ex4_13.htm


    
      

    

    
      

    

    
      Exhibit
        4.13

      CHEMBIO
        DIAGNOSTICS, INC.

      


      SECOND
        AMENDED AND RESTATED

      CERTIFICATE
        OF DESIGNATION OF PREFERENCES,

      RIGHTS
        AND LIMITATIONS

      OF

      SERIES
        C 7% CONVERTIBLE PREFERRED STOCK

      


      PURSUANT
        TO SECTION 78.1955 OF THE

      NEVADA
        REVISED STATUTES

      


      The
        undersigned, Richard J. Larkin, does hereby certify that:

      


      1.
        He is
        the Chief Financial Officer of Chembio Diagnostics, Inc., a Nevada corporation
        (the “Corporation”).

      


      2.
        The
        Corporation is authorized to issue 10,000,000 shares of preferred stock,
        297.82698 of which have been issued.

      


      3.
        The
        following resolutions were duly adopted by the Board of Directors:

      


      WHEREAS,
        the Articles of Incorporation of the Corporation provides for a class of
        its
        authorized stock known as preferred stock, comprised of 10,000,000 shares,
        $0.01
        par value, issuable from time to time in one or more series;

      


      WHEREAS,
        the Board of Directors of the Corporation is authorized to fix the dividend
        rights, dividend rate, voting rights, conversion rights, rights and terms
        of
        redemption and liquidation preferences of any wholly unissued series of
        preferred stock and the number of shares constituting any Series and the
        designation thereof, of any of them; and

      


      WHEREAS,
        it is the desire of the Board of Directors of the Corporation, pursuant to
        its
        authority as aforesaid, to fix the rights, preferences, restrictions and
        other
        matters relating to a series of the preferred stock, which shall consist
        of,
        except as otherwise set forth in the Purchase Agreement, up to 205 shares
        of the
        preferred stock which the Corporation has the authority to issue, as
        follows;

      


      WHEREAS,
        the Board of Directors with shareholder consent desires to amend certain
        provisions as follows:

      


      NOW,
        THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide
        for
        the issuance of a series of preferred stock for cash or exchange of other
        securities, rights or property and does hereby fix and determine the rights,
        preferences, restrictions and other matters relating to such series of preferred
        stock as follows:

      


      
        
          

        



      


      TERMS
        OF PREFERRED STOCK

      


      Section
        1.  Definitions.  Capitalized terms used and not
        otherwise defined herein that are defined in the Purchase Agreement shall
        have
        the meanings given such terms in the Purchase Agreement.  For the
        purposes hereof, the following terms shall have the following
        meanings:

      


      “Alternate
        Consideration” shall have the meaning set forth in Section
        7(e).

      


      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      “Bankruptcy
        Event” means any of the following events: (a) the Corporation or any
        Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
        S-X) thereof commences a case or other proceeding under any bankruptcy,
        reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
        insolvency or liquidation or similar law of any jurisdiction relating to
        the
        Corporation or any Significant Subsidiary thereof; (b) there is commenced
        against the Corporation or any Significant Subsidiary thereof any such case
        or
        proceeding that is not dismissed within 60 days after commencement; (c) the
        Corporation or any Significant Subsidiary thereof is adjudicated insolvent
        or
        bankrupt or any order of relief or other order approving any such case or
        proceeding is entered; (d) the Corporation or any Significant Subsidiary
        thereof
        suffers any appointment of any custodian or the like for it or any substantial
        part of its property that is not discharged or stayed within 60 calendar
        days
        after such appointment; (e) the Corporation or any Significant Subsidiary
        thereof makes a general assignment for the benefit of creditors; (f) the
        Corporation or any Significant Subsidiary thereof calls a meeting of its
        creditors with a view to arranging a composition, adjustment or restructuring
        of
        its debts; or (g) the Corporation or any Significant Subsidiary thereof,
        by any
        act or failure to act, expressly indicates its consent to, approval of or
        acquiescence in any of the foregoing or takes any corporate or other action
        for
        the purpose of effecting any of the foregoing.

      


      “Base
        Conversion Price” shall have the meaning set forth in Section
        7(b).

      


      “Buy-In”
        shall have the meaning set forth in Section 6(d)(iii).

      


      “Change
        of Control Transaction” means the occurrence after the date hereof of any of
        (i) an acquisition after the date hereof by an individual or legal entity
        or
“group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
        effective control (whether through legal or beneficial ownership of capital
        stock of the Corporation, by contract or otherwise) of in excess of 50% of
        the
        aggregate voting power of the Corporation, or (ii) the Corporation merges
        into
        or consolidates with any other Person, or any Person merges into or consolidates
        with the Corporation and, after giving effect to such transaction, the
        stockholders of the Corporation immediately prior to such transaction own
        less
        than 50% of the aggregate voting power of the Corporation or the successor
        entity of such transaction, or (iii) the Corporation sells or transfers its
        assets, as an entirety or substantially as an entirety, to another Person
        and
        the stockholders of the Corporation immediately prior to such transaction
        own
        less than 50% of the aggregate voting power of the acquiring entity immediately
        after the transaction, or (iv) the execution by the Corporation of an agreement
        to which the Corporation is a party or by which it is bound, providing for
        any
        of the events set forth above.

      


      “Closing
        Date” means the Trading Day when all of the Transaction Documents have been
        executed and delivered by the applicable parties thereto, and all conditions
        precedent to (i) each Holder’s obligations to pay the Subscription Amount and
        (ii) the Corporation’s obligations to deliver the Securities have been satisfied
        or waived.

      


      “Commission”
        means the Securities and Exchange Commission.

      


      “Common
        Stock” means the Corporation’s common stock, par value $0.01 per share, and
        stock of any other class of securities into which such securities may hereafter
        be reclassified or changed into.

      


      “Common
        Stock Equivalents” means any securities of the Corporation or the
        Subsidiaries which would entitle the holder thereof to acquire, directly
        or
        indirectly, at any time Common Stock, including without limitation, any debt,
        preferred stock, rights, options, warrants or other instrument that is at
        any
        time convertible into or exchangeable for, or otherwise entitles the holder
        thereof to receive, Common Stock.

      


      “Conversion
        Amount” means the sum of the Stated Value at issue.

      


      “Conversion
        Date” shall have the meaning set forth in Section 6(a).

      


      “Conversion
        Price” shall have the meaning set forth in Section 6(b).

      


      “Conversion
        Shares” means, collectively, the shares of Common Stock into which the
        shares of Preferred Stock are convertible in accordance with the terms
        hereof.

      


      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “Conversion
        Shares Registration Statement” means a registration statement that meets the
        requirements of the Registration Rights Agreement and registers the resale
        of
        all Conversion Shares by the Holder, who shall be named as a “selling
        stockholder” thereunder, all as provided in the Registration Rights
        Agreement.

      


      “Dilutive
        Issuance” shall have the meaning set forth in Section 7(b).

      


      “Dilutive
        Issuance Notice” shall have the meaning set forth in Section
        7(b).

      


      “Dividend
        Payment Date” shall have the meaning set forth in Section 3(a).

      


      “Effective
        Date” means the date that the Conversion Shares Registration Statement is
        declared effective by the Commission.

      


      “Equity
        Conditions” means, during the period in question, (i) the Corporation shall
        have duly honored all conversions scheduled to occur or occurring by virtue
        of
        one or more Notices of Conversion of the applicable Holder on or prior to
        the
        dates so requested or required, if any, (ii) the Corporation shall have paid
        all
        liquidated damages and other amounts owing to the applicable Holder in respect
        of the Preferred Stock, (iii) there is an effective Conversion Shares
        Registration Statement pursuant to which the Holders are permitted to utilize
        the prospectus thereunder to resell all of the shares of Common Stock issuable
        pursuant to the Transaction Documents (and the Corporation believes, in good
        faith, that such effectiveness will continue uninterrupted for the foreseeable
        future), (iv) the Common Stock is trading on a Trading Market and all of
        the
        shares issuable pursuant to the Transaction Documents are listed for trading
        on
        such Trading Market (and the Corporation believes, in good faith, that trading
        of the Common Stock on a Trading Market will continue uninterrupted for the
        foreseeable future), (v) there is a sufficient number of authorized, but
        unissued and otherwise unreserved, shares of Common Stock for the issuance
        of
        all of the shares of Common Stock issuable pursuant to the Transaction
        Documents, (vi) there is no existing Triggering Event or no existing event
        which, with the passage of time or the giving of notice, would constitute
        a
        Triggering Event, (vii) the issuance of the shares in question to the applicable
        Holder would not violate the limitations set forth in Section 6(c), (viii)
        there
        has been no public announcement of a pending or proposed Fundamental Transaction
        or Change of Control Transaction that has not been consummated and (ix) the
        applicable Holder is not in possession of any information that constitutes,
        or
        may constitute, material non-public information.

      


      “Exchange
        Act” means the Securities Exchange Act of 1934, as amended, and the rules
        and regulation promulgated thereunder.

      


      “Exempt
        Issuance” means the issuance of (a) shares of Common Stock or options to
        employees, officers, consultants, or directors of the Corporation pursuant
        to
        any stock or option plan or other resolution duly adopted by a majority of
        the
        non-employee members of the Board of Directors of the Corporation or a majority
        of the members of a committee of non-employee directors established for such
        purpose, (b) securities upon the exercise of or conversion of any Securities
        issued hereunder, convertible securities, options or warrants issued and
        outstanding on the date of the Purchase Agreement, provided that such securities
        have not been amended since the date of the Purchase Agreement to increase
        the
        number of such securities or to decrease the exercise or conversion price
        of any
        such securities (except pursuant to any anti-dilution adjustment contained
        therein), (c) securities issued pursuant to acquisitions or strategic
        transactions, provided any such issuance shall only be to a Person which
        is,
        itself or through its subsidiaries, an operating company in a business
        reasonably deemed by the Corporation’s Board of Directors to be strategically
        advantageous to the business of the Corporation and in which the Corporation
        receives benefits in addition to the investment of funds, but shall not include
        a transaction in which the Corporation is issuing securities primarily for
        the
        purpose of raising capital or to an entity whose primary business is investing
        in securities, (d) shares issued as dividend payments on the Series A
        Convertible Preferred Stock, the Series B 9% Convertible Preferred Stock
        and the
        Preferred Stock, and (e) shares of Common Stock or Common Stock Equivalents
        issued between the Plan Closing Date and the Final Plan Date in connection
        with
        the Company’s Plan.

       

      “Final
        Plan Date” shall mean the date that is six months and twelve days after the
        Plan Closing Date.

      


       “Fundamental
        Transaction” shall have the meaning set forth in Section 7(e).

      


      “Holder”
        shall have the meaning given such term in Section 2.

      


      “Junior
        Securities” means the Common Stock and all other Common Stock Equivalents of
        the Corporation other than those securities which are explicitly senior or
        paripassu to the Preferred Stock in dividend rights or liquidation
        preference.

      


      “Liquidation”
        shall have the meaning given such term in Section 5.

      


      “New
        York Courts” shall have the meaning given such term in Section
        10(e).

      


      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      “Notice
        of Conversion” shall have the meaning given such term in Section
        6(a).

      


      “Original
        Issue Date” shall mean the date of the first issuance of any shares of the
        Preferred Stock regardless of the number of transfers of any particular shares
        of Preferred Stock and regardless of the number of certificates which may
        be
        issued to evidence such Preferred Stock.

      


      “Person”
        means a corporation, an association, a partnership, an organization, a business,
        an individual, a government or political subdivision thereof or a governmental
        agency.

      


      “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.

      


      “Plan
        Closing Date” shall mean December 19, 2007.

      


      “Purchase
        Agreement” means the Securities Purchase Agreement, dated as of September
        29, 2006, to which the Corporation and the original Holders are parties,
        as
        amended, modified or supplemented from time to time in accordance with its
        terms.

      


      “Registration
        Rights Agreement” as to a Holder, means the Registration Rights Agreement
        entered into to which the Corporation and such Holder are parties, as amended,
        modified or supplemented from time to time in accordance with its
        terms.

      


      “Securities
        Act” means the Securities Act of 1933, as amended, and the rules and
        regulations promulgated thereunder.

      


      “Share
        Delivery Date” shall have the meaning given such term in Section
        6(d).

      


      “Stated
        Value” shall have the meaning given such term in Section 2.

      


      “Subscription
        Amount” shall mean, as to each Purchaser, the amount to be paid for the
        Preferred Stock purchased pursuant to the Purchase Agreement (or, if applicable
        to a Holder, any other Securities Purchase Agreement entered into for the
        sale
        of Preferred Stock as permitted hereunder) as specified below such Purchaser’s
        name on the signature page of the Purchase Agreement (or other Securities
        Purchase Agreement, as applicable) and next to the heading “Subscription
        Amount”, in United States Dollars and in immediately available
        funds.

      


      “Subsidiary”
        shall have the meaning given to such term in the Purchase
        Agreement.

      


      “Threshold
        Period” shall have the meaning set forth in Section 6(a).

      


      “Trading
        Day” means a day on which the Common Stock is traded on a Trading
        Market.

      


      “Trading
        Market” means the following markets or exchanges on which the Common Stock
        is listed or quoted for trading on the date in question: the OTC Bulletin
        Board,
        the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
        Exchange or the Nasdaq National Market.

      


      “Transaction
        Documents” shall have the meaning set forth in the Purchase Agreement or, as
        to any Holders party to another Securities Purchase Agreement, as such term
        is
        defined in such agreement.

      


      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      “Triggering
        Event” shall have the meaning set forth in Section 9(a).

      


      “Triggering
        Redemption Amount” for each share of Preferred Stock means the sum of (i)
        the greater of (A) 130% of the Stated Value and (B) the product of (a) the
        VWAP
        on the Trading Day immediately preceding the date of the Triggering Event
        and
        (b) the Stated Value divided by the then Conversion Price, (ii) all accrued
        but
        unpaid dividends thereon and (iii) all liquidated damages and other amounts
        due
        in respect of the Preferred Stock.

      


      “Triggering
        Redemption Payment Date” shall have the meaning set forth in Section
        9(b).

      


      “VWAP”
        means, for any date, the price determined by the first of the following clauses
        that applies: (a) if the Common Stock is then listed or quoted on a Trading
        Market, the daily volume weighted average price of the Common Stock for such
        date (or the nearest preceding date) on the Trading Market on which the Common
        Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
        on
        a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)
        if the
        Common Stock is not then listed or quoted on a Trading Market and if prices
        for
        the Common Stock are then reported in the “Pink Sheets” published by the Pink
        Sheets, LLC (or a similar organization or agency succeeding to its functions
        of
        reporting prices), the most recent bid price per share of the Common Stock
        so
        reported; or (c) in all other cases, the fair market value of a share of
        Common
        Stock as determined by an independent appraiser selected in good faith by
        the
        Purchasers and reasonably acceptable to the Corporation.

      


      Section
        2.  Designation, Rank, Amount and Par Value.  The
        series of preferred stock shall be designated as its Series C 7% Convertible
        Preferred Stock (the “Preferred Stock”) and the number of shares so
        designated shall be 205 (which shall not be subject to increase without the
        consent of all of the holders of the Preferred Stock (each, a “Holder”
and collectively, the “Holders”)).  Each share of Preferred
        Stock shall have a par value of $0.01 per share and a stated value equal
        to
        $50,000 (the “Stated Value”).  The Preferred Stock shall rank
        pari passu to the Corporation’s Series A Convertible Preferred Stock and the
        Corporation’s Series B 9% Convertible Preferred Stock as to payment of dividends
        and liquidation preference.  Capitalized terms not otherwise defined
        herein shall have the meaning given such terms in Section 1 hereof.

      


      Section
        3.  Dividends.

      


      a)           Dividends
        in Cash or in
        Kind.  Holders shall
        be entitled
        to receive, and the Corporation shall pay, cumulative dividends at the rate
        per
        share (as a percentage of the Stated Value per share) of 7% per
        annum,
        payable semi-annually on January 1 and
        July 1, beginning on July 1, 2007 and on each Conversion Date (with respect
        only
        to Preferred Stock being converted) (each such date, a “Dividend Payment
        Date”) (if any
        Dividend Payment Date is not a Trading Day, the applicable payment shall
        be due
        on the next succeeding Trading Day) in cash or duly authorized, validly issued,
        fully paid and non-assessable shares of Common Stock as set forth in this
        Section 3(a), or a combination thereof (the amount to be paid in shares of
        Common Stock, the “Dividend Share
        Amount”).  The form of dividend
        payments to each Holder shall be determined in the following order of priority:
        (i) if funds are legally available for the payment of dividends and the Equity
        Conditions have not been met during the 20 consecutive Trading Days immediately
        prior to the applicable Dividend Payment Date, in cash only; (ii) if funds
        are
        legally available for the payment of dividends and the Equity Conditions
        have
        been met during the 20 consecutive Trading Days immediately prior to the
        applicable Dividend Payment Date, at the sole election of the Corporation,
        in
        cash or shares of Common Stock which shall be valued solely for such purpose
        at
        90% of the average of the VWAPs for the 20 consecutive Trading Days ending
        on
        the Trading Day that is immediately prior to the Dividend Payment Date; (iii)
        if
        funds are not legally available for the payment of dividends and the Equity
        Conditions have been met during the 20 consecutive Trading Days immediately
        prior to the applicable Dividend Payment Date, in shares of Common Stock
        which
        shall be valued solely for such purpose at 90% of the average of the VWAPs
        for
        the 20 consecutive Trading Days ending on the Trading Day that is immediately
        prior to the Dividend Payment Date; (iv) if funds are not legally available
        for
        the payment of dividends and the Equity Condition relating to an effective
        Conversion Shares Registration Statement has been waived by such Holder,
        as to
        such Holder only, in unregistered shares of Common Stock which shall be valued
        solely for such purpose at 90% of the average of the VWAPs for the 20
        consecutive Trading Days ending on the Trading Day that is immediately prior
        to
        the Dividend Payment Date; and (v) if funds are not legally available for
        the
        payment of dividends and the Equity Conditions have not been met during the
        20
        consecutive Trading Days immediately prior to the applicable Dividend Payment
        Date, then, at the election of such Holder, such dividends shall accrue to
        the
        next Dividend Payment Date or shall be accreted to, and increase, the
        outstanding Stated Value.  The Holders shall have the same rights and
        remedies with respect to the delivery of any such shares as if such shares
        were
        being issued pursuant to Section 6.  On the Closing Date the
        Corporation shall have notified the Holders whether or not it may legally
        pay
        cash dividends as of the Closing Date.  The Corporation shall promptly
        notify the Holders at any time the Corporation shall become able or unable,
        as
        the case may be, to legally pay cash dividends.  If at any time the
        Corporation has the right to pay dividends in cash or Common Stock, the
        Corporation must provide the Holders with at least 20 Trading Days’ notice of
        its election to pay a regularly scheduled dividend in Common Stock (the
        Corporation may indicate in such notice that the election contained in such
        notice shall continue for later periods until revised by a subsequent
        notice).  Dividends on the Preferred Stock shall be calculated on the
        basis of a 360-day year, consisting of twelve 30 calendar day periods, shall
        accrue daily commencing on the Original Issue Date, and shall be deemed to
        accrue from such date whether or not earned or declared and whether or not
        there
        are profits, surplus or other funds of the Corporation legally available
        for the
        payment of dividends.  Except as otherwise provided herein, if at any
        time the Corporation pays dividends partially in cash and partially in shares,
        then such payment shall be distributed ratably among the Holders based upon
        the
        number of shares of Preferred Stock held by each Holder on such Dividend
        Payment
        Date.  Any dividends, whether paid in cash or shares of Common Stock,
        that are not paid within three Trading Days following a Dividend Payment
        Date
        shall continue to accrue and shall entail a late fee, which must be paid
        in
        cash, at the rate of 18% per annum or the lesser rate permitted by applicable
        law (such fees to accrue daily, from the Dividend Payment Date through and
        including the date of payment).  If at any time the Corporation
        delivers a notice to the Holders of its election to pay the dividends in
        shares
        of Common Stock, the Corporation shall timely file a prospectus supplement
        pursuant to Rule 424 disclosing such election.

      
         

        
          5

          
            

          

        

        
          
          

        

      

      b)           So
        long as any Preferred Stock shall
        remain outstanding, neither the Corporation nor any Subsidiary thereof shall
        redeem, purchase or otherwise acquire directly or indirectly any Junior
        Securities.  So long as any Preferred Stock shall remain outstanding,
        neither the Corporation nor any Subsidiary thereof shall directly or indirectly
        pay or declare any dividend or make any distribution (other than a dividend
        or
        distribution described in Section 6 or dividends due and paid in the ordinary
        course on preferred stock of the Corporation at such times when the Corporation
        is in compliance with its payment and other obligations hereunder) upon,
        nor
        shall any distribution be made in respect of, any Junior Securities so long
        as
        any dividends due on the Preferred Stock remain unpaid, nor shall any monies
        be
        set aside for or applied to the purchase or redemption (through a sinking
        fund
        or otherwise) of any Junior Securities.

       

      Section
        4.  Voting Rights.  Except as otherwise provided
        herein and as otherwise required by law, the Preferred Stock shall have no
        voting rights.  However, so long as any shares of Preferred Stock are
        outstanding, the Corporation shall not, without the affirmative vote of the
        Holders of at least 81% of the shares of the Preferred Stock then outstanding,
        (a) alter or change adversely the powers, preferences or rights given to
        the
        Preferred Stock or alter or amend this Certificate of Designation, (b) authorize
        or create any class of stock ranking as to dividends, redemption or distribution
        of assets upon a Liquidation (as defined in Section 5) senior to or otherwise
        pari passu with the Preferred Stock, (c) amend its articles of incorporation
        or
        other charter documents so as to affect adversely any rights of the Holders,
        (d)
        increase the authorized number of shares of Preferred Stock, or (e) enter
        into
        any agreement with respect to the foregoing.

      


      Section
        5.  Liquidation.  Upon any liquidation,
        dissolution or winding-up of the Corporation, whether voluntary or involuntary
        (a “Liquidation”), the Holders shall be entitled to receive out of the
        assets of the Corporation, whether such assets are capital or surplus, for
        each
        share of Preferred Stock an amount equal to the Stated Value per share plus
        any
        accrued and unpaid dividends thereon and any other fees or liquidated damages
        owing thereon before any distribution or payment shall be made to the holders
        of
        any Junior Securities, and if the assets of the Corporation shall be
        insufficient to pay in full such amounts, then the entire assets to be
        distributed to the Holders shall be distributed among the Holders ratably
        in
        accordance with the respective amounts that would be payable on such shares
        if
        all amounts payable thereon were paid in full, paripassu with the
        Corporation’s Series A Convertible Preferred Stock and the Series B 9%
        Convertible Preferred Stock treated together as a class based upon the
        liquidation preferences of each such series.  A Fundamental
        Transaction or Change of Control Transaction shall not be treated as a
        Liquidation.  The Corporation shall mail written notice of any such
        Liquidation, not less than 45 days prior to the payment date stated therein,
        to
        each record Holder.

      


      Section
        6.  Conversion.

      


      a)           Conversions
        at Option of
        Holder.  Each share of
        Preferred
        Stock shall be convertible into that number of shares of Common Stock (subject
        to the limitations set forth in Sections 6(c)) determined by dividing the
        Stated
        Value of such share of Preferred Stock by the Conversion Price, at the option
        of
        the Holder, at any time and from time to time from and after the Original
        Issue
        Date.  Holders shall effect conversions by providing the Corporation
        with the form of conversion notice attached hereto as Annex A
        (a “Notice of Conversion”).  Each
        Notice of
        Conversion shall specify the number of shares of Preferred Stock to be
        converted, the number of shares of Preferred Stock owned prior to the conversion
        at issue, the number of shares of Preferred Stock owned subsequent to the
        conversion at issue and the date on which such conversion is to be effected,
        which date may not be prior to the date the Holder delivers such Notice of
        Conversion to the Corporation by facsimile (the “Conversion Date”).  If
        no Conversion Date is
        specified in a Notice of Conversion, the Conversion Date shall be the date
        that
        such Notice of Conversion to the Corporation is deemed delivered
        hereunder.  The calculations and entries set forth in the Notice of
        Conversion shall control in the absence of manifest or mathematical
        error.  To effect conversions, as the case may be, of shares of
        Preferred Stock, a Holder shall not be required to surrender the certificate(s)
        representing such shares of Preferred Stock to the Corporation unless all
        of the
        shares of Preferred Stock represented thereby are so converted, in which
        case
        such Holder shall deliver the certificate representing such shares of Preferred
        Stock promptly following the Conversion Date at issue.  Shares of
        Preferred Stock converted into Common Stock or redeemed in accordance with
        the
        terms hereof shall be canceled and may not be reissued.

      


      b)           Conversion
        Price.  The conversion price for the Preferred Stock shall equal
        $0.48 per share for the holders of the Preferred Stock on the Plan Closing
        Date
        (the “Conversion Price”).

      


      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      c)           Beneficial
        Ownership Limitation.  The Corporation shall not effect any
        conversion of the Preferred Stock, and a Holder shall not have the right
        to
        convert any portion of the Preferred Stock, to the extent that, after giving
        effect to the conversion set forth on the applicable Notice of Conversion,
        such
        Holder (together with such Holder’s Affiliates, and any other Person or entity
        acting as a group together with such Holder or any of such Holder’s Affiliates)
        would beneficially own in excess of the Beneficial Ownership Limitation (as
        defined below).  For purposes of the foregoing sentence, the number of
        shares of Common Stock beneficially owned by such Holder and its Affiliates
        shall include the number of shares of Common Stock issuable upon conversion
        of
        the Preferred Stock with respect to which such determination is being made,
        but
        shall exclude the number of shares of Common Stock which are issuable upon
        (A)
        conversion of the remaining, unconverted Stated Value of Preferred Stock
        beneficially owned by such Holder or any of its Affiliates and (B) exercise
        or
        conversion of the unexercised or unconverted portion of any other securities
        of
        the Corporation subject to a limitation on conversion or exercise analogous
        to
        the limitation contained herein (including the Warrants) beneficially owned
        by
        such Holder or any of its Affiliates.  Except as set forth in the
        preceding sentence, for purposes of this Section 6(c), beneficial ownership
        shall be calculated in accordance with Section 13(d) of the Exchange Act
        and the
        rules and regulations promulgated thereunder. To the extent that the limitation
        contained in this Section 6(c) applies, the determination of whether the
        Preferred Stock is convertible (in relation to other securities owned by
        such
        Holder together with any Affiliates) and of how many shares of Preferred
        Stock
        are convertible shall be in the sole discretion of such Holder, and the
        submission of a Notice of Conversion shall be deemed to be such Holder’s
        determination of whether the shares of Preferred Stock may be converted (in
        relation to other securities owned by such Holder together with any Affiliates)
        and how many shares of the Preferred Stock are convertible, in each case
        subject
        to such aggregate percentage limitations. To ensure compliance with this
        restriction, each Holder will be deemed to represent to the Corporation each
        time it delivers a Notice of Conversion that such Notice of Conversion has
        not
        violated the restrictions set forth in this paragraph and the Corporation
        shall
        have no obligation to verify or confirm the accuracy of such determination.
        In
        addition, a determination as to any group status as contemplated above shall
        be
        determined in accordance with Section 13(d) of the Exchange Act and the rules
        and regulations promulgated thereunder. For purposes of this Section 6(c),
        in
        determining the number of outstanding shares of Common Stock, a Holder may
        rely
        on the number of outstanding shares of Common Stock as stated in the most
        recent
        of the following: (A) the Corporation’s most recent Form 10-QSB or Form 10-KSB,
        as the case may be, (B) a more recent public announcement by the Corporation
        or
        (C) a more recent notice by the Corporation or the Corporation’s transfer agent
        setting forth the number of shares of Common Stock outstanding.  Upon
        the written or oral request of a Holder, the Corporation shall within two
        Trading Days confirm orally and in writing to such Holder the number of shares
        of Common Stock then outstanding.  In any case, the number of
        outstanding shares of Common Stock shall be determined after giving effect
        to
        the conversion or exercise of securities of the Corporation, including the
        Preferred Stock, by such Holder or its Affiliates since the date as of which
        such number of outstanding shares of Common Stock was reported. The “Beneficial
        Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock
        outstanding immediately after giving effect to the issuance of shares of
        Common
        Stock issuable upon conversion of Preferred Stock held by the applicable
        Holder.
        The Beneficial Ownership Limitation provisions of this Section 6(c) may be
        waived by such Holder, at the election of such Holder, upon not less than
        61
        days’ prior notice to the Corporation, to change the Beneficial Ownership
        Limitation to 9.99% of the number of shares of the Common Stock outstanding
        immediately after giving effect to the issuance of shares of Common Stock
        upon
        conversion of Preferred Stock held by the applicable Holder and the provisions
        of this Section 6(c) shall continue to apply. Upon such a change by a Holder
        of
        the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
        limitation, the Beneficial Ownership Limitation shall not be further waived
        by
        such Holder. The provisions of this paragraph shall be construed and implemented
        in a manner otherwise than in strict conformity with the terms of this Section
        6(c) to correct this paragraph (or any portion hereof) which may be defective
        or
        inconsistent with the intended Beneficial Ownership Limitation herein contained
        or to make changes or supplements necessary or desirable to properly give
        effect
        to such limitation. The limitations contained in this paragraph shall apply
        to a
        successor holder of Preferred Stock.  Notwithstanding anything set
        forth in this Section 6(c), the 4.99% and 9.99% beneficial ownership limitations
        imposed by this Section 6(c) shall not apply to Common Stock issuable upon
        conversion of the Preferred Stock in connection with the Plan.

       

      d)           Mechanics
        of
        Conversion.

      


      i.           Delivery
        of Certificate Upon
        Conversion.  Not later than
        three
        Trading Days after each Conversion Date (the “Share Delivery
        Date”), the Corporation
        shall deliver to
        the Holder (A) a certificate or certificates which, after the Effective Date,
        shall be free of restrictive legends and trading restrictions (other than
        those
        required by the Purchase Agreement) representing the number of shares of
        Common
        Stock being acquired upon the conversion of shares of Preferred Stock, and
        (B) a
        bank check in the amount of accrued and unpaid dividends (if the Corporation
        has
        elected or is required to pay accrued dividends in cash).  After the
        Effective Date, the Corporation shall, upon request of the Holder, deliver
        any
        certificate or certificates required to be delivered by the Corporation under
        this Section electronically through the Depository Trust Company or another
        established clearing corporation performing similar functions if the
        Corporation’s transfer agent is a participant in such system.  If in
        the case of any Notice of Conversion such certificate or certificates are
        not
        delivered to or as directed by the applicable Holder by the third Trading
        Day
        after the Conversion Date, the Holder shall be entitled to elect by written
        notice to the Corporation at any time on or before its receipt of such
        certificate or certificates thereafter, to rescind such conversion, in which
        event the Corporation shall immediately return the certificates representing
        the
        shares of Preferred Stock tendered for conversion.

      


      
        
          
          

        

        
          7

          
            

          

        

         

      

      ii.           Obligation
        Absolute; Partial
        Liquidated Damages.  The Corporation’s
        obligation to issue and deliver the Conversion Shares upon conversion of
        Preferred Stock in accordance with the terms hereof are absolute and
        unconditional, irrespective of any action or inaction by a Holder to enforce
        the
        same, any waiver or consent with respect to any provision hereof, the recovery
        of any judgment against any Person or any action to enforce the same, or
        any
        setoff, counterclaim, recoupment, limitation or termination, or any breach
        or
        alleged breach by such Holder or any other Person of any obligation to the
        Corporation or any violation or alleged violation of law by such Holder or
        any
        other Person, and irrespective of any other circumstance which might otherwise
        limit such obligation of the Corporation to such Holder in connection with
        the
        issuance of such Conversion Shares; provided,
however,
        that such delivery shall not operate
        as a waiver by the Corporation of any such action that the Corporation may
        have
        against such Holder.  In the event a Holder shall elect to convert any
        or all of the Stated Value of its Preferred Stock, the Corporation may not
        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, agreement
        or for any other reason, unless an injunction from a court, on notice to
        Holder,
        restraining and/or enjoining conversion of all or part of the Preferred Stock
        of
        such Holder shall have been sought and obtained, and the Corporation posts
        a
        surety bond for the benefit of such Holder in the amount of 150% of the Stated
        Value of Preferred Stock which is subject to the injunction, which bond shall
        remain in effect until the completion of arbitration/litigation of the
        underlying dispute and the proceeds of which shall be payable to such Holder
        to
        the extent it obtains judgment.  In the absence of such injunction,
        the Corporation shall issue Conversion Shares and, if applicable, cash, upon
        a
        properly noticed conversion.  If the Corporation fails to deliver to a
        Holder such certificate or certificates pursuant to Section 6(e)(i) on the
        second Trading Day after the Share Delivery Date applicable to such conversion,
        the Corporation shall pay to such Holder, in cash, as liquidated damages
        and not
        as a penalty, for each $5,000 of Stated Value of Preferred Stock being
        converted, $50 per Trading Day (increasing to $100 per Trading Day after
        the
        third Trading Day and increasing to $200 per Trading Day after the sixth
        Trading
        Day after such damages begin to accrue) for each Trading Day after such second
        Trading Day after the Share Delivery Date until such certificates are
        delivered.  Nothing herein shall limit a Holder’s right to pursue
        actual damages or declare a Triggering Event pursuant to Section 9 for the
        Corporation’s failure to deliver Conversion Shares within the period specified
        herein and such Holder shall have the right to pursue all remedies available
        to
        it hereunder, at law or in equity including, without limitation, a decree
        of
        specific performance and/or injunctive relief.  The Exercise of any
        such rights shall not prohibit a Holder from seeking to enforce damages pursuant
        to any other Section hereof or under applicable law.

       

      iii.           Compensation
        for Buy-In on Failure
        to Timely Deliver Certificates Upon Conversion.  If the Corporation
        fails
        to deliver to a Holder the applicable certificate or certificates by the
        Share
        Delivery Date pursuant to Section 6(e)(i), and if after such Share Delivery
        Date
        such Holder is required by its brokerage firm to purchase (in an open market
        transaction or otherwise), or the Holder’s brokerage firm purchases, shares of
        Common Stock to deliver in satisfaction of a sale by such Holder of the
        Conversion Shares which such Holder was entitled to receive upon the conversion
        relating to such Share Delivery Date (a “Buy-In”),
        then the Corporation shall (A) pay
        in cash to such Holder (in addition to any other remedies available to or
        elected by such Holder) the amount by which (x) such Holder’s total purchase
        price (including any brokerage commissions) for the shares of Common Stock
        so
        purchased exceeds (y) the product of (1) the aggregate number of shares of
        Common Stock that such Holder was entitled to receive from the conversion
        at
        issue multiplied by (2) the actual sale price at which the sell order giving
        rise to such purchase obligation was executed (including any brokerage
        commissions) and (B) at the option of such Holder, either reissue (if
        surrendered) the shares of Preferred Stock equal to the number of shares
        of
        Preferred Stock submitted for conversion or deliver to such Holder the number
        of
        shares of Common Stock that would have been issued if the Corporation had timely
        complied with its delivery requirements under Section 6(e)(i).  For
        example, if a Holder purchases shares of Common Stock having a total purchase
        price of $11,000 to cover a Buy-In with respect to an attempted conversion
        of
        shares of Preferred Stock with respect to which the actual sale price (including
        any brokerage commissions) giving rise to such purchase obligation was a
        total
        of $10,000 under clause (A) of the immediately preceding sentence, the
        Corporation shall be required to pay such Holder $1,000.  The Holder
        shall provide the Corporation written notice indicating the amounts payable
        to
        such Holder in respect of the Buy-In and, upon request of the Corporation,
        evidence of the amount of such loss.  Nothing herein shall limit a
        Holder’s right to pursue any other remedies available to it hereunder, at law or
        in equity including, without limitation, a decree of specific performance
        and/or
        injunctive relief with respect to the Corporation’s failure to timely deliver
        certificates representing shares of Common Stock upon conversion of the shares
        of Preferred Stock as required pursuant to the terms hereof.

      


      iv.           Reservation
        of Shares Issuable Upon
        Conversion.  The Corporation
        covenants
        that it will at all times reserve and keep available out of its authorized
        and
        unissued shares of Common Stock solely for the purpose of issuance upon
        conversion of the Preferred Stock and payment of dividends for three years
        from
        any point in time on the Preferred Stock, each as herein provided, free from
        preemptive rights or any other actual contingent purchase rights of Persons
        other than the Holders, not less than such number of shares of the Common
        Stock
        as shall (subject to any additional requirements of the Corporation as to
        reservation of such shares set forth in the Purchase Agreement) be issuable
        (taking into account the adjustments and restrictions of Section 7) upon
        the
        conversion of all outstanding shares of Preferred Stock.  The
        Corporation covenants that all shares of Common Stock that shall be so issuable
        shall, upon issue, be duly and validly authorized, issued and fully paid,
        nonassessable and, if the Conversion Shares Registration Statement is then
        effective under the Securities Act, registered for public sale in accordance
        with such Conversion Shares Registration Statement.

      


      v.           Fractional
        Shares.  Upon a conversion
        hereunder, the Corporation shall not be required to issue stock certificates
        representing fractions of shares of Common Stock, but may if otherwise
        permitted, make a cash payment in respect of any final fraction of a share
        based
        on the VWAP at such time.  If the Corporation elects not, or is
        unable, to make such a cash payment, the Holders shall be entitled to receive,
        in lieu of the final fraction of a share, one whole share of Common
        Stock.

      


      vi.           Transfer
        Taxes.  The issuance of
        certificates for shares of the Common Stock on conversion of the Preferred
        Stock
        shall be made without charge to the Holders thereof for any documentary stamp
        or
        similar taxes that may be payable in respect of the issue or delivery of
        such
        certificates, provided that the Corporation shall not be required to pay
        any tax
        that may be payable in respect of any transfer involved in the issuance and
        delivery of any such certificate upon conversion in a name other than that
        of
        the Holders of such shares of Preferred Stock so converted and the Corporation
        shall not be required to issue or deliver such certificates unless or until
        the
        Person or Persons requesting the issuance thereof shall have paid to the
        Corporation the amount of such tax or shall have established to the satisfaction
        of the Corporation that such tax has been paid.

      
        8

        
          

        

      

      
      

      Section
        7.  Certain Adjustments.

      


      a)           Stock
        Dividends and Stock
        Splits.  If
        the Corporation, at any time while this Preferred Stock is outstanding: (A)
        pays
        a stock dividend or otherwise makes a distribution or distributions payable
        in
        shares of Common Stock on shares of Common Stock or any other Common Stock
        Equivalents (which, for avoidance of doubt, shall not include any shares
        of
        Common Stock issued by the Corporation upon conversion of, or payment of
        a
        dividend on, this Preferred Stock, the Series A Convertible Preferred Stock
        or
        the Series B 9% Convertible Preferred Stock); (B) subdivides outstanding
        shares
        of Common Stock into a larger number of shares; (C) combines (including by
        way
        of a reverse stock split) outstanding shares of Common Stock into a smaller
        number of shares; or (D) issues, in the event of a reclassification of shares
        of
        the Common Stock, any shares of capital stock of the Corporation, then the
        Conversion Price shall be multiplied by a fraction of which the numerator
        shall
        be the number of shares of Common Stock (excluding any treasury shares of
        the
        Corporation) outstanding immediately before such event and of which the
        denominator shall be the number of shares of Common Stock outstanding
        immediately after such event.  Any adjustment made pursuant to this
        Section 7(a) shall become effective immediately after the record date for
        the
        determination of stockholders entitled to receive such dividend or distribution
        and shall become effective immediately after the effective date in the case
        of a
        subdivision, combination or re-classification.

      


      b)           Subsequent
        Equity Sales.  If, at any time while this Preferred Stock is
        outstanding, the Corporation or any Subsidiary, as applicable, sells or grants
        any option to purchase or sells or grants any right to reprice its securities,
        or otherwise disposes of or issues (or announces any sale, grant or any option
        to purchase or other disposition) any Common Stock or Common Stock Equivalents
        entitling any Person to acquire shares of Common Stock at an effective price
        per
        share that is lower than the then Conversion Price (such lower price, the
        “Base Conversion Price” and such issuances collectively, a “Dilutive
        Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so
        issued shall at any time, whether by operation of purchase price adjustments,
        reset provisions, floating conversion, exercise or exchange prices or otherwise,
        or due to warrants, options or rights per share which are issued in connection
        with such issuance, be entitled to receive shares of Common Stock at an
        effective price per share that is lower than the Conversion Price, such issuance
        shall be deemed to have occurred for less than the Conversion Price on such
        date
        of the Dilutive Issuance), then the Conversion Price shall be reduced to
        equal
        the Base Conversion Price.  Notwithstanding the foregoing, no
        adjustment will be made under this Section 7(b) in respect of an Exempt
        Issuance.  The Corporation shall notify the Holders in writing, no
        later than the Business Day following the issuance of any Common Stock or
        Common
        Stock Equivalents subject to this Section 7(b), indicating therein the
        applicable issuance price, or applicable reset price, exchange price, conversion
        price and other pricing terms (such notice, the “Dilutive Issuance
        Notice”).  For purposes of clarification, whether or not the
        Corporation provides a Dilutive Issuance Notice pursuant to this Section
        7(b),
        upon the occurrence of any Dilutive Issuance, the Holders are entitled to
        receive a number of Conversion Shares based upon the Base Conversion Price
        on or
        after the date of such Dilutive Issuance, regardless of whether a Holder
        accurately refers to the Base Conversion Price in the Notice of
        Conversion.

      


      c)           Subsequent
        Rights
        Offerings.  If the Corporation,
        at any
        time while the Preferred Stock is outstanding, shall issue rights, options
        or
        warrants to all holders of Common Stock (and not to Holders) entitling them
        to
        subscribe for or purchase shares of Common Stock at a price per share less
        than
        the VWAP at the record date mentioned below, then the Conversion Price shall
        be
        multiplied by a fraction, of which the denominator shall be the number of
        shares
        of the Common Stock outstanding on the date of issuance of such rights or
        warrants plus the number of additional shares of Common Stock offered for
        subscription or purchase, and of which the numerator shall be the number
        of
        shares of the Common Stock outstanding on the date of issuance of such rights
        or
        warrants plus the number of shares which the aggregate offering price of
        the
        total number of shares so offered (assuming receipt by the Corporation in
        full
        of all consideration payable upon exercise of such rights, options or warrants)
        would purchase at such VWAP.  Such adjustment shall be made whenever
        such rights or warrants are issued, and shall become effective immediately
        after
        the record date for the determination of stockholders entitled to receive
        such
        rights, options or warrants.

      


      d)           Pro
        Rata
        Distributions.  If the Corporation,
        at any
        time while Preferred Stock is outstanding, shall distribute to all holders
        of
        Common Stock (and not to Holders) evidences of its indebtedness or assets
        or
        rights or warrants to subscribe for or purchase any security, then in each
        such
        case the Conversion Price shall be determined by multiplying such Conversion
        Price in effect immediately prior to the record date fixed for determination
        of
        stockholders entitled to receive such distribution by a fraction of which
        the
        denominator shall be the VWAP determined as of the record date mentioned
        above,
        and of which the numerator shall be such VWAP on such record date less the
        then
        fair market value at such record date of the portion of such assets or evidence
        of indebtedness so distributed applicable to one outstanding share of the
        Common
        Stock as determined by the Board of Directors in good faith.  In
        either case the adjustments shall be described in a statement provided to
        the
        Holders of the portion of assets or evidences of indebtedness so distributed
        or
        such subscription rights applicable to one share of Common
        Stock.  Such adjustment shall be made whenever any such distribution
        is made and shall become effective immediately after the record date mentioned
        above.

      


      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      e)           Fundamental
        Transaction.  If, at any time
        while this
        Preferred Stock is outstanding, (A) the Corporation effects any merger or
        consolidation of the Corporation with or into another Person, (B) the
        Corporation effects any sale of all or substantially all of its assets in
        one or
        a series of related transactions, (C) any tender offer or exchange offer
        (whether by the Corporation or another Person) is completed pursuant to which
        holders of Common Stock are permitted to tender or exchange their shares
        for
        other securities, cash or property, or (D) the Corporation effects any
        reclassification of the Common Stock or any compulsory share exchange pursuant
        to which the Common Stock is effectively converted into or exchanged for
        other
        securities, cash or property (in any such case, a “Fundamental
        Transaction”), then
        upon any subsequent conversion of this Preferred Stock, the Holders shall
        have
        the right to receive, for each Conversion Share that would have been issuable
        upon such conversion immediately prior to the occurrence of such Fundamental
        Transaction, the same kind and amount of securities, cash or property as
        it
        would have been entitled to receive upon the occurrence of such Fundamental
        Transaction if it had been, immediately prior to such Fundamental Transaction,
        the holder of one share of Common Stock (the “Alternate
        Consideration”).  For purposes of
        any such
        conversion, the determination of the Conversion Price shall be appropriately
        adjusted to apply to such Alternate Consideration based on the amount of
        Alternate Consideration issuable in respect of one share of Common Stock
        in such
        Fundamental Transaction, and the Corporation shall apportion the Conversion
        Price among the Alternate Consideration in a reasonable manner reflecting
        the
        relative value of any different components of the Alternate
        Consideration.  If holders of Common Stock are given any choice as to
        the securities, cash or property to be received in a Fundamental Transaction,
        then the Holders shall be given the same choice as to the Alternate
        Consideration it receives upon any conversion of this Preferred Stock following
        such Fundamental Transaction.  To the extent necessary to effectuate
        the foregoing provisions, any successor to the Corporation or surviving entity
        in such Fundamental Transaction shall file a new Certificate of Designation
        with
        the same terms and conditions and issue to the Holders new preferred stock
        consistent with the foregoing provisions and evidencing the Holders’ right to
        convert such preferred stock into Alternate Consideration.  The terms
        of any agreement pursuant to which a Fundamental Transaction is effected
        shall
        include terms requiring any such successor or surviving entity to comply
        with
        the provisions of this Section 7(e) and insuring that this Preferred Stock
        (or
        any such replacement security) will be similarly adjusted upon any subsequent
        transaction analogous to a Fundamental Transaction.

       

      f)           Exempt
        Issuance.  Notwithstanding the foregoing, no adjustment will be
        made under this Section 7 in respect of an Exempt Issuance.

      


      g)           Calculations.  All
        calculations under
        this Section 7 shall be made to the nearest cent or the nearest 1/100th of
        a
        share, as the case may be.  The number of shares of Common Stock
        outstanding at any given time shall not include shares owned or held by or
        for
        the account of the Corporation, and the description of any such shares of
        Common
        Stock shall be considered on issue or sale of Common Stock.  For
        purposes of this Section 7, the number of shares of Common Stock deemed to
        be
        issued and outstanding as of a given date shall be the sum of the number
        of
        shares of Common Stock (excluding treasury shares, if any) issued and
        outstanding.

      


      h)           Notice
        to Holders.

      


      i.           Adjustment
        to Conversion
        Price.  Whenever the Conversion
        Price is adjusted pursuant to any provisions of this Section 7, the Corporation
        shall promptly mail to each Holder a notice setting forth the Conversion
        Price
        after such adjustment and setting forth a brief statement of the facts requiring
        such adjustment.  If the Corporation issues a variable rate security,
        despite the prohibition thereon in the Purchase Agreement (or other Securities
        Purchase Agreement if applicable to a Holder), the Corporation shall be deemed
        to have issued Common Stock or Common Stock Equivalents at the lowest possible
        conversion or exercise price at which such securities may be converted or
        exercised in the case of a Variable Rate Transaction (as defined in the Purchase
        Agreement), or the lowest possible adjustment price in the case of an MFN
        Transaction (as defined in the Purchase Agreement).

      


      ii.           Notice
        to Allow Conversion by
        Holder.  If
        (A) the Corporation shall declare a dividend (or any other distribution)
        on the
        Common Stock; (B) the Corporation shall declare a special nonrecurring cash
        dividend on or a redemption of the Common Stock; (C) the Corporation shall
        authorize the granting to all holders of the Common Stock rights or warrants
        to
        subscribe for or purchase any shares of capital stock of any class or of
        any
        rights; (D) the approval of any stockholders of the Corporation shall be
        required in connection with any reclassification of the Common Stock, any
        consolidation or merger to which the Corporation is a party, any sale or
        transfer of all or substantially all of the assets of the Corporation, of
        any
        compulsory share exchange whereby the Common Stock is converted into other
        securities, cash or property; (E) the Corporation shall authorize the voluntary
        or involuntary dissolution, liquidation or winding up of the affairs of the
        Corporation; then, in each case, the Corporation shall cause to be filed
        at each
        office or agency maintained for the purpose of conversion of the Preferred
        Stock, and shall cause to be mailed to the Holders at their last addresses
        as
        they shall appear upon the stock books of the Corporation, at least 20 calendar
        days prior to the applicable record or effective date hereinafter specified,
        a
        notice stating (x) the date on which a record is to be taken for the purpose
        of
        such dividend, distribution, redemption, rights or warrants, or if a record
        is
        not to be taken, the date as of which the holders of the Common Stock of
        record
        to be entitled to such dividend, distributions, redemption, rights or warrants
        are to be determined or (y) the date on which such reclassification,
        consolidation, merger, sale, transfer or share exchange is expected to become
        effective or close, and the date as of which it is expected that holders
        of the
        Common Stock of record shall be entitled to exchange their shares of the
        Common
        Stock for securities, cash or other property deliverable upon such
        reclassification, consolidation, merger, sale, transfer or share exchange;
        provided,
        that the failure to mail such notice
        or any defect therein or in the mailing thereof shall not affect the validity
        of
        the corporate action required to be specified in such notice.  Holders
        are entitled to convert the Conversion Amount of Preferred Stock during the
        20-day period commencing the date of such notice to the effective date of
        the
        event triggering such notice.

      


      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      Section
        8.  Forced Conversion.

       

      a)           As
        used herein, the “Forced Conversion Date” shall be the Plan Closing
        Date.

       

      b)           One
        minute after this Second Amended and Restated Certificate is effective with
        the
        Nevada Secretary of State (the "Conversion Time") on the Forced Conversion
        Date,
        each share of Preferred Stock outstanding, 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 Stated
        Value of the shares of Preferred Stock outstanding on the Forced Conversion
        Date
        divided by (ii) the Conversion Price in effect at the Conversion Time on
        the
        Forced Conversion Date.  Any accrued but unpaid dividends on the
        Preferred Stock outstanding at the Conversion Time on the Forced Conversion
        Date
        will be issued by the Company at the Conversion Time on the Forced Conversion
        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 Forced Conversion
        Date.

       

      c)           As
        soon as practicable after the Forced Conversion Date, the Corporation will
        send
        a notice to all Holders stating (i) the date as of which the Forced Conversion
        Date occurred, and (ii) how many shares of Common Stock the Holder’s Preferred
        Stock was converted into.

       

      Section
        9.  Redemption Upon Triggering Events.

      


      a)           “Triggering
        Event” means any one
        or more of the
        following events (whatever the reason and whether it shall be voluntary or
        involuntary or effected by operation of law or pursuant to any judgment,
        decree
        or order of any court, or any order, rule or regulation of any administrative
        or
        governmental body):

      


      i.           the
        failure of a Conversion Shares
        Registration Statement to be declared effective by the Commission on or prior
        to
        the 210th
        day after the Original Issue
        Date;

       

      ii.           if,
        during the Effectiveness Period,
        the effectiveness of the Conversion Shares Registration Statement lapses
        for any
        reason for more than an aggregate of 25 calendar days (which need not be
        consecutive days) during any 12 month period, or the Holder shall not be
        permitted to resell Registrable Securities under the Conversion Shares
        Registration Statement for more than an aggregate of 25 calendar days (which
        need not be consecutive days) during any 12 month period, and in each case
        the
        shares of Common Stock into which such Holder’s Preferred Stock can be converted
        cannot be sold in the public securities market pursuant to Rule 144(k) under
        the
        Securities Act, provided, that the cause of such lapse or unavailability
        is not
        due to factors solely within the control of such holder of Preferred
        Stock;

      


      iii.           the
        Corporation shall fail to deliver
        certificates representing Conversion Shares issuable upon a conversion hereunder
        that comply with the provisions hereof prior to the 9th
        Trading Day after such shares are
        required to be delivered hereunder, or the Corporation shall provide written
        notice to any Holder, including by way of public announcement, at any time,
        of
        its intention not to comply with requests for conversion of any shares of
        Preferred Stock in accordance with the terms hereof;

      


      iv.           one
        of the Events (as defined in the
        Registration Rights Agreement) described in subsections (i), (ii) or (iii)
        of
        Section 2(b) of the Registration Rights Agreement shall not have been cured
        to
        the satisfaction of the Holders prior to the expiration of 30 days from the
        Event Date (as defined in the Registration Rights Agreement) relating thereto
        (other than an Event resulting from a failure of a Conversion Shares
        Registration Statement to be declared effective by the Commission on or prior
        to
        the 210th day after the Original Issue Date, which shall be covered by Section
        9(a)(i));

      


      v.           the
        Corporation shall fail for any
        reason to pay in full the amount of cash due pursuant to a Buy-In within
        15 days
        after notice therefor is delivered hereunder or shall fail to pay all amounts
        owed on account of an Event within 15 days of the date due;

      


      vi.           the
        Corporation shall fail to have
        available a sufficient number of authorized and unreserved shares of Common
        Stock to issue to such Holder upon a conversion hereunder;

      


      vii.           the
        Corporation shall fail to observe
        or perform any other covenant, agreement or warranty contained in, or otherwise
        commit any breach of the Transaction Documents, and such failure or breach
        shall
        not, if subject to the possibility of a cure by the Corporation, have been
        remedied within 30 calendar days after the date on which written notice of
        such
        failure or breach shall have been given;

      


      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      viii.           the
        Corporation shall redeem more than
        a de minimis
        number of Junior Securities other than
        as to repurchases of Common Stock or Common Stock Equivalents from departing
        officers and directors of the Corporation, provided that, while any of the
        Preferred Stock remains outstanding, such repurchases shall not exceed an
        aggregate of $100,000 from all officers and directors;

      


      ix.           the
        Corporation shall be party to a
        Change of Control Transaction;

      


      x.           there
        shall have occurred a Bankruptcy
        Event; or

      


      xi.           the
        Common Stock shall fail to be
        listed or quoted for trading on a Trading Market for more than 7 Trading
        Days,
        which need not be consecutive Trading Days.

      


      b)           Upon
        the occurrence of a Triggering
        Event, each Holder shall (in addition to all other rights it may have hereunder
        or under applicable law) have the right, exercisable at the sole option of
        such
        Holder, to require the Corporation to redeem all of the Preferred Stock then
        held by such Holder for a redemption price, in cash, equal to the Triggering
        Redemption Amount.  The Triggering Redemption Amount shall be due and
        payable within 5 Trading Days of the date on which the notice for the payment
        therefor is provided by a Holder (the “Triggering Redemption
        Payment
        Date”).  If
        the Corporation fails to pay the Triggering Redemption Amount hereunder in
        full
        pursuant to this Section on the date such amount is due in accordance with
        this
        Section, the Corporation will pay interest thereon at a rate of 18% per annum
        (or such lesser amount permitted by applicable law), accruing daily from
        such
        date until the Triggering Redemption Amount, plus all such interest thereon,
        is
        paid in full.  For purposes of this Section, a share of Preferred
        Stock is outstanding until such date as the Holder shall have received
        Conversion Shares upon a conversion (or attempted conversion) thereof that
        meets
        the requirements hereof or has been paid the Triggering Redemption Amount
        plus
        all accrued but unpaid dividends and all accrued but unpaid liquidated damages
        in cash.

       

      Section
        10.  Miscellaneous.

      


      a)           No
        Debt.  So long as at
        least 5 shares of
        Preferred Stock are outstanding, the Corporation will not and will not permit
        any of its Subsidiaries to directly or indirectly enter into, create, incur,
        assume or suffer to exist (or allow any of its Subsidiaries to do so) any
        indebtedness or liens of any kind on or with respect to any of its property
        or
        assets now owned or hereafter acquired or any interest therein or any income
        or
        profits therefrom, other than (1) accounts payable, equipment leases, other
        current payables and other accrued liabilities incurred in connection with
        short-term operating liabilities, (2) accrued interest on the Corporation’s
        existing indebtedness as set forth on Schedule 10 hereto, and (3) up to
        $2,000,000 for non-equity linked debt financing.

      


      b)           Notices.  Any
        and all notices or
        other communications or deliveries to be provided by the Holders hereunder,
        including, without limitation, any Notice of Conversion, shall be in writing
        and
        delivered personally, by facsimile, sent by a nationally recognized overnight
        courier service, addressed to the Corporation, at the address set forth above,
        facsimile number 631-924-6033,
        Attn: Chief
        Financial Officer, Richard Larkin such other
        address or facsimile number
        as the Corporation may specify for such purposes by notice to the Holders
        delivered in accordance with this Section.  Any and all notices or
        other communications or deliveries to be provided by the Corporation hereunder
        shall be in writing and delivered personally, by facsimile, sent by a nationally
        recognized overnight courier service addressed to each Holder at the facsimile
        telephone number or address of such Holder appearing on the books of the
        Corporation, or if no such facsimile telephone number or address appears,
        at the
        principal place of business of the Holder.  Any notice or other
        communication or deliveries hereunder shall be deemed given and effective
        on the
        earliest of (i) the date of transmission, if such notice or communication
        is
        delivered via facsimile at the facsimile telephone number specified in this
        Section prior to 5:30 p.m. (New York City time), (ii) the date after the
        date of
        transmission, if such notice or communication is delivered via facsimile
        at the
        facsimile telephone number specified in this Section later than 5:30 p.m.
        (New
        York City time) on any date and earlier than 11:59 p.m. (New York City time)
        on
        such date, (iii) the second Business Day following the date of mailing, if
        sent
        by nationally recognized overnight courier service, or (iv) upon actual receipt
        by the party to whom such notice is required to be given.

      


      c)           Absolute
        Obligation.  Except as expressly
        provided herein, no provision of this Certificate of Designation shall alter
        or
        impair the obligation of the Corporation, which is absolute and unconditional,
        to pay the liquidated damages (if any) on, the shares of Preferred Stock
        at the
        time, place, and rate, and in the coin or currency, herein
        prescribed.

      


      d)           Lost
        or Mutilated Preferred Stock
        Certificate.  If a Holder’s Preferred
        Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
        shall execute and deliver, in exchange and substitution for and upon
        cancellation of a mutilated certificate, or in lieu of or in substitution
        for a
        lost, stolen or destroyed certificate, a new certificate for the shares of
        Preferred Stock so mutilated, lost, stolen or destroyed but only upon receipt
        of
        evidence of such loss, theft or destruction of such certificate, and of the
        ownership hereof, and indemnity, if requested, all reasonably satisfactory
        to
        the Corporation.

      


      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      e)           Governing
        Law.  All questions
        concerning
        the construction, validity, enforcement and interpretation of this Certificate
        of Designation shall be governed by and construed and enforced in accordance
        with the internal laws of the State of New York, without regard to the
        principles of conflicts of law thereof.  Each party agrees that all
        legal proceedings concerning the interpretations, enforcement and defense
        of the
        transactions contemplated by any of the Transaction Documents (whether brought
        against a party hereto or its respective affiliates, directors, officers,
        shareholders, employees or agents) shall be commenced in the state and federal
        courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each
        party hereto hereby
        irrevocably submits to the exclusive jurisdiction of the New York Courts
        for the
        adjudication of any dispute hereunder or in connection herewith or with any
        transaction contemplated hereby or discussed herein (including with respect
        to
        the enforcement of any of the Transaction Documents), and hereby irrevocably
        waives, and agrees not to assert in any suit, action or proceeding, any claim
        that it is not personally subject to the jurisdiction of any such court,
        or such
        New York Courts are improper or inconvenient venue for such
        proceeding.  Each party hereby irrevocably waives personal service of
        process and consents to process being served in any such suit, action or
        proceeding by mailing a copy thereof via registered or certified mail or
        overnight delivery (with evidence of delivery) to such party at the address
        in
        effect for notices to it under this Certificate of Designation and agrees
        that
        such service shall constitute good and sufficient service of process and
        notice
        thereof.  Nothing contained herein shall be deemed to limit in any way
        any right to serve process in any manner permitted by law.  Each party
        hereto hereby irrevocably waives, to the fullest extent permitted by applicable
        law, any and all right to trial by jury in any legal proceeding arising out
        of
        or relating to this Certificate of Designation or the transactions contemplated
        hereby.  If either party shall commence an action or proceeding to
        enforce any provisions of this Certificate of Designation, then the prevailing
        party in such action or proceeding shall be reimbursed by the other party
        for
        its attorneys fees and other costs and expenses incurred with the investigation,
        preparation and prosecution of such action or proceeding.

      


      f)           Waiver.  Any
        waiver by the
        Corporation or the Holder of a breach of any provision of this Certificate
        of
        Designation shall not operate as or be construed to be a waiver of any other
        breach of such provision or of any breach of any other provision of this
        Certificate of Designation.  The failure of the Corporation or the
        Holder to insist upon strict adherence to any term of this Certificate of
        Designation on one or more occasions shall not be considered a waiver or
        deprive
        that party of the right thereafter to insist upon strict adherence to that
        term
        or any other term of this Certificate of Designation.  Any waiver must
        be in writing.

      


      g)           Severability.  If
        any provision of this
        Certificate of Designation is invalid, illegal or unenforceable, the balance
        of
        this Certificate of Designation shall remain in effect, and if any provision
        is
        inapplicable to any Person or circumstance, it shall nevertheless remain
        applicable to all other Persons and circumstances.  If it shall be
        found that any interest or other amount deemed interest due hereunder violates
        applicable laws governing usury, the applicable rate of interest due hereunder
        shall automatically be lowered to equal the maximum permitted rate of
        interest.

      


      h)           Next
        Business Day.  Whenever any payment
        or
        other obligation hereunder shall be due on a day other than a Business Day,
        such
        payment shall be made on the next succeeding Business Day.

      


      i)           Headings.  The
        headings contained
        herein are for convenience only, do not constitute a part of this Certificate
        of
        Designation and shall not be deemed to limit or affect any of the provisions
        hereof.

      


      j)           Status
        of Converted or Redeemed
        Preferred Stock.  Shares of Preferred
        Stock
        may only be issued if permitted pursuant to the Purchase
        Agreement.  If any shares of Preferred Stock shall be converted,
        redeemed or reacquired by the Corporation, such shares shall resume the status
        of authorized but unissued shares of preferred stock and shall no longer
        be
        designated as Series C 7% Convertible Preferred Stock.

      


      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      


      *********************

      


      RESOLVED,
        FURTHER, that the Chairman, the president or any vice-president, the Chief
        Financial Officer and the secretary or any assistant secretary, of the
        Corporation be and they hereby are authorized and directed to prepare and
        file a
        Restated and Amended Certificate of Designation of Preferences, Rights and
        Limitations in accordance with the foregoing resolution and the provisions
        of
        the Nevada Revised Statutes.

      


      IN
        WITNESS WHEREOF, the undersigned have executed this Certificate this 19th
        day of
        December, 2007.

      


      __________________________

      Richard
        J. Larkin

      Title:
        Chief Financial Officer


      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      


      


      
        
          

        



      


      ANNEX
        A

      


      NOTICE
        OF
        CONVERSION

      


      (TO
        BE
        EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
        STOCK)

      


      The
        undersigned hereby elects to convert the number of shares of Series C 7%
        Convertible Preferred Stock indicated below, into shares of common stock,
        par
        value $0.01 per share (the “Common Stock”), of Chembio Diagnostics, Inc.,
        a Nevada corporation (the “Corporation”), according to the conditions
        hereof, as of the date written below.  If shares are to be issued in
        the name of a Person other than undersigned, the undersigned will pay all
        transfer taxes payable with respect thereto and is delivering herewith such
        certificates and opinions as reasonably requested by the Corporation in
        accordance therewith.  No fee will be charged to the Holder for any
        conversion, except for such transfer taxes, if any.

      


      Conversion
        calculations:

      


      
        	
                Date
                  to Effect Conversion:
                  _____________________________________________

              
	
                Number
                  of shares of Preferred Stock owned prior to Conversion:
                  _______________

              
	
                Number
                  of shares of Preferred Stock to be Converted:
                  ________________________

              
	
                Stated
                  Value of shares of Preferred Stock to be Converted:
                  ____________________

              
	
                Number
                  of shares of Common Stock to be Issued:
                  ___________________________

              
	
                Applicable
                  Conversion
                  Price:____________________________________________

              
	
                Number
                  of shares of Preferred Stock subsequent to Conversion:
                  ________________

              
	
                 

                [HOLDER]

                 

                By:___________________________________

                Name:

                Title: