Document:

ex99_1.htm

    
      

    

    
      

    

    
      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.

      
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      (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.

      
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      (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.

       

      
        
           

        

        
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      (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:ex99_2.htm

    
      

    

    
      

    

    
      CHEMBIO
        DIAGNOSTICS, INC.

      

      SECOND
        AMENDED AND RESTATED

      CERTIFICATE
        OF DESIGNATION OF PREFERENCES,

      RIGHTS
        AND LIMITATIONS

      OF

      SERIES
        B 9% 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.

      

      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 175 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).

      
         

      

      “Bankruptcy
        Event” means any of the following events: (a) the Corporation or any
        Significant Subsidiary (as such term is defined in Rule 1.02(s) 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 days; (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.

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      “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
        voting securities 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, (iv) a replacement at one time or within a one year
        period of more than one-half of the members of the Corporation’s board of
        directors which is not approved by a majority of those individuals who are
        members of the board of directors on the date hereof (or by those individuals
        who are serving as members of the board of directors on any date whose
        nomination to the board of directors was approved by a majority of the members
        of the board of directors who are members on the date hereof), or (v) 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
        in (i)
        or (iv).

      

      “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) the Holders’ 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 into which such shares may hereafter have been
        reclassified or changed.

      

      “Common
        Stock Equivalents” means any securities of the Corporation or the
        Subsidiaries which would entitle the holder thereof to acquire 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.

      

      “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.

      

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

      

      “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).

      

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

      

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Equity
        Conditions” shall mean, 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, if any, (ii) all liquidated
        damages
        and other amounts owing in respect of the Preferred Stock shall have been
        paid;
        (iii) there is an effective Conversion Shares Registration Statement pursuant
        to
        which the Holder is permitted to utilize the prospectus thereunder to resell
        all
        of the shares 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
        the Trading Market and all of the shares issuable pursuant to the Transaction
        Documents are listed for trading on a 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 issuable pursuant to the
        Transaction Documents, (vi) there is then existing no Triggering Event or
        event
        which, with the passage of time or the giving of notice, would constitute
        a
        Triggering Event, (vii) all of the shares issued or issuable pursuant to
        the
        transaction proposed would not violate the limitations set forth in Sections
        6(c) and (viii) no public announcement of a pending or proposed Fundamental
        Transaction, Change of Control Transaction or acquisition transaction has
        occurred that has not been consummated.

      

      “Exchange
        Act” means the Securities Exchange Act of 1934, as amended.

      

      “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, up to a total of 400,000 shares of Common Stock in each of fiscal
        2005
        and 2006, subject in each case to adjustment for any subsequent stock splits
        or
        the like, (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 this Agreement, provided that such securities
        have
        not been amended since the date of this 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 in Bona fide firm underwritten public offerings each of which
        has
        gross proceeds of at least equal to $20,000,000, (e) Securities underlying
        placement agent warrants issued in connection with this transaction, and
        (f)
        shares issued as dividend payments on the Series A and Series B
        Stock.

       

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

      

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

      

      “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 equity or equity equivalent
        securities of the Corporation other than those securities that are (a)
        outstanding on the Original Issue Date and (b) which are explicitly senior
        or
        pari passu in rights or liquidation preference to the Preferred
        Stock.

      

      “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).

      

      “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.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

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

      

      “Purchase
        Agreement” means the Securities Purchase Agreement, dated as of the Original
        Issue Date, 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” means the Registration Rights Agreement, dated as of the
        date of the Purchase Agreement, to which the Corporation and the original
        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 as specified
        below
        such Purchaser’s name on the signature page of the Purchase Agreement 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.

      

      “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 B 9% Convertible Preferred
        Stock (the “Preferred Stock”) and the number of shares so designated
        shall be 175 (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 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.

      

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      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 9% per
        annum
        (subject to increase pursuant to Section 9(b)),
        payable semiannually on July 1 and
        January 1, beginning with the first such date after the Original Issue Date
        and
        on any Conversion Date (except that, if such date is not a Trading Day, the
        payment date shall be the next succeeding Trading Day)(“Dividend Payment
        Date”). The form of
        dividend payments to each Holder shall be made at the sole election of the
        Corporation, in cash, in shares of Preferred Stock, or in shares of Common
        Stock, provided,
        however, that any
        Holder of a majority of the issued and outstanding Preferred Stock at any
        Dividend Payment Date may elect whether to receive such dividend in cash,
        in
        Common Stock or in shares of Preferred Stock in its sole discretion. If the
        Company elects to pay a 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 amount 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 purchases 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 Preferred Stock, the number
        of
        shares of Preferred Stock to be issued to the holder shall be an amount equal
        to
        the quotient of (i) the amount of 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 Preferred Stock that would at the
        time
        of calculation be convertible into the number of shares determined by dividing
        the amount of the dividend payment by the 10-day VWAP. 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 lawfully
        pay
        cash dividends. The Corporation shall promptly notify the Holders at any
        time
        the Corporation shall become able or unable, as the case may be, to lawfully
        pay
        cash dividends. The Corporation must provide the Holder with at least 15
        calendar days’ notice of its election to pay a regularly scheduled dividend in
        Preferred Stock or Common Stock. Dividends on the Preferred Stock shall be
        calculated on the basis of a 360-day year, 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. Any dividends, whether paid in cash
        or
        shares, 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).

      

      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 or shares pari passu with the Preferred
        Stock.

      

      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 51%
        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. Notwithstanding the foregoing, so long as any shares
        of Preferred Stock are outstanding, the Corporation shall not, without the
        affirmative vote of the Holders of 75% of the shares of Preferred Stock then
        outstanding, (a) decrease the dividend rate of 9% per annum as provided in
        Section 3a, (b) amend the anti-dilution adjustment for subsequent equity
        sales
        as provided in Section 7b, or (c) amend the terms for a forced conversion
        as
        provided in Section 8a.

      

      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, pari passu with the Corporation’s
        Series A 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.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      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 the Holder shall deliver the certificate
        representing such share 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
        $0.40 per share for the holders of the Preferred Stock on the Plan Closing
        Date
        (the “Conversion Price”), provided, however, that the Conversion Price
        for the Preferred Stock held by Lawrence A. Siebert shall be $0.48 per share
        on
        the Plan Closing Date.

      

      c)           Beneficial
        Ownership Limitation.  The Corporation shall not effect any
        conversion of the Preferred Stock, and the Holder shall not have the right
        to
        convert any portion of the Preferred Stock to the extent that after giving
        effect to such conversion, the Holder (together with the Holder’s affiliates),
        as set forth on the applicable Notice of Conversion, would beneficially own
        in
        excess of 4.99% of the number of shares of the Common Stock outstanding
        immediately after giving effect to such conversion.  For purposes of
        the foregoing sentence, the number of shares of Common Stock beneficially
        owned
        by the Holder and its affiliates shall include the number of shares of Common
        Stock issuable upon conversion of the Preferred Stock with respect to which
        the
        determination of such sentence is being made, but shall exclude the number
        of
        shares of Common Stock which would be issuable upon (A) conversion of the
        remaining, nonconverted Stated Value of Preferred Stock beneficially owned
        by
        the Holder or any of its affiliates and (B) exercise or conversion of the
        unexercised or nonconverted portion of any other securities of the Corporation
        (including the Warrants) subject to a limitation on conversion or exercise
        analogous to the limitation contained herein beneficially owned by the 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. 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 the
        Holder together with any affiliates) and of which shares of Preferred Stock
        is
        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) and which shares of the Preferred Stock
        is
        convertible, in each case subject to such aggregate percentage limitations.
        To
        ensure compliance with this restriction, the 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. For purposes of this Section 6(c), in determining the
        number
        of outstanding shares of Common Stock, the Holder may rely on the number
        of
        outstanding shares of Common Stock as reflected 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) any
        other 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 the Holder, the Corporation shall within two Trading
        Days confirm orally and in writing to the 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 the
        Holder or its affiliates since the date as of which such number of outstanding
        shares of Common Stock was reported. The provisions of this Section 6(c)
        may be
        waived by the Holder upon, at the election of the Holder, not less than 61
        days’
prior notice to the Corporation, and the provisions of this Section 6(c)
        shall
        continue to apply until such 61st day (or such later date, as determined
        by the
        Holder, as may be specified in such notice of
        waiver).  Notwithstanding anything set forth in this Section 6(c), the
        4.99% beneficial ownership restriction set forth in this Section 6(c) shall
        not
        apply to Common Stock issuable upon conversion of the Preferred Stock in
        connection with the Plan.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      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 Corporation 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.

      ii.           Obligation
        Absolute; Partial
        Liquidated Damages.
        The Corporation’s obligations 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 the 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 the Holder or any other Person of any obligation
        to
        the Corporation or any violation or alleged violation of law by the Holder
        or
        any other person, and irrespective of any other circumstance which might
        otherwise limit such obligation of the Corporation to the Holder in connection
        with the issuance of such Conversion Shares. 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 the Holder of has been engaged in any
        violation of law, agreement or for any other reason, unless, an injunction
        from
        a court, on notice, restraining and or enjoining conversion of all or part
        of
        this Preferred Stock shall have been sought and obtained and the Corporation
        posts a surety bond for the benefit of the Holder in the amount of 150% of
        the
        Stated Value of Preferred Stock outstanding, which is subject to the injunction,
        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
        to the
        extent it obtains judgment. In the absence of an injunction precluding the
        same,
        the Corporation shall issue Conversion Shares or, if applicable, cash, upon
        a
        properly noticed conversion. If the Corporation fails to deliver to the Holder
        such certificate or certificates pursuant to Section 6(e)(i) within two Trading
        Days of 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 3 Trading Days and
        increasing to $200 per Trading Day 6 Trading Days after such damages begin
        to
        accrue) for each Trading Day after the Share Delivery Date until such
        certificates are delivered. Nothing herein shall limit a Holder’s right to
        pursue actual damages for the Corporation’s failure to deliver certificates
        representing shares of Common Stock upon conversion 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.

      

      iii.           Compensation
        for Buy-In on Failure
        to Timely Deliver Certificates Upon Conversion. If the Corporation
        fails to deliver
        to the Holder such certificate or certificates pursuant to Section 6(d)(i)
        by a
        Share Delivery Date, and if after such Share Delivery Date and prior to any
        subsequent delivery of the certificates to Holders the Holder purchases (in
        an
        open market transaction or otherwise) Common Stock to deliver in satisfaction
        of
        a sale by such Holder of the Conversion Shares which the Holder was entitled
        to
        receive upon the conversion relating to such Share Delivery Date (a
“Buy-In”),
        then the Corporation shall pay in
        cash to the Holder the amount by which (x) the Holder’s total purchase price
        (including brokerage commissions, if any) for the 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 price at which the sell order giving rise to such purchase obligation
        was executed. For example, if the Holder purchases 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 aggregate
        sale
        price giving rise to such purchase obligation is $10,000, under clause (A)
        of
        the immediately preceding sentence the Corporation shall be required to pay
        the
        Holder $1,000. The Holder shall provide the Corporation written notice
        indicating the amounts payable to the Holder in respect of the Buy-In, together
        with applicable confirmations and other evidence reasonably requested by
        the
        Corporation. 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 after June 30, 2005 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.

      

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      v.           Fractional
        Shares. Upon a conversion
        hereunder, the
        Corporation shall not be required to issue stock certificates representing
        fractions of shares of the 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 Holder 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 certificate,
        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 Holder
        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.

       

      Section
        7.  Certain Adjustments.

      

      a)           Stock
        Dividends and Stock
        Splits. If the
        Corporation, at any time while the Preferred Stock is outstanding: (A) shall
        pay
        a stock dividend or otherwise make a distribution or distributions on shares
        of
        its Common Stock or any other equity or equity equivalent securities payable
        in
        shares of Common Stock (which, for avoidance of doubt, shall not include
        any
        shares of Common Stock issued by the Corporation pursuant to this Preferred
        Stock or the Series A Convertible Preferred Stock), (B) subdivide outstanding
        shares of Common Stock into a larger number of shares, (C) combine (including
        by
        way of reverse stock split) outstanding shares of Common Stock into a smaller
        number of shares, or (D) issue by 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 treasury shares, if any) outstanding before such
        event and of which the denominator shall be the number of shares of Common
        Stock
        outstanding 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 the
        Corporation or any Subsidiary thereof, as applicable, at any time while
        Preferred Stock is outstanding, shall offer, sell, grant any option to purchase
        or offer, sell or grant any right to reprice its securities, or otherwise
        dispose of or issue (or announce any offer, 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 less than the then Conversion Price (such lower price, the
“Base Conversion
        Price” and such
        issuances collectively, a “Dilutive Issuance”),
        as adjusted hereunder (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 is issued in connection with
        such
        issuance, be entitled to receive shares of Common Stock at an effective price
        per share which is less than the Conversion Price, such issuance shall be
        deemed
        to have occurred for less than the Conversion Price), then the Conversion
        Price
        shall be reduced to equal the Base Conversion Price. The Corporation shall
        notify the Holder in writing, no later than the Business Day following the
        issuance of any Common Stock or Common Stock Equivalents subject to this
        section, indicating therein the applicable issuance price, or of 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, after the date of such Dilutive Issuance the Holder is
        entitled to receive a number of Conversion Shares based upon the Base Conversion
        Price regardless of whether the 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.

      

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      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 Holder shall
        have
        the right to receive, for each Conversion Share that would have been issuable
        upon such conversion absent 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 Holder 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 Designations with the same terms and conditions
        and issue to the Holder new preferred stock consistent with the foregoing
        provisions and evidencing the Holder’s 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 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, 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.

      

      Section
        8.  Forced Conversion.

      

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

      

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      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;

      

      viii.           the
        Corporation shall redeem more than
        a de minimis number of Junior Securities;

      

      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.

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      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, if in cash or in shares,
        shall be due and payable or issuable, as the case may be, 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 (whether in cash
        or
        shares of Common Stock), 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 any
        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 4 hereto; (3) up to $1,000,000 for
        non-equity linked debt financing in the event the Corporation achieves at
        least
        $5,000,000 in contract revenues and an annualized gross profit of at least
        $2,250,000 as of any fiscal quarter of 2005 (as reported in the SEC Reports);
        and (4) an additional $1,000,000 for non-equity linked debt financing in
        the
        event the Corporation achieves at least $7,500,000 in contract revenues and
        at
        least a 45% corporate gross margin for any trailing 12 month period (as reported
        in the SEC Reports).

      

      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.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      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.

      

      

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

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

      

      RESOLVED,
        FURTHER, that the Chairman, the president or any vice-president, the Chief
        Financial Officer or the secretary or any assistant secretary, of the
        Corporation be and they hereby are authorized and directed to prepare and
        file
        an Amended and Restated 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 has executed this Amended and Restated
        Certificate this 19th day of
        December
        2007.

      

      __________________________

      Name:                      Richard
        J. Larkin

      Title:           Chief
        Financial Officer

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      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 B 9%
        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:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}]]