stock shall be equal to a ratably proportionate amount
        of the liquidation payment with respect to each outstanding share of
        Series A Preferred Stock.  All payments for which this
        Section 4(a) provides shall be in cash, property (valued at its fair market
        value as determined by an independent appraiser reasonably acceptable to
        the
        holders of a majority of the Series A Preferred Stock) or a combination
        thereof; provided, however, that no cash shall be paid to holders
        of Junior Stock unless each holder of the outstanding shares of Series A
        Preferred Stock has been paid in cash the full Liquidation Preference Amount
        plus any accrued and unpaid dividends to which such holder is entitled as
        provided herein.  After payment of the full Liquidation Preference
        Amount plus any accrued and unpaid dividends to which each holder is entitled,
        such holders of shares of Series A Preferred Stock will not be entitled to
        any further participation as such in any distribution of the assets of the
        Company.

      
        2

        
          

        

      

      
      

      (b)  A
        consolidation or merger of the Company with or into any other corporation
        or
        corporations, or a sale of all or substantially all of the assets of the
        Company, or the effectuation by the Company of a transaction or series of
        related transactions in which more than 50% of the voting shares of the Company
        is disposed of or conveyed, shall not be deemed to be a liquidation,
        dissolution, or winding up within the meaning of this
        Section 4.  In the event of the merger or consolidation of the
        Company with or into another corporation, the Series A Preferred Stock
        shall maintain its relative powers, designations and preferences provided
        for
        herein and no merger inconsistent therewith shall result.

       

      (c)  Written
        notice of any voluntary or involuntary liquidation, dissolution or winding
        up of
        the affairs of the Company, stating a payment date and the place where the
        distributable amounts shall be payable, shall be given by mail, postage prepaid,
        no less than forty-five (45) days prior to the payment date stated therein,
        to
        the holders of record of the Series A Preferred Stock at their respective
        addresses as the same shall appear on the books of the Company.

       

      5.  Conversion.  The
        holder of Series A Preferred Stock shall have the following conversion
        rights (the “Conversion Rights”):

       

      (a)  Right
        to Convert.

       

      (i)  Subject
        to Section 5(a)(ii) below, at any time on or after the Issuance Date, the
        holder
        of any such shares of Series A Preferred Stock may, at such holder’s
        option, subject to the limitations set forth in Section 7 herein, elect to
        convert (a “Voluntary Conversion”) all or any portion of the shares of
        Series A Preferred Stock held by such person into a number of fully paid
        and nonassessable shares of Common Stock equal to the quotient of (i) the
        Liquidation Preference Amount of the shares of Series A Preferred Stock
        being converted divided by (ii) the Conversion Price (as defined in
        Section 5(d) below) then in effect as of the date of the delivery by such
        holder of its notice of election to convert.  In the event of a notice
        of redemption of any shares of Series A Preferred Stock pursuant to
        Section 8 hereof, the Conversion Rights of the shares designated for
        redemption shall terminate at the close of business on the last full day
        preceding the date fixed for redemption, unless the redemption price is not
        paid
        on such redemption date, in which case the Conversion Rights for such shares
        shall continue until such price is paid in full.  In the event of a
        liquidation, dissolution or winding up of the Company, the Conversion Rights
        shall terminate at the close of business on the last full day preceding the
        date
        fixed for the payment of any such amounts distributable on such event to
        the
        holders of Series A Preferred Stock.  In the event of such a
        redemption or liquidation, dissolution or winding up, the Company shall provide
        to each holder of shares of Series A Preferred Stock notice of such
        redemption or liquidation, dissolution or winding up, which notice shall
        (i) be sent at least fifteen (15) days prior to the termination of the
        Conversion Rights and (ii) state the amount per share of Series A
        Preferred Stock that will be paid or distributed on such redemption or
        liquidation, dissolution or winding up, as the case may be.

       

      (ii)  A
        holder
        of Series A Preferred Stock may not convert greater than twenty percent
        (20%) of its shares of Series A Preferred Stock until the earlier of
        (A) six (6) months following the effective date (the “Effectiveness
        Date”) of the registration statement providing for the resale of the shares
        of Common Stock issuable upon conversion of the Series A Preferred Stock
        (the “Registration Statement”) or (B) ten (10) months following the
        Issuance Date.

       

      (b)  Mechanics
        of Voluntary Conversion.  The Voluntary Conversion of
        Series A Preferred Stock shall be conducted in the following
        manner:

       

      (i)  Holder’s
        Delivery Requirements.  To convert Series A Preferred Stock
        into full shares of Common Stock on any date (the “Voluntary Conversion
        Date”), the holder thereof shall (A) transmit by facsimile (or
        otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on
        such
        date, a copy of a fully executed notice of conversion in the form attached
        hereto as Exhibit I (the “Conversion Notice”), to the
        Company, and (B) surrender to a common carrier for delivery to the Company
        as soon as practicable following such Voluntary Conversion Date but in no
        event
        later than three (3) business days after such date the original certificates
        representing the shares of Series A Preferred Stock being converted (or an
        indemnification undertaking with respect to such shares in the case of their
        loss, theft or destruction) (the “Preferred Stock Certificates”) and the
        originally executed Conversion Notice.

       

      (ii)  Company’s
        Response.  Upon receipt by the Company of a facsimile copy of a
        Conversion Notice, the Company shall immediately send, via facsimile, a
        confirmation of receipt of such Conversion Notice to such
        holder.  Upon receipt by the Company of a copy of the fully executed
        Conversion Notice, the Company or its designated transfer agent (the
“Transfer Agent”), as applicable, shall, within three (3) business days
        following the date of receipt by the Company of the fully executed Conversion
        Notice (so long as the applicable Preferred Stock Certificates and original
        Conversion Notice are received by the Company on or before such third business
        day), issue and deliver to the Depository Trust Company (“DTC”) account
        on the Holder’s behalf via the Deposit Withdrawal Agent Commission System
        (“DWAC”) as specified in the Conversion Notice, registered in the name of
        the holder or its designee, for the number of shares of Common Stock to which
        the holder shall be entitled.  If the number of shares of Preferred
        Stock represented by the Preferred Stock Certificate(s) submitted for conversion
        is greater than the number of shares of Series A Preferred Stock being
        converted, then the Company shall, as soon as practicable and in no event
        later
        than three (3) business days after receipt of the Preferred Stock Certificate(s)
        and at the Company’s expense, issue and deliver to the holder a new Preferred
        Stock Certificate representing the number of shares of Series A Preferred
        Stock not converted.

       

      
        
          
          

        

        
          3

          
            

          

        

         

      

      (iii)  Dispute
        Resolution.  In the case of a dispute as to the arithmetic
        calculation of the number of shares of Common Stock to be issued upon
        conversion, the Company shall cause its Transfer Agent to promptly issue
        to the
        holder the number of shares of Common Stock that is not disputed and shall
        submit the arithmetic calculations to the holder via facsimile as soon as
        possible, but in no event later than three (3) business days after receipt
        of
        such holder’s Conversion Notice.  If such holder and the Company are
        unable to agree upon the arithmetic calculation of the number of shares of
        Common Stock to be issued upon such conversion within two (2) business days
        of
        such disputed arithmetic calculation being submitted to the holder, then
        the
        Company shall within two (2) business days submit via facsimile the disputed
        arithmetic calculation of the number of shares of Common Stock to be issued
        upon
        such conversion to the Company’s independent, outside accountant.  The
        Company shall cause the accountant to perform the calculations and notify
        the
        Company and the holder of the results no later than four (4) business days
        from
        the time it receives the disputed calculations.  Such accountant’s
        calculation shall be binding upon all parties absent manifest
        error.  The reasonable expenses of such accountant in making such
        determination shall be paid by the Company in the event the holder’s calculation
        was correct, or by the holder in the event the Company’s calculation was
        correct, or equally by the Company and the holder in the event that neither
        the
        Company’s or the holder’s calculation was correct.  The period of time
        in which the Company is required to effect conversions or redemptions under
        this
        Certificate of Designation shall be tolled with respect to the subject
        conversion or redemption pending resolution of any dispute by the Company
        made
        in good faith and in accordance with this Section 5(b)(iii).

       

      (iv)  Record
        Holder.  The person or persons entitled to receive the shares of
        Common Stock issuable upon a conversion of the Series A Preferred Stock
        shall be treated for all purposes as the record holder or holders of such
        shares
        of Common Stock on the Conversion Date.

       

      (v)  Company’s
        Failure to Timely Convert.  If within five (5) business days of
        the Company’s receipt of an executed copy of the Conversion Notice (so long as
        the applicable Preferred Stock Certificates and original Conversion Notice
        are
        received by the Company on or before such third business day) (the “Share
        Delivery Period”) the Transfer Agent shall fail to issue and deliver to a
        holder the number of shares of Common Stock to which such holder is entitled
        upon such holder’s conversion of the Series A Preferred Stock or to issue a
        new Preferred Stock Certificate representing the number of shares of
        Series A Preferred Stock to which such holder is entitled pursuant to
        Section 5(b)(ii) (a “Conversion Failure”), in addition to all other
        available remedies which such holder may pursue hereunder and under the
        Series A Convertible Preferred Stock and Warrant Purchase Agreement (the
“Purchase Agreement”) among the Company and the initial holders of the
        Series A Preferred Stock (including indemnification pursuant to
        Section 6 thereof), the Company shall pay additional damages to such holder
        on each business day after such fifth (5th) business day that such conversion
        is
        not timely effected in an amount equal 0.5% of the product of (A) the sum
        of the number of shares of Common Stock not issued to the holder on a timely
        basis pursuant to Section 5(b)(ii) and to which such holder is entitled and,
        in
        the event the Company has failed to deliver a Preferred Stock Certificate
        to the
        holder on a timely basis pursuant to Section 5(b)(ii), the number of shares
        of
        Common Stock issuable upon conversion of the shares of Series A Preferred
        Stock represented by such Preferred Stock Certificate, as of the last possible
        date which the Company could have issued such Preferred Stock Certificate
        to
        such holder without violating Section 5(b)(ii) and (B) the Closing Bid
        Price (as defined in Section 5(c)(iii) below) of the Common Stock on the
        last
        possible date which the Company could have issued such Common Stock and such
        Preferred Stock Certificate, as the case may be, to such holder without
        violating Section 5(b)(ii).  If the Company fails to pay the
        additional damages set forth in this Section 5(b)(v) within five (5) business
        days of the date incurred, then such payment shall bear interest at the rate
        of
        2.0% per month (pro rated for partial months) until such payments are
        made.

       

      (c)  Mandatory
        Conversion.

       

      (i)  One
        minute after this Second Amended and Restated Certificate is effective with
        the
        Nevada Secretary of State (the "Conversion Time") on the Plan Closing Date
        (defined below), each share of Series A Preferred Stock automatically and
        without any action on the part of the holder thereof, shall convert into
        a
        number of fully paid and nonassessable shares of Common Stock equal to the
        quotient of (i) the Liquidation Preference Amount of the shares of Series
        A
        Preferred Stock outstanding on the Plan Closing Date divided by (ii) the
        Conversion Price in effect at the Conversion Time on the Plan Closing
        Date.  Any accrued but unpaid dividends on the Series A Preferred
        Stock outstanding at the Conversion Time on the Plan Closing Date will be
        issued
        by the Company at the Conversion Time on the Plan Closing Date in shares
        of
        Common Stock, with the number of shares of Common Stock to be issued equal
        to
        the quotient of (i) the accrued unpaid dividend divided by (ii) the Conversion
        Price in effect at the Conversion Time on the Plan Closing Date.

       

      (ii)  As
        used
        herein, “Plan Closing Date” shall be December 19, 2007.

       

      (iii)  The
        term
“Closing Bid Price” shall mean, for any security as of any date, the last
        closing bid price of such security on the OTC Bulletin Board for such security
        as reported by Bloomberg, or, if no closing bid price is reported for such
        security by Bloomberg, the last closing trade price of such security as reported
        by Bloomberg, or, if no last closing trade price is reported for such security
        by Bloomberg, the average of the bid prices of any market makers for such
        security as reported in the “pink sheets” by the National Quotation Bureau,
        Inc.  If the Closing Bid Price cannot be calculated for such security
        on such date on any of the foregoing bases, the Closing Bid Price of such
        security on such date shall be the fair market value as mutually determined
        by
        the Company and the holders of a majority of the outstanding shares of
        Series A Preferred Stock.

       

      
        
          
          

        

        
          4

          
            

          

        

         

      

      (iv)  On
        the
        Plan Closing Date, the Corporation may cause the outstanding shares of Series
        A
        Preferred Stock to be converted automatically without any further action
        by the
        holders of such shares and regardless of whether the certificates representing
        such shares are surrendered to the Company or its Transfer Agent; provided,
        however, that the Company shall not be obligated to issue the shares of Common
        Stock issuable upon conversion of any shares of Series A Preferred Stock
        unless
        certificates evidencing such shares of Series A Preferred Stock are either
        delivered to the Company or the holder notifies the Company that such
        certificates have been lost, stolen, or destroyed, and executes an agreement
        satisfactory to the Company to indemnify the Company from any loss incurred
        by
        it in connection therewith.  Upon the occurrence of the automatic
        conversion of the Series A Preferred Stock pursuant to this Section 5, the
        holders of the Series A Preferred Stock shall surrender to the Company the
        certificates representing the Series A Preferred Stock that has been
        automatically converted, and the Company shall cause its Transfer Agent to
        deliver the shares of Common Stock issuable upon such conversion (in the
        same
        manner set forth in Section 5(b)(ii)) to the holder within three (3) business
        days of the holder’s delivery of the applicable Preferred Stock
        Certificates.

       

      (d)  Conversion
        Price.

       

      (i)  The
        term
“Conversion Price” shall mean $0.40 per share for the holders of the
        Series A Preferred Stock on the Plan Closing Date, provided, however, that
        the
        Conversion Price for the Series A Preferred Stock held by Lawrence A. Siebert
        shall be $0.48 per share on the Plan Closing Date.

       

      (ii)  Notwithstanding
        the foregoing to the contrary, if during any period (a “Black-out
        Period”), a holder of Series A Preferred Stock is unable to trade any
        Common Stock issued or issuable upon conversion of the Series A Preferred
        Stock immediately due to the postponement of filing or delay or suspension
        of
        effectiveness of a registration statement or because the Company has otherwise
        informed such holder of Series A Preferred Stock that an existing
        prospectus cannot be used at that time in the sale or transfer of such Common
        Stock (provided that such postponement, delay, suspension or fact that the
        prospectus cannot be used is not due to factors solely within the control
        of the
        holder of Series A Preferred Stock or due to the Company exercising its
        rights under Section 3(n) of the Registration Rights Agreement (as defined
        in the Purchase Agreement)), such holder of Series A Preferred Stock shall
        have the option but not the obligation on any Conversion Date occurring within
        ten (10) trading days following the expiration of the Black-out Period of
        using
        the Conversion Price applicable on such Conversion Date or any Conversion
        Price
        selected by such holder of Series A Preferred Stock that would have been
        applicable had such Conversion Date been at any earlier time during the
        Black-out Period or within the ten (10) trading days thereafter.

       

      (e)  Adjustments
        of Conversion Price.

       

      (i)  Adjustments
        for Stock Splits and Combinations.  If the Company shall at any
        time or from time to time after the Issuance Date, effect a stock split of
        the
        outstanding Common Stock, the Conversion Price shall be proportionately
        decreased.  If the Company shall at any time or from time to time
        after the Issuance Date, combine the outstanding shares of Common Stock,
        the
        Conversion Price shall be proportionately increased.  Any adjustments
        under this Section 5(e)(i) shall be effective at the close of business on
        the
        date the stock split or combination becomes effective.

       

      (ii)  Adjustments
        for Certain Dividends and Distributions.  If the Company shall at
        any time or from time to time after the Issuance Date, make or issue or set
        a
        record date for the determination of holders of Common Stock entitled to
        receive
        a dividend or other distribution payable in shares of Common Stock, then,
        and in
        each event, the Conversion Price shall be decreased as of the time of such
        issuance or, in the event such record date shall have been fixed, as of the
        close of business on such record date, by multiplying the Conversion Price
        then
        in effect by a fraction:

       

      (1)  the
        numerator of which shall be the total number of shares of Common Stock issued
        and outstanding immediately prior to the time of such issuance or the close
        of
        business on such record date; and

       

      (2)  the
        denominator of which shall be the total number of shares of Common Stock
        issued
        and outstanding immediately prior to the time of such issuance or the close
        of
        business on such record date plus the number of shares of Common Stock issuable
        in payment of such dividend or distribution.

       

      (iii)  Adjustment
        for Other Dividends and Distributions.  If the Company shall at
        any time or from time to time after the Issuance Date, make or issue or set
        a
        record date for the determination of holders of Common Stock entitled to
        receive
        a dividend or other distribution payable in securities of the Company other
        than
        shares of Common Stock, then, and in each event, an appropriate revision
        to the
        applicable Conversion Price shall be made and provision shall be made (by
        adjustments of the Conversion Price or otherwise) so that the holders of
        Series A Preferred Stock shall receive upon conversions thereof, in
        addition to the number of shares of Common Stock receivable thereon, the
        number
        of securities of the Company which they would have received had their
        Series A Preferred Stock been converted into Common Stock on the date of
        such event and had thereafter, during the period from the date of such event
        to
        and including the Conversion Date, retained such securities (together with
        any
        distributions payable thereon during such period), giving application to
        all
        adjustments called for during such period under this Section 5(e)(iii) with
        respect to the rights of the holders of the Series A Preferred Stock;
provided, however, that if such record date shall have been fixed
        and such dividend is not fully paid or if such distribution is not fully
        made on
        the date fixed therefor, the Conversion Price shall be adjusted pursuant
        to this
        paragraph as of the time of actual payment of such dividends or distributions;
        and providedfurther, however, that no such adjustment shall be
        made if the holders of Series A Preferred Stock simultaneously receive
        (i) a dividend or other distribution of shares of Common Stock in a number
        equal to the number of shares of Common Stock as they would have received
        if all
        outstanding shares of Series A Preferred Stock had been converted into
        Common Stock on the date of such event or (ii) a dividend or other
        distribution of shares of Series A Preferred Stock which are convertible,
        as of the date of such event, into such number of shares of Common Stock
        as is
        equal to the number of additional shares of Common Stock being issued with
        respect to each share of Common Stock in such dividend or
        distribution.

      
        5

        
          

        

      

      
      

      (iv)  Adjustments
        for Reclassification, Exchange or Substitution.  If the Common
        Stock issuable upon conversion of the Series A Preferred Stock at any time
        or from time to time after the Issuance Date shall be changed to the same
        or
        different number of shares of any class or classes of stock, whether by
        reclassification, exchange, substitution or otherwise (other than by way
        of a
        stock split or combination of shares or stock dividends provided for in Sections
        5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
        of
        assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
        revision to the Conversion Price shall be made and provisions shall be made
        (by
        adjustments of the Conversion Price or otherwise) so that the holder of each
        share of Series A Preferred Stock shall have the right thereafter to
        convert such share of Series A Preferred Stock into the kind and amount of
        shares of stock and other securities receivable upon reclassification, exchange,
        substitution or other change, by holders of the number of shares of Common
        Stock
        into which such share of Series A Preferred Stock might have been converted
        immediately prior to such reclassification, exchange, substitution or other
        change, all subject to further adjustment as provided herein.

       

      (v)  Adjustments
        for Reorganization, Merger, Consolidation or Sales of Assets.  If
        at any time or from time to time after the Issuance Date there shall be a
        capital reorganization of the Company (other than by way of a stock split
        or
        combination of shares or stock dividends or distributions provided for in
        Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution
        of shares provided for in Section 5(e)(iv)), or a merger or consolidation
        of the
        Company with or into another corporation where the holders of outstanding
        voting
        securities prior to such merger or consolidation do not own over 50% of the
        outstanding voting securities of the merged or consolidated entity, immediately
        after such merger or consolidation, or the sale of all or substantially all
        of
        the Company’s properties or assets to any other person (an “Organic
        Change”), then as a part of such Organic Change an appropriate revision to
        the Conversion Price shall be made if necessary so that the holder of each
        share
        of Series A Preferred Stock shall have the right thereafter to convert such
        share of Series A Preferred Stock into the kind and amount of shares of
        stock and other securities or property of the Company or any successor
        corporation resulting from Organic Change.  In any such case,
        appropriate adjustment shall be made in the application of the provisions
        of
        this Section 5(e)(v) with respect to the rights of the holders of the
        Series A Preferred Stock after the Organic Change to the end that the
        provisions of this Section 5(e)(v) (including any adjustment in the Conversion
        Price then in effect and the number of shares of stock or other securities
        deliverable upon conversion of the Series A Preferred Stock) shall be
        applied after that event in as nearly an equivalent manner as may be
        practicable.

       

      (vi)  Adjustments
        for Issuance of Additional Shares of Common Stock.  In the event
        the Company, shall, at any time, from time to time, issue or sell any additional
        shares of Common Stock or any securities convertible or exercisable into,
        or
        exchangeable for, directly or indirectly, Common Stock (the “Additional
        Shares of Common Stock”), at a price per share less than the Conversion
        Price then in effect or without consideration, the Conversion Price then
        in
        effect shall be reduced to a price equal to the consideration per share paid
        for
        such Additional Shares of Common Stock.

       

      (vii)  Certain
        Issues Excepted.  Anything herein to the contrary notwithstanding,
        the Company shall not be required to make any adjustment to the Conversion
        Price
        upon (i) the Company’s issuance of any Additional Shares of Common Stock
        (other than for cash) and warrants therefore in connection with a merger,
        acquisition or consolidation, (ii) the Company’s issuance of Additional
        Shares of Common Stock pursuant to a bona fide firm underwritten public offering
        of the Company’s securities, (iii) the Company’s issuance of Additional
        Shares of Common Stock or warrants therefore in connection with strategic
        alliances or other partnering arrangements so long as such issuances are
        not for
        the purpose of raising capital, (iv) the Company’s issuance of Common Stock
        or the issuance or grants of options to purchase Common Stock pursuant to
        the
        Company’s stock option plans and employee stock purchase plans as they now
        exist, (v) any issuances of warrants issued pursuant to the Purchase
        Agreement, (vi) securities issued pursuant to the conversion or exercise of
        convertible or exercisable securities issued or outstanding on or prior to
        the
        date hereof or issued pursuant to the Purchase Agreement, (vii) any
        warrants issued to the placement agent for the transactions contemplated
        by the
        Purchase Agreement, and (viii) the payment of any dividends on the
        Series A Preferred Stock.

       

      (f)  No
        Impairment.  The Company shall not, by amendment of its Articles
        of Incorporation or through any reorganization, transfer of assets,
        consolidation, merger, dissolution, issue or sale of securities or any other
        voluntary action, avoid or seek to avoid the observance or performance of
        any of
        the terms to be observed or performed hereunder by the Company, but will
        at all
        times in good faith, assist in the carrying out of all the provisions of
        this
        Section 5 and in the taking of all such action as may be necessary or
        appropriate in order to protect the Conversion Rights of the holders of the
        Series A Preferred Stock against impairment.  In the event a
        holder shall elect to convert any shares of Series A Preferred Stock as
        provided herein, the Company cannot refuse conversion based on any claim
        that
        such holder or any one associated or affiliated with such holder has been
        engaged in any violation of law, unless, an injunction from a court, on notice,
        restraining and/or adjoining conversion of all or of said shares of
        Series A Preferred Stock shall have been issued and the Company posts a
        surety bond for the benefit of such holder in an amount equal to 100% of
        the
        Liquidation Preference Amount of the Series A Preferred Stock such holder
        has elected to convert, which bond shall remain in effect until the completion
        of arbitration/litigation of the dispute and the proceeds of which shall
        be
        payable to such holder in the event it obtains judgment.

       

      (g)  Certificates
        as to Adjustments.  Upon occurrence of each adjustment or
        readjustment of the Conversion Price or number of shares of Common Stock
        issuable upon conversion of the Series A Preferred Stock pursuant to this
        Section 5, the Company at its expense shall promptly compute such
        adjustment or readjustment in accordance with the terms hereof and furnish
        to
        each holder of such Series A Preferred Stock a certificate setting forth
        such adjustment and readjustment, showing in detail the facts upon which
        such
        adjustment or readjustment is based.  The Company shall, upon written
        request of the holder of such affected Series A Preferred Stock, at any
        time, furnish or cause to be furnished to such holder a like certificate
        setting
        forth such adjustments and readjustments, the Conversion Price in effect
        at the
        time, and 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 the conversion
        of a share of such Series A Preferred Stock.  Notwithstanding the
        foregoing, the Company shall not be obligated to deliver a certificate unless
        such certificate would reflect an increase or decrease of at least one percent
        of such adjusted amount.

      
        6

        
          

        

      

      
      

      (h)  Issue
        Taxes.  The Company shall pay any and all issue and other taxes,
        excluding federal, state or local income taxes, that may be payable in respect
        of any issue or delivery of shares of Common Stock on conversion of shares
        of
        Series A Preferred Stock pursuant thereto; provided, however,
        that the Company shall not be obligated to pay any transfer taxes resulting
        from
        any transfer requested by any holder in connection with any such
        conversion.

       

      (i)  Notices.  All
        notices and other communications hereunder shall be in writing and shall
        be
        deemed given if delivered personally or by facsimile or three (3) business
        days
        following being mailed by certified or registered mail, postage prepaid,
        return-receipt requested, addressed to the holder of record at its address
        appearing on the books of the Company.  The Company will give written
        notice to each holder of Series A Preferred Stock at least twenty (20) days
        prior to the date on which the Company closes its books or sets a record
        date
        (I) with respect to any dividend or distribution upon the Common Stock,
        (II) with respect to any pro rata subscription offer to holders of Common
        Stock or (III) for determining rights to vote with respect to any Organic
        Change, dissolution, liquidation or winding-up and in no event shall such
        notice
        be provided to such holder prior to such information being made known to
        the
        public.  The Company will also give written notice to each holder of
        Series A Preferred Stock at least twenty (20) days prior to the date on
        which any Organic Change, dissolution, liquidation or winding-up will take
        place; provided, however, no such notice shall be required to be
        provided to such holder prior to such information being made known to the
        public.

       

      (j)  Fractional
        Shares.  No fractional shares of Common Stock shall be issued upon
        conversion of the Series A Preferred Stock.  In lieu of any
        fractional shares to which the holder would otherwise be entitled, the Company
        shall pay cash equal to the product of such fraction multiplied by the average
        of the Closing Bid Prices of the Common Stock for the five (5) consecutive
        trading immediately preceding the Voluntary Conversion Date or any Mandatory
        Conversion Date, as applicable.

       

      (k)  Reservation
        of Common Stock.  The Company shall, so long as any shares of
        Series A Preferred Stock are outstanding, reserve and keep available out of
        its authorized and unissued Common Stock, solely for the purpose of effecting
        the conversion of the Series A Preferred Stock, such number of shares of
        Common Stock as shall from time to time be sufficient to effect the conversion
        of all of the Series A Preferred Stock then outstanding; provided that the
        number of shares of Common Stock so reserved shall at no time be less than
        the
        number of shares of Common Stock for which the shares of Series A Preferred
        Stock are at any time convertible.  The initial number of shares of
        Common Stock reserved for conversions of the Series A Preferred Stock and
        each increase in the number of shares so reserved shall be allocated pro
        rata
        among the holders of the Series A Preferred Stock based on the number of
        shares of Series A Preferred Stock held by each holder of record at the
        time of issuance of the Series A Preferred Stock or increase in the number
        of reserved shares, as the case may be.  In the event a holder shall
        sell or otherwise transfer any of such holder’s shares of Series A
        Preferred Stock, each transferee shall be allocated a pro rata portion of
        the
        number of reserved shares of Common Stock reserved for such
        transferor.  Any shares of Common Stock reserved and which remain
        allocated to any person or entity which does not hold any shares of
        Series A Preferred Stock shall be allocated to the remaining holders of
        Series A Preferred Stock, pro rata based on the number of shares of
        Series A Preferred Stock then held by such holder.

       

      (l)  Regulatory
        Compliance.  If any shares of Common Stock to be reserved for the
        purpose of conversion of Series A Preferred Stock require registration or
        listing with or approval of any governmental authority, stock exchange or
        other
        regulatory body under any federal or state law or regulation or otherwise
        before
        such shares may be validly issued or delivered upon conversion, the Company
        shall, at its sole cost and expense, in good faith and as expeditiously as
        possible, endeavor to secure such registration, listing or approval, as the
        case
        may be.

       

      6.  No
        Preemptive Rights.  Except as provided in Section 5 hereof
        and in the Purchase Agreement, no holder of the Series A Preferred Stock
        shall be entitled to rights to subscribe for, purchase or receive any part
        of
        any new or additional shares of any class, whether now or hereinafter
        authorized, or of bonds or debentures, or other evidences of indebtedness
        convertible into or exchangeable for shares of any class, but all such new
        or
        additional shares of any class, or any bond, debentures or other evidences
        of
        indebtedness convertible into or exchangeable for shares, may be issued and
        disposed of by the Board of Directors on such terms and for such consideration
        (to the extent permitted by law), and to such person or persons as the Board
        of
        Directors in their absolute discretion may deem advisable.

       

      7.  Conversion
        Restrictions.

       

      (a)  Notwithstanding
        anything to the contrary set forth in Section 5 of this Certificate of
        Designation, at no time may a holder of shares of Series A Preferred Stock
        convert shares of the Series A Preferred Stock if the number of shares of
        Common Stock to be issued pursuant to such conversion would exceed, when
        aggregated with all other shares of Common Stock owned by such holder at
        such
        time, the number of shares of Common Stock which would result in such holder
        beneficially owning (as determined in accordance with Section 13(d) of the
        Securities Exchange Act of 1934, as amended, and the rules thereunder) in
        excess
        of 4.999% of the then issued and outstanding shares of Common Stock outstanding
        at such time; provided, however, that upon a holder of
        Series A Preferred Stock providing the Company with sixty-one (61) days
        notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that
        such holder would like to waive Section 7(a) of this Certificate of
        Designation with regard to any or all shares of Common Stock issuable upon
        conversion of Series A Preferred Stock, this Section 7(a) shall be of
        no force or effect with regard to those shares of Series A Preferred Stock
        referenced in the Waiver Notice; provided,
        further,
        that this provision shall be of no further force or effect with respect to
        Common Stock issuable upon conversion of the Series A Preferred Stock
        in
        connection with the Plan.

      
        7

        
          

        

      

      
      

      (b)  Notwithstanding
        anything to the contrary set forth in Section 5 of this Certificate of
        Designation, at no time may a holder of shares of Series A Preferred Stock
        convert shares of the Series A Preferred Stock if the number of shares of
        Common
        Stock to be issued pursuant to such conversion, when aggregated with all
        other
        shares of Common Stock owned by such holder at such time, would result in
        such
        holder beneficially owning (as determined in accordance with Section 13(d)
        of
        the Securities Exchange Act of 1934, as amended, and the rules thereunder)
        in
        excess of 9.999% of the then issued and outstanding shares of Common Stock
        outstanding at such time; provided, however, that upon a holder of
        Series A Preferred Stock providing the Company with a Waiver Notice that
        such
        holder would like to waive Section 7(b) of this Certificate of Designation
        with
        regard to any or all shares of Common Stock issuable upon conversion of Series
        A
        Preferred Stock, this Section 7(b) shall be of no force or effect with regard
        to
        those shares of Series A Preferred Stock referenced in the Waiver Notice;
        provided, further, that this provision shall be of no further force or effect
        with respect to Common Stock issuable upon conversion of the Series A Preferred
        Stock in connection with the Plan.

       

      (c)  For
        purposes of this Certificate of Designation, the term “Plan” shall mean any
        action the Company takes, with any required approval of the holders thereof,
        on
        or before the Final Plan Date as contemplated by the Plan Summary and
        accompanying materials provided to holders on December 4, 2007, in connection
        with the reduction or other modification of terms of the Company's
        then-outstanding preferred stock, warrants and options, including, but not
        limited to, actions the Company takes to (i) facilitate the conversion of
        the
        Series A, B and C Convertible Preferred Stock; (ii) reduce the exercise price
        of
        any of the Company's outstanding warrants or options; (iii) offer the holders
        of
        the Company's warrants and options the opportunity to exercise such warrants
        and
        options on a cash and/or cashless basis; and (iv) make other amendments to
        the
        documents governing these securities to effect these modifications, and to
        facilitate the conversion and exercise of these securities. The term “Final Plan
        Date” shall mean the date that is six months and twelve days after the Plan
        Closing Date.

       

      8.  Redemption.

       

      (a)  Redemption
        Option Upon Major Transaction.  In addition to all other rights of
        the holders of Series A Preferred Stock contained herein, simultaneous with
        the occurrence of a Major Transaction (as defined below), each holder of
        Series A Preferred Stock shall have the right, at such holder’s option, to
        require the Company to redeem all or a portion of such holder’s shares of
        Series A Preferred Stock at a price per share of Series A Preferred
        Stock equal to 100% of the Liquidation Preference Amount, plus any accrued
        but
        unpaid dividends and liquidated damages (the “Major Transaction Redemption
        Price”); provided that the Company shall have the sole option to pay the
        Major Transaction Redemption Price in cash or shares of Common
        Stock.  If the Company elects to pay the Major Transaction Redemption
        Price in shares of Common Stock, the price per share shall be based upon
        the
        lesser of (i) the Conversion Price then in effect on the day preceding the
        date of delivery of the Notice of Redemption at Option of Buyer Upon Major
        Transaction (as hereafter defined) or (ii) the Closing Bid Price on the day
        preceding the date of delivery of the Notice of Redemption at Option of Buyer
        Upon Major Transaction.  The holder of such shares of Common Stock
        shall have demand registration rights with respect to such shares.

       

      (b)  Redemption
        Option Upon Triggering Event.  In addition to all other rights of
        the holders of Series A Preferred Stock contained herein, after a
        Triggering Event (as defined below), each holder of Series A Preferred
        Stock shall have the right, at such holder’s option, to require the Company to
        redeem all or a portion of such holder’s shares of Series A Preferred Stock
        at a price per share of Series A Preferred Stock equal to 120% of the
        Liquidation Preference Amount, plus any accrued but unpaid dividends and
        liquidated damages (the “Triggering Event Redemption Price” and,
        collectively with the “Major Transaction Redemption Price,” the “Redemption
        Price”); provided that with respect to the Triggering Events described in
        clauses (i), (ii), (iii) and (v) of Section 8(d), the Company shall have
        the sole option to pay the Triggering Event Redemption Price in cash or shares
        of Common Stock; and provided, further, that with respect to the
        Triggering Event described in clause (iv) of Section 8(d), the Company
        shall pay the Triggering Event Redemption Price in cash.  If the
        Company elects to pay the Triggering Event Redemption Price in shares of
        Common
        Stock in accordance with this Section 8(b), the price per share shall be
        based upon the lesser of (i) the Conversion Price then in effect on the day
        preceding the date of delivery of the Notice of Redemption at Option of Buyer
        Upon Triggering Event or (ii) the Closing Bid Price on the day preceding
        the date of delivery of the Notice of Redemption at Option of Buyer Upon
        Triggering Event.  The holder of such shares of Common Stock shall
        have demand registration rights with respect to such shares.

       

      (c)  “Major
        Transaction”.  A “Major Transaction” shall be deemed to
        have occurred at such time as any of the following events:

       

      (i)  the
        consolidation, merger or other business combination of the Company with or
        into
        another Person (other than (A) pursuant to a migratory merger effected
        solely for the purpose of changing the jurisdiction of incorporation of the
        Company or (B) a consolidation, merger or other business combination in
        which holders of the Company’s voting power immediately prior to the transaction
        continue after the transaction to hold, directly or indirectly, the voting
        power
        of the surviving entity or entities necessary to elect a majority of the
        members
        of the board of directors (or their equivalent if other than a corporation)
        of
        such entity or entities).

       

      (ii)  the
        sale
        or transfer of more than 50% of the Company’s assets other than inventory in the
        ordinary course of business in one or a related series of transactions;
        or

       

      (iii)  closing
        of a purchase, tender or exchange offer made to the holders of more than
        50% of
        the outstanding shares of Common Stock in which more than 50% of the outstanding
        shares of Common Stock were tendered and accepted.

      
        
           

           8
            
            

          

        

      

      
        
           

        

      

      (d)  “Triggering
        Event”.  A “Triggering Event” shall be deemed to have
        occurred at such time as any of the following events:

       

      (i)  at
        any
        time within two (2) years after the Issuance Date, the resale of the shares
        of
        Common Stock issuable upon conversion of the Series A Preferred Stock is
        covered by the Registration Statement which has been declared effective,
        (i) the effectiveness of the Registration Statement lapses for any reason
        (including, without limitation, the issuance of a stop order) or (ii) the
        Registration Statement is unavailable to the holder of the Series A
        Preferred Stock for sale of the shares of Common Stock, and such lapse or
        unavailability continues for a period of twenty (20) consecutive trading
        days,
        and the shares of Common Stock into which such holder’s Series A Preferred
        Stock can be converted cannot be sold in the public securities market pursuant
        to Rule 144(k) (“Rule 144(k)”) under the Securities Act of 1933, as
        amended, provided that the cause of such lapse or unavailability is not
        due to factors solely within the control of such holder of Series A
        Preferred Stock.

       

      (ii)  the
        suspension from listing, without subsequent listing on any one of, or the
        failure of the Common Stock to be listed on at least one of the OTC Bulletin
        Board, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York
        Stock Exchange, Inc. or the American Stock Exchange, Inc., for a period of
        seven
        (7) consecutive trading days;

       

      (iii)  the
        Company’s notice to any holder of Series A Preferred Stock, including by
        way of public announcement, at any time, of its inability to comply (including
        for any of the reasons described in Section 9) or its intention not to
        comply with proper requests for conversion of any Series A Preferred Stock
        into shares of Common Stock; or

       

      (iv)  the
        Company’s failure to comply with a Conversion Notice tendered in accordance with
        the provisions of this Certificate of Designation within ten (10) business
        days
        after the receipt by the Company of the Conversion Notice and the Preferred
        Stock Certificates; or

       

      (v)  the
        Company breaches any representation, warranty, covenant or other term or
        condition of the Purchase Agreement, this Certificate of Designation or any
        other agreement, document, certificate or other instrument delivered in
        connection with the transactions contemplated thereby or hereby, except to
        the
        extent that such breach would not have a Material Adverse Effect (as defined
        in
        the Purchase Agreement) and except, in the case of a breach of a covenant
        which
        is curable, only if such breach continues for a period of a least ten (10)
        days.

       

      (e)  Mechanics
        of Redemption at Option of Buyer Upon Major Transaction.  No
        sooner than fifteen (15) days nor later than ten (10) days prior to the
        consummation of a Major Transaction, but not prior to the public announcement
        of
        such Major Transaction, the Company shall deliver written notice thereof
        via
        facsimile and overnight courier (“Notice of Major Transaction”) to each
        holder of Series A Preferred Stock.  At any time after receipt of
        a Notice of Major Transaction (or, in the event a Notice of Major Transaction
        is
        not delivered at least ten (10) days prior to a Major Transaction, at any
        time
        within ten (10) days prior to a Major Transaction), any holder of Series A
        Preferred Stock then outstanding may require the Company to redeem, effective
        immediately prior to the consummation of such Major Transaction, all of the
        holder’s Series A Preferred Stock then outstanding by delivering written
        notice thereof via facsimile and overnight courier (“Notice of Redemption at
        Option of Buyer Upon Major Transaction”) to the Company, which Notice of
        Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the
        number of shares of Series A Preferred Stock that such holder is electing
        to redeem and (ii) the applicable Major Transaction Redemption Price, as
        calculated pursuant to Section 8(a) above.

       

      (f)  Mechanics
        of Redemption at Option of Buyer Upon Triggering Event.  Within
        two (2) days after the occurrence of a Triggering Event, the Company shall
        deliver written notice thereof via facsimile and overnight courier (“Notice
        of Triggering Event”) to each holder of Series A Preferred
        Stock.  At any time after the earlier of a holder’s receipt of a
        Notice of Triggering Event and such holder becoming aware of a Triggering
        Event,
        any holder of Series A Preferred Stock then outstanding may require the
        Company to redeem all of the Series A Preferred Stock by delivering written
        notice thereof via facsimile and overnight courier (“Notice of Redemption at
        Option of Buyer Upon Triggering Event”) to the Company, which Notice of
        Redemption at Option of Buyer Upon Triggering Event shall indicate (i) the
        number of shares of Series A Preferred Stock that such holder is electing
        to redeem and (ii) the applicable Triggering Event Redemption Price, as
        calculated pursuant to Section 8(b) above.

      
        9

        
          

        

      

      
      

      (g)  Payment
        of Redemption Price.  Upon the Company’s receipt of a Notice(s) of
        Redemption at Option of Buyer Upon Triggering Event or a Notice(s) of Redemption
        at Option of Buyer Upon Major Transaction from any holder of Series A
        Preferred Stock, the Company shall immediately notify each holder of
        Series A Preferred Stock by facsimile of the Company’s receipt of such
        Notice(s) of Redemption at Option of Buyer Upon Triggering Event or Notice(s)
        of
        Redemption at Option of Buyer Upon Major Transaction and each holder which
        has
        sent such a notice shall promptly submit to the Company such holder’s Preferred
        Stock Certificates which such holder has elected to have
        redeemed.  Other than with respect to the Triggering Event described
        in clause (iv) of Section 8(d), the Company shall have the sole option to
        pay the Redemption Price in cash or shares of Common Stock in accordance
        with
        Sections 8(a) and (b) and Section 9 of this Certificate of
        Designation.  The Company shall deliver the applicable Major
        Transaction Redemption Price immediately prior to the consummation of the
        Major
        Transaction; provided that a holder’s Preferred Stock Certificates shall
        have been so delivered to the Company; provided further that if the
        Company is unable to redeem all of the Series A Preferred Stock to be
        redeemed, the Company shall redeem an amount from each holder of Series A
        Preferred Stock being redeemed equal to such holder’s pro-rata amount (based on
        the number of shares of Series A Preferred Stock held by such holder
        relative to the number of shares of Series A Preferred Stock outstanding)
        of all Series A Preferred Stock being redeemed.  If the Company
        shall fail to redeem all of the Series A Preferred Stock submitted for
        redemption (other than pursuant to a dispute as to the arithmetic calculation
        of
        the Redemption Price), in addition to any remedy such holder of Series A
        Preferred Stock may have under this Certificate of Designation and the Purchase
        Agreement, the applicable Redemption Price payable in respect of such unredeemed
        Series A Preferred Stock shall bear interest at the rate of .5% per month
        (prorated for partial months) until paid in full.  Until the Company
        pays such unpaid applicable Redemption Price in full to a holder of shares
        of
        Series A Preferred Stock submitted for redemption, such holder shall have
        the option (the “Void Optional Redemption Option”) to, in lieu of
        redemption, require the Company to promptly return to such holder(s) all
        of the
        shares of Series A Preferred Stock that were submitted for redemption by
        such holder(s) under this Section 8 and for which the applicable Redemption
        Price has not been paid, by sending written notice thereof to the Company
        via
        facsimile (the “Void Optional Redemption Notice”).  Upon the
        Company’s receipt of such Void Optional Redemption Notice(s) and prior to
        payment of the full applicable Redemption Price to such holder, (i) the
        Notice(s) of Redemption at Option of Buyer Upon Major Transaction shall be
        null
        and void with respect to those shares of Series A Preferred Stock submitted
        for redemption and for which the applicable Redemption Price has not been
        paid
        and (ii) the Company shall immediately return any Series A Preferred
        Stock submitted to the Company by each holder for redemption under this
        Section 8(d) and for which the applicable Redemption Price has not been
        paid.  A holder’s delivery of a Void Optional Redemption Notice and
        exercise of its rights following such notice shall not effect the Company’s
        obligations to make any payments which have accrued prior to the date of
        such
        notice other than interest payments.  Payments provided for in this
        Section 8 shall have priority to payments to other stockholders in
        connection with a Major Transaction.

       

      (h)  Demand
        Registration Rights.  If the Redemption Price upon the occurrence
        of a Major Transaction or a Triggering Event is paid in shares of Common
        Stock
        and such shares have not been previously registered on a registration statement
        under the Securities Act, a holder of Series A Preferred Stock may make a
        written request for registration under the Securities Act pursuant to this
        Section 8(h) of all of its shares of Common Stock issued upon such Major
        Transaction or Triggering Event.  The Company shall use its reasonable
        best efforts to cause to be filed and declared effective as soon as reasonably
        practicable (but in no event later than the ninetieth (90th) day after such
        holder’s request is made) a registration statement under the Securities Act,
        providing for the sale of all of the shares of Common Stock issued upon such
        Major Transaction or Triggering Event by such holder.  The Company
        agrees to use its reasonable best efforts to keep any such registration
        statement continuously effective for resale of the Common Stock for so long
        as
        such holder shall request, but in no event later than the date that the shares
        of Common Stock issued upon such Major Transaction or Triggering Event may
        be
        offered for resale to the public pursuant to Rule 144(k).

       

      9.  Inability
        to Fully Convert.

       

      (a)  Holder’s
        Option if Company Cannot Fully Convert.  If, upon the Company’s
        receipt of a Conversion Notice or on a Mandatory Conversion Date, the Company
        cannot issue shares of Common Stock registered for resale under the Registration
        Statement for any reason, including, without limitation, because the Company
        (w) does not have a sufficient number of shares of Common Stock authorized
        and available, (x) is otherwise prohibited by applicable law or by the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Company or
        its
        securities from issuing all of the Common Stock which is to be issued to
        a
        holder of Series A Preferred Stock pursuant to a Conversion Notice or
        (y) fails to have a sufficient number of shares of Common Stock registered
        for resale under the Registration Statement, then the Company shall issue
        as
        many shares of Common Stock as it is able to issue in accordance with such
        holder’s Conversion Notice and pursuant to Section 5(b)(ii) above and, with
        respect to the unconverted Series A Preferred Stock, the holder, solely at
        such holder’s option, can elect, within five (5) business days after receipt of
        notice from the Company thereof to:

       

      (i)  require
        the Company to redeem from such holder those Series A Preferred Stock for
        which the Company is unable to issue Common Stock in accordance with such
        holder’s Conversion Notice (“Mandatory Redemption”) at a price per share
        equal to the Major Transaction Redemption Price as of such Conversion Date
        (the
“Mandatory Redemption Price”); provided that the Company shall
        have the sole option to pay the Mandatory Redemption Price in cash or shares
        of
        Common Stock;

       

      (ii)  if
        the
        Company’s inability to fully convert Series A Preferred Stock is pursuant
        to Section 9(a)(y) above, require the Company to issue restricted shares
        of
        Common Stock in accordance with such holder’s Conversion Notice and pursuant to
        Section 5(b)(ii) above;

       

      (iii)  void
        its
        Conversion Notice and retain or have returned, as the case may be, the shares
        of
        Series A Preferred Stock that were to be converted pursuant to such
        holder’s Conversion Notice (provided that a holder’s voiding its Conversion
        Notice shall not effect the Company’s obligations to make any payments which
        have accrued prior to the date of such notice).

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      (b)  Mechanics
        of Fulfilling Holder’s Election.  The Company shall immediately
        send via facsimile to a holder of Series A Preferred Stock, upon receipt of
        a facsimile copy of a Conversion Notice from such holder which cannot be
        fully
        satisfied as described in Section 9(a) above, a notice of the Company’s
        inability to fully satisfy such holder’s Conversion Notice (the “Inability to
        Fully Convert Notice”).  Such Inability to Fully Convert Notice
        shall indicate (i) the reason why the Company is unable to fully satisfy
        such holder’s Conversion Notice, (ii) the number of Series A Preferred
        Stock which cannot be converted and (iii) the applicable Mandatory
        Redemption Price.  Such holder shall notify the Company of its
        election pursuant to Section 9(a) above by delivering written notice via
        facsimile to the Company (“Notice in Response to Inability to
        Convert”).

       

      (c)  Payment
        of Redemption Price.  If such holder shall elect to have its
        shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay
        the Mandatory Redemption Price to such holder within thirty (30) days of
        the
        Company’s receipt of the holder’s Notice in Response to Inability to Convert,
        provided that prior to the Company’s receipt of the holder’s Notice in Response
        to Inability to Convert the Company has not delivered a notice to such holder
        stating, to the satisfaction of the holder, that the event or condition
        resulting in the Mandatory Redemption has been cured and all Conversion Shares
        issuable to such holder can and will be delivered to the holder in accordance
        with the terms of Section 8(g).  If the Company shall fail to pay
        the applicable Mandatory Redemption Price to such holder on a timely basis
        as
        described in this Section 9(c) (other than pursuant to a dispute as to the
        determination of the arithmetic calculation of the Redemption Price), in
        addition to any remedy such holder of Series A Preferred Stock may have
        under this Certificate of Designation and the Purchase Agreement, such unpaid
        amount shall bear interest at the rate of 1.0% per month (prorated for partial
        months) until paid in full.  Until the full Mandatory Redemption Price
        is paid in full to such holder, such holder may (i) void the Mandatory
        Redemption with respect to those Series A Preferred Stock for which the
        full Mandatory Redemption Price has not been paid and (ii) receive back
        such Series A Preferred Stock.

       

      (d)  Pro-rata
        Conversion and Redemption.  In the event the Company receives a
        Conversion Notice from more than one holder of Series A Preferred Stock on
        the same day and the Company can convert and redeem some, but not all, of
        the
        Series A Preferred Stock pursuant to this Section 9, the Company shall
        convert and redeem from each holder of Series A Preferred Stock electing to
        have Series A Preferred Stock converted and redeemed at such time an amount
        equal to such holder’s pro-rata amount (based on the number shares of
        Series A Preferred Stock held by such holder relative to the number shares
        of Series A Preferred Stock outstanding) of all shares of Series A
        Preferred Stock being converted and redeemed at such time.

       

      10.  Vote
        to Change the Terms of or Issue Preferred Stock.  The affirmative
        vote at a meeting duly called for such purpose or the written consent without
        a
        meeting, of the holders of three-fourths (3/4) of the then outstanding shares
        of
        Series A Preferred Stock, shall be required (a) for any change to this
        Certificate of Designation or the Articles of Incorporation which would amend,
        alter, change or repeal any of the powers, designations, preferences and
        rights
        of the Series A Preferred Stock or (b) for the issuance of shares of
        Series A Preferred Stock other than pursuant to the Purchase Agreement
        except for shares of Series A Preferred Stock to be issued to certain
        holders of promissory notes issued by the Company in satisfaction of outstanding
        indebtedness in an amount not to exceed $750,000 and/or as dividends paid
        in
        shares of Series A Preferred Stock.

       

      11.  Lost
        or Stolen Certificates.  Upon receipt by the Company of evidence
        satisfactory to the Company of the loss, theft, destruction or mutilation
        of any
        Preferred Stock Certificates representing the shares of Series A Preferred
        Stock, and, in the case of loss, theft or destruction, of any indemnification
        undertaking by the holder to the Company and, in the case of mutilation,
        upon
        surrender and cancellation of the Preferred Stock Certificate(s), the Company
        shall execute and deliver new preferred stock certificate(s) of like tenor
        and
        date; provided, however, the Company shall not be obligated to
        re-issue Preferred Stock Certificates if the holder contemporaneously requests
        the Company to convert such shares of Series A Preferred Stock into Common
        Stock.

       

      12.  Remedies,
        Characterizations, Other Obligations, Breaches and Injunctive
        Relief.  The remedies provided in this Certificate of Designation
        shall be cumulative and in addition to all other remedies available under
        this
        Certificate of Designation, at law or in equity (including a decree of specific
        performance and/or other injunctive relief), no remedy contained herein shall
        be
        deemed a waiver of compliance with the provisions giving rise to such remedy
        and
        nothing herein shall limit a holder’s right to pursue actual damages for any
        failure by the Company to comply with the terms of this Certificate of
        Designation.  Amounts set forth or provided for herein with respect to
        payments, conversion and the like (and the computation thereof) shall be
        the
        amounts to be received by the holder thereof and shall not, except as expressly
        provided herein, be subject to any other obligation of the Company (or the
        performance thereof).  The Company acknowledges that a breach by it of
        its obligations hereunder will cause irreparable harm to the holders of the
        Series A Preferred Stock and that the remedy at law for any such breach may
        be inadequate.  The Company therefore agrees that, in the event of any
        such breach or threatened breach, the holders of the Series A Preferred
        Stock shall be entitled, in addition to all other available remedies, to
        an
        injunction restraining any breach, without the necessity of showing economic
        loss and without any bond or other security being required.

       

      13.  Specific
        Shall Not Limit General; Construction.  No specific provision
        contained in this Certificate of Designation shall limit or modify any more
        general provision contained herein.  This Certificate of Designation
        shall be deemed to be jointly drafted by the Company and all initial purchasers
        of the Series A Preferred Stock and shall not be construed against any
        person as the drafter hereof.

       

      14.  Failure
        or Indulgence Not Waiver.  No failure or delay on the part of a
        holder of Series A Preferred Stock 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 privilege.

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF, the undersigned has executed and subscribed this Second
        Amended
        and Restated Certificate and does affirm the foregoing as true this 19th
        day of
        December, 2007.

       

      CHEMBIO
        DIAGNOSTICS, INC.

       

      
 

       

      By:

       

      Name:  Richard
        J.
        Larkin

       

      Title:  Chief
        Financial
        Officer

       


      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      


      EXHIBIT
        I

       

      


       

      CHEMBIO
        DIAGNOSTICS, INC.

       

      


       

      CONVERSION
        NOTICE

       

      Reference
        is made to the Second Amended and Restated Certificate of Designation of
        the
        Relative Rights and Preferences of the Series A Preferred Stock of Chembio
        Diagnostics, Inc. (the “Certificate of Designation”).  In
        accordance with and pursuant to the Certificate of Designation, the undersigned
        hereby elects to convert the number of shares of Series A Preferred Stock,
        par value $.01 per share (the “Preferred Shares”), of Chembio
        Diagnostics, Inc., a Nevada corporation (the “Company”), indicated below
        into shares of Common Stock, par value $.01 per share (the “Common
        Stock”), of the Company, by tendering the stock certificate(s) representing
        the share(s) of Preferred Shares specified below as of the date specified
        below.

       

      Date
        of
        Conversion:

       

      Number
        of
        Preferred Shares to be converted:

       

      Stock
        certificate no(s). of Preferred Shares to be converted:

       

      The
        Common Stock have been sold pursuant to the Registration Statement (as defined
        in the Purchase Agreement):  YES ____ NO____

       

      Please
        confirm the following information:

       

      Conversion
        Price:

       

      Number
        of
        shares of Common Stock to be issued:

       

      Number
        of
        shares of Common Stock beneficially owned or deemed beneficially owned by
        the
        Holder on the Date of
        Conversion:  _________________________

       

      Please
        issue the Common Stock into which the Preferred Shares are being converted
        and,
        if applicable, any check drawn on an account of the Company in the following
        name and to the following address:

       

      Issue
        to:

       

      Facsimile
        Number:

       

      Authorization:

       

      By:

       

      Title:

       

      Dated: